Dissecting Jaitley's first Budget: Does it satisfy the appetite of the IT industry?

Moving in line with Prime Minister Narendra Modi’s stated agenda of giving technology a high priority, Finance Minister Arun Jaitley announced several initiatives to boost the technology space in his maiden Union Budget. In reactions, Jaitley’s Budget has managed to garner support from industry leaders as well as experts, but some still believe the Budget could have done more for the tech industry.

The Union Budget presented on Thursday gave a push to local manufacturing, or at least that was the intent. In his Budget speech, Jaitley announced there would be no special additional duty levied on components that go into making personal computers, which stood at 4 percent earlier. Even CRT tubes; LCD and LED panels below 19-inches as well as components that go into manufacturing LED and LCD TVs will have zero basic customs duty.

The government said it will also impose education cess on imported electronic products to provide parity between domestically produced goods and imported goods.

Jaideep Mehta, VP and general manager at market analyst firm IDC, cheered the move saying, “The duty reduction (from 4 percent to 0) on imported PC components will give local electronics and computer manufacturing a boost; with the electronics import bill expected to exceed the oil import bill by 2025-2028, such measures are urgently needed. The net addition to the manufacturing base, job creation and cheaper PCs are all excellent outcomes of this Budget proposal.”

But on the contrary, Sanchit Vir Gogia, CEO & Chief Analyst at Greyhound Research, explained, “Last year, excise duty on foreign mobile handsets was raised to 6 percent, which is hurting end consumers. There is hardly any manufacturing that is done in the country. Considering that most handsets and electronics goods are imported and now added to is the education cess, we could see prices going up for both mobile phones as well as PCs.”

“Despite the tax hike on imported mobile phones costing above Rs 2,000 last year, even home grown local brands like Micromax still import their products from China. So through this, what exactly does the government wants to do. Do they want global players like Apple and Samsung to come and open their manufacturing units in the country?” asked Gogia.

IDC’s Mehta also agreed and tempered his excitement here, “The education cess on imported electronics, including PCs and smartphones, will challenge consumption growth as it will increase street prices.”

The government also increased FDI in defense to 49 percent, which means not only more equity investments coming into India, but also hopefully technology transfer that will accompany such investments. Gogia though threw cold water on this premise, “Most foreign defence companies do not agree to technology transfer if they do not hold majority stakeholding. So, whether this will work is still a question.”

Jaitley’s Budget also announced a plethora of e-initiatives such as Ebiz initiative, E-kranti, and more, which some see as tech boosters. In NASSCOM President R. Chandrashekhar’s words, “The Ebiz initiative, E-kranti, Virtual classroom, E-visas, Financial Inclusion Mission and many others will help to enhance technology usage in the Indian market.”

“The e-governance programme to interlink all ministries and departments is welcomed. While the details are yet to be made available, this initiative is likely to yield several hundred crores of revenue to the IT industry,” Arup Roy, research director, Gartner India said.

However, Gogia thinks otherwise. According to him, the E-biz initiative could be great news for the vendor community, but not for consumers. “The government should not just think about spending more money, instead they should focus on what they already have and how to utilise that.” He further added, “E-biz platform does need a little bit of prodding.”

Coming to the Rs 7060 crore ‘Smart Cities’ plan, IDC’s Mehta believes it will not just push the frontier of urbanisation in India but also create a new set of markets for tech players across the industry spectrum. “We estimate a minimum of Rs 2,000 crores flowing into the technology sector on the back of this initiative,” Mehta said.

On the other hand, Sunil Lalvani, MD, BlackBerry, India said that M2M technologies would be vital to realise the government’s vision of 100 smart cities. “We believe this is a positive sign that will transform the standard of urban living, as IoT becomes a reality,” he explained.

“The Indian government’s clear focus on addressing urbanisation and building Smart Cities will drive significant investments across hardware, software and services,” added Manish Bahl, vice president and country manager for India, Forrester Research.

But, Gogia called for more clarity on this project, as to what exactly would be a Smart City and what all will go into the making of these cities.

While talking about the FDI in retail and insurance, Gogia felt that while FDI in retail is still unclear, but said that FDI in insurance would open up new opportunities for the tech sector. Sharing similar sentiments, Roy added, “FDI cap increase in defense and insurance sector is a huge positive and has direct bearing on the IT industry.”

When India Inc. was waiting for the speedy implementation of GST, Jaitley said he hoped to bring solution to the Goods and Services Tax (GST) issue this year. On this, Gogia said, “Sometimes commitment is not enough, and thus an action plan is needed to boost the sentiments of industry.”

While Jaitley’s Budget was defined as “a balanced, growth-oriented budget with focus on accelerating on the fundamentals,” by Arup Roy from Gartner, Gogia summed it up by saying, “The budget was not enough to meet the appetite of the IT industry.”

“The ‘Minimum government, maximum governance’ tagline didn’t really reflect in Modi government’s maiden Budget,” he added.