Indians, especially in the urban areas, have got the taste of Information & Communication Technology (ICT). Thus, obviously the in-land demand for IT & Communication products will increase at its own pace. It is an ongoing race, however, budget 2008-09 could accelerate it further. In the IT service export front too, where appreciation of Indian National Rupees against US$ is a cause of great concern, this budget could have done a lot to satisfy the IT and ITES segment. Reduction in Peak rates of custom duty could be helpful for the importers. Service tax issue will keep small entrepreneurs away from starting and running small Cyber Cafe businesses, where profitability will continue to be wiped out.
In the words of Srinivas, CFO of Perot Systems, “Corporate taxes remaining unchanged would not be a relief to the export industry, especially the IT and ITES segment that’s been hit by the Rupee appreciation and tax holiday going away in the year 2009. There was a lot of expectation around this front. This will continue to challenge the IT and ITES industry which (together) has been a major export earner and the driver for the country’s growth.”
According to a latest study by New York-based Access Markets International (AMI) Partners, “Small and medium businesses (SMBs, or companies with up to 999 employees) in India are set to spend US$9.7 billion on IT this year, up 22 per cent over 2007, due to a boom in the overall economy and a rise in the number of SBs (small businesses, or companies with up to 99 staff).”
Now the burning question is – has the annual budget 2008-09 paved the way? Commenting on the budget, Kris Gopalakrishnan, CEO and MD of Infosys Technologies, says, “In terms of direct taxes the Finance Minister has given significant relief. This will help corporate India reduce wage inflation. Excise duty has been reduced across the board and coupled with the reduction in direct taxes – consumption and production should increase significantly, boosting growth.”
However, he adds, “The budget has not been positive for the IT industry. Smaller companies should have been given tax relief in this budget to counter the impact of a sharply appreciated rupee. The increase in excise duty for packaged software will lead to increased piracy.”
Has the budget been able to satisfy the IT product suppliers? Hemant Agarwal, country business manager of Vivitek Visual Display Products, informs, “Being an IT company, increase in Budget for Sarva Shiksha Abhiyan and Defence should mean increased business potential for us – as these are important market segments for our business. However, no reductions in the peak rates of custom duty – come across as a dampener – as the visual display products fall under the peak rate of custom duty.”
What is the impact of budget on the lowermost IT service providers in-land, in other words, the Cyber Cafe runners and Broadband Services providers? “It is unfortunate that the service tax on Cyber Cafe and Broadband Services have not been removed, nor has the duty on PCs and laptops been brought down further. These would have been positive measures to spur the growth of PC and Internet penetration and use in the country at a time when we are faring very poorly compared to even other developing countries,” opines MP Vijay Kumar, CFO of Sify Technologies.
How will the budget help the small and medium enterprises in retaining talent? Raja Gopalan S, vice president (finance) of Microland, says, “For IT Industry the budget has been disappointing. When confronted with adversities like rising Rupee, economic slow down and Talent retention issues, the industry was looking at least for continuation of section 10A benefits in some modified form, and moderation of FBT on ESOPs etc. The denial will make the industry, more particularly the Small and Medium sized companies open to significant market challenges.”
Thus, the wheel of IT industry will continue to roll on its own or with the pull from the users, who energetically feel the need for IT. Union budget 2008-09, has given no impetus to the IT industry – at least for the short run.