Union Budget 2013-14: Marginally Encouraging For IT

The IT industry was hoping for the discontinuation of MAT on SEZs and a rollback on the hiked service taxes, but Mr. Chidambaram failed to deliver. Even where bold pronouncements were made; it was disappointing to not see any statements on what the government would do to ensure mechanisms/oversight to ensure speedy and efficient implementation of these programs.

Here are some reactions on the Union Budget 2013-14 from industry stalwarts:

Jagdish Mahapatra, Managing Director, McAfee India & SAARC:

Overall, the Union Budget for 2013-2014 is a realistic one hinged on growth and development oriented expenditure. The focus on technology infusion in agriculture and provisions regarding MSMEs will spur the growth of the economy in the right direction. The budget highlights the need for public sector banks to be compliant with BASEL3 norms which underlines the need for having a robust and connected security framework which can help banks comply with such regulatory norms.

From an IT standpoint, this is a marginally encouraging budget. We were hoping for the discontinuation of MAT on SEZs and apportionment more grants to ensure secure data access which hasn’t been considered. The other disappointing aspect is the surcharge for MNCs in India has increased from 2-5 percent, if the taxable income exceeds Rs. 10 crore. On the other hand, the incentives to semiconductor wafer fab manufacturing facilities along with provisioning zero customs duty for plant and machinery is quite positive. In a nutshell, this is only a marginally encouraging budget from an IT industry perspective.

Partha Iyengar, Country Manager - Research, India, Gartner:

The big overarching focus on growth by the FM is the fundamental ‘feel good’ factor in this budget. Given the fact that one can argue that a lot of the weakness in the Indian economy is what I call a ‘sentimental recession’, his strong statement that there is no grounds for ‘doom and gloom’ heading into the new year. The big specific positives of the budget are that he has focused both in terms of the letter and spirit of the budget on the key planks of growth for India and health of every industry, including IT, which is Infrastructure, Education, Skills Development, and incentives for the growth of domestic manufacturing. Some of the other positive areas are support for entrepreneurship, the MSME sector, both in terms of financial and overall support. The recognition that the overseas ‘trust deficit’ in terms of a comfort level on India’s investment climate has to be addressed is also welcome.

HOWEVER, the budget is only a directional statement, and the challenge for India historically and even currently is in the execution of the statement of intent outlined in the budget. This has been India’s Achilles’ heel, in that bold pronouncements in the budget never see the light of day or are not implemented as effectively as they can or should be. So it was disappointing to not see any statements on what the government would do to ensure mechanisms/oversight to ensure speedy and efficient implementation of these programs.

Debasis Chatterji, CEO, Netxcell Limited:

I feel that the budget is on the expected line and there is no surprise. On macroeconomic front Finance Minister has proposed the reduction of fiscal deficit to 4.8 percent which will be big challenge keeping in mind the non-plan expenditure of Rs. 11.1 trillion. On government revenue front, enhancement of surcharge on corporate income tax from 3 percent to 10 percent for a turnover of more than Rs. 10 crore is a dampener. As such there are no benefits to boost telecom sector. On the contrary, enhancement of excise duty from 1 percent to 6 percent on mobile phone, costing more than Rs. 2000, is going to make smartphones more expensive. Smartphones are needed to experience 3G and 4G, so with this price rise subscribers in tier 2 and 3 cities and upcountry will fill the pinch to buy smartphones to experience 3G and 4G.

We have to wait and watch how this budget is going to generate employment and growth while keeping inflation under reasonable control

Ramesh Loganathan, Vice President Products and Center Head Progress Software:

In my view this budget is more of sustainable medium-term substance rather than short-term considerations’ driven. I am particularly impressed with the thought that has gone into helping foster a Start -Up ecosystem. Though small steps, they are two strong signals in the budget that forebode very well for the next few years’ budgets. One is the stipulation that allows corporate support for academic incubators to qualify for the mandatory Corporate Social responsibility that is now in place. And the second is the clarification that angel investors, which are not yet categorised by the regulator, will be now clubbed with venture capital or social funds. The former will hopefully spur a surge in corporate providing financial support to academic incubators, which will in turn accelerate the growth of new technology start-ups that leverage IP and innovation. The latter, removes a major ambiguity introduced in last budget that treated angel investment as income to the startup and therefore taxable which was a major deterrent for angel investments. Both of these will significantly help boost the early stage startup ecosystem.

A related element in the budget is the SIDBI’s re-financing facility to benefit micro small and medium enterprises (MSMEs); which will now be an alternate source of funding for startups also- which given their size qualify as MSME.

Directly relating to the IT industry, the strong support provided for semi conductor segment is a good thing. The incentives for semiconductors industry including zero customs duty on plants and machineries, and the 15 percent investment deduction allowance introduced for investments of Rs. 100 crore or more in plant and machinery is appreciative

A slight disappointment to the IT industry is the lack of any new stipulations clarifying the transfer-pricing computation which is an issue the industry has taken up with IT authorities and finance ministry for a few years now, to ensure more transparency and clearer guidelines on how this is treated and computed.

Overall, I am quite happy with the budget this year it reflects in many ways the maturity of our economy and the policy framework.

Suman Reddy, Vice President and Managing Director, Pegasystems:

The overall budget was an attempt to increase investments both domestic and foreign and also increase the revenue by raising the tax implications. Though the finance minister acknowledged the challenges in bringing back the economic growth to 8 percent, but there were no specific policies and decisions announced which could allow us to grow at that rate. This budget did not quite answer the expectations of the industry at large as there were no major policies or reforms announced.

From the IT sector’s perspective, we had high expectations from this budget to have some clarity on the transfer pricing and hoped for a structured framework in terms of policies for long term growth of the IT sector. We also had expectations on the infrastructural incentives for early stage startups. Most of these were unanswered in this budget. However the announcement of providing extended benefits for MSMEs upto 3 years of them graduating to a higher category is commendable. Also the policy implementation for considering private sector involvement in a certified institutional incubation center as a CSR activity is appreciated. On the other hand this budget lacked clarity on investment related policies. Though the finance minister mentioned in his speech, the objective of India being recognised as a country favorable for business and acknowledged the areas of concern such as easy policies and simplified regulations to achieve these objectives, there were no definite policy decisions taken on the same which was disappointing. Also there was no clarity on the policy framework for bringing in the FDI and FII

N. Chandrasekaran, CEO & MD, Tata Consultancy Services:

The FM’s intentions are very clear: to move India back to a higher growth plane. And given his lack of runway, he has taken lots of small measures which together could boost growth. From a technology perspective, allowing funding for technology incubators located within academic institutions to qualify as CSR expenditure as per new companies Act will give a huge boost to entrepreneurs and start-ups and increase the engagement of the corporate sector and start-ups.

On the taxation front, removing double taxation on dividends received from overseas arms will reduce the burden on shareholders. From the perspective of the IT industry, the clarifications on taxation rules regarding development centers and safe harbor rules are very welcome as are measures to drive skill development, with a special focus on Tier II and Tier III towns.

Overall it would be safe to say that with this budget we have started our climb back to higher GDP growth levels.

Sujit Sircar, CFO, iGATE:

The budget has nothing interesting to look forward to. With the economic climate demanding high-voltage reforms and measures, this budget prefers to stay conservative and indecisive. For the IT industry too, there is nothing to feel happy about. We would have liked to see our wish-list being addressed. However, the FM has chosen to remain calm and keep things unchanged than take any aggressive steps to fuel growth.