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Beyond the Tinman Syndrome

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DQI Bureau
New Update

Ajai Chowdhry



chairman and CEO


HCL Infosystems

In the Software segment, the acquisitions and mergers would definitely

get a fillip as will the onsite services have been given income-tax

benefits under Sections 10A/10B. This would support our global Software

Services business. Increased commitment from the government for use of IT

and IT consumption in the government departments and banks will help our

software and hardware businesses.

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For the past few years, Indian Budgets have been plagued by the Tinman

syndrome. Try as the finance minister’s office might, the rust of coalition

governments has always managed to adhere to the cup of budgetary promise, from

which are expected to cascade a gurgling stream of pro-reform and get-rich-quick

proposals. The result–a gooey mix of half-directed measures that come out

thick and slow, cloaked in the viscosity of political compulsions. This time

around, though, Yashwant Sinha has tried to pull off the proverbial rabbit act–while

the true impact of some of his proposals will be felt only with time, the gurgle

can be heard loud and clear.

Rajendra S Pawar



chairman, NIIT

Strong enablers for higher education in the form of loans and 18% higher budget allocation for education will go a long way in developing a large skilled manpower pool.

Initiatives to grow all integral parts of the burgeoning IT industry–hardware, software and telecom–will need a continuous support from the government.

Customs duty on IT and telecom products has been slashed. Profits derived by

units located in STPs from "on-site" services are eligible for

deduction. Transfer of ownership of companies with public interest component

will not attract income tax. Five-year tax holiday and 30% deduction is to be

reintroduced retrospectively for new units. Concessions for ISPs and broadband

networks and MNCs have been unveiled. Indians with ESOPs in MNCs can invest up

to $25,000 annually overseas. IT education gets due prominence. Companies can

acquire shares in foreign units up to $100 million, or an amount equivalent to

ten times their exports in a year. The list goes on…

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But there are the glitches as well, from the industry’s point of view. The

government has certainly missed the bus as far as its golden chance to finally

do something about the hardware sector goes…there are next to no benefits for

hardware companies, and nothing has been done to push hardware usage or exports.

Without any major changes in duty structures, about the only silver lining for

hardware players is increased spending from the government itself. The abolition

of the 10% surcharge on customs duty will not have much of an impact on prices.

Price reductions will barely be 1-2%, a far cry from the 25-30% reduction that

the market expected.

Dr Nirmal Jain



managing director, Tata Infotech

It is an excellent and positive Budget. The Budget is in the right

direction as the reduction in duties on the IT products and the decision

of the government to computerize the government offices will give impetus

to the domestic market. The focus on education is commendable as it will

also give a boost to the IT industry.

Perhaps Nasscom president Dewang Mehta sums up the Budget proposals for the

IT sector best. "Overall, the Budget has been growth-oriented and conforms

to the aspirations of the IT industry. The industry will be able to reach a

target of $6.24 billion in exports this year. However, there is some

disappointment in the imposition of service tax and DTA sale, and we will have

to closely examine the implications of this on domestic IT-enabled

services," he said. The hardware sector can now only wait for the Exim

Policy and hope that proposals therein will being in some relief.

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Vinnie Mehta



director, MAIT

The increased government spend on IT is very encouraging and will help

to dispense the depressed market sentiment for IT sales.

However, the market growth will not be price-cut led as there will be

only a marginal drop in prices of servers and other fully imported

high-end IT products. The gray market will continue to grow unabated as

local levies continue to remain high.

Not many have cribbed that excise duties have not been brought down, as was

expected. Answering on a chat session a day after the Budget, Sinha said:

"I have not done it for the simple reason that we have settled for a single

rate of excise. I have rationalized the structure and put in a single rate

instead, while reducing some customs duties. All products of IT have a maximum

duty of 15% and we bring them down to 0% in the next two years."

The exemption for on-site services from income tax under Section 10A/10B and

80 HHE of the Income Tax Act is a major announcement, one that should see needed

succor being extended. On-site services constitute over 60% of the revenues

generated from software exports and in 2000-01, of the projected $6.2-billion

software exports, almost $3.7 billion are expected to be through on-site

services. Viewed in this vein, and coming as it is with retrospective effect

since last year, the new provisions will see these units show neatly fatter

bottomlines.

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Avtar Saini



director, south Asia Intel

The Budget presented is forward looking with focus on infrastructure,

education. It is a manufacturer of reforms considering the proclamation of

computer networking and discipline in government offices.

The directives to increase IT spending in the departments with large

public interfaces is very encouraging.

Two-way fungibility is the other significant positive for the IT sector. ADRs

and GDRs will be provided two-way fungibility, meaning that converted local

shares may be now reconverted to ADRs and GDRs. This will be particularly

welcome for Indian software companies listing on the NYSE and Nasdaq as this

will increase ovearseas investor confidence. Also, investment in the ISP and

broadband segments of the market will get beefed up thanks to the 100% tax

holiday for startups.

Similarly, necessary impetus has been given to the education sector, with

provision for a new IIT and upgrade of other regional colleges to that status.

The education loan scheme formulated by the Indian Banks’ Association will

give students access to quality education and help India achieve its targets for

skilled manpower generation. What remains to be seen, in the long run, is

whether these professionals service Indian requirments or seek  their

forturnes overseas.

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The other good news is that status quo has been maintained on some key

fronts. Industry concerns on the issue of taxes on e-commerce transactions have

been unwarranted as the concessions that Sinha had given to the software

industry in the past years have not been withdrawn. Keeping e-commerce

transactions out of the tax net is also a major plus which will result in a

growth of e-commerce activity in the country.

As has been the case for some years now, software and e-commerce continue to

be the real IT darlings for the finance minister.

Rajeev Narayan in New Delhi

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