Monday, March 5, 2001		On Hardware

THE reaction to the Budget 2001-02 in the IT-industry is varied. While a few are drooling over its sugary nature, others are taking it with a pinch of salt. We bring to our readers comments from a few IT-industrial houses:

Balu Doraisamy, MD, Compaq: The Budget has been a let down for the hardware industry.

The hardware industry had been looking forward to the rationalisation of tariff with a reduction in excise duty to 8 per cent from the existing 16 per cent and abolition of four per cent SAD. But the drop in surcharge in the present Budget results in a reduction of only 1.8 per cent on finished goods. The impact on raw materials will be a negligible 0.5 per cent reduction.

MAIT’s suggestions that the duty on imported parts and components including items of dual usage be brought down to nil, or that the terminal year for nil duty be extended to 2005 A.D. have not been considered.

The positive impact of the Budget is the mass computerisation of banks promised by the Finance Minister. This will be a good opportunity for the hardware industry, if implemented.

Kumud Goel, Founder, Jaldi.com: Budget 2001 will provide the requisite impetus for e- commerce to take off in India. By cutting down the customs duty on computers and other accessory hardware from the existing 35 per cent to 15 per cent and bringing ISP’s and broadband companies under the infrastructure umbrella, the Finance Minister has built a strong platform from where e-commerce can boom in India. A higher level of PC penetration coupled with the projected teledensity of 3.5 will facilitate the proliferation of the Internet and ensure that consumers are able to make the most of the recently enacted IT Bill to conduct a large proportion of their business via the Internet.

Deepak Ghaisas, CEO, i-flex Solutions: Overall, the Budget presented by the Finance Minister looks positive and certainly takes India forward in its reform process. But like is the case with all Budgets, there is good news and bad news.

The good news for corporates is clearly the:

• reduction in surcharge

• reduction in custom duty on telecom and computers

• reduction in dividend tax

• removal of anomalies on Sec10A regarding revenue from onsite services

• ownership change beyond 51 per cent for companies where public is substantially interested.

The bad news, particularly for the EOU units, is that 25 per cent DTS sale has been brought under the tax gambit. This will work as a disincentive for local IT companies to share the same technologies they export with the Indian customers or it will make these technologies for the local market dearer.

The other worry is that it will create administrative hassles on determining profits arising out of such DTS sales. Service tax sought to be imposed on scientific and technical services and database services probably may bring the software services in the purview of such taxes.

Harsh Singh Lohit, CEO, TechSpan: The Union Budget is a positive one for the Indian industry, and promises to foster growth in the economy in the coming months. The "feel-good" factor should come back to industry with a bang due to the many positive steps proposed by the minister such as reduced corporate and personal income tax due to removal of surcharges, expected reduced interest rates, continued focus on infrastructure enhancement, further easing of foreign investment. These should all lead to Indian industry investing in IT to enhance its competitiveness both for producing goods and services for the domestic market and for exports.

For the information technology industry, the 2001 Budget carries forward the strong support that government has provided for its enormous expansion in the past decade. Specifically,

Mr. Sinha’s clarifications on two key issues troubling the IT industry are welcome. A key imperative to meet the ambitious targets of US $ 80 billion worth software exports in 2008 (from $6.2 billion in 2000-01) is dependant on the long-term and short-term infusion of millions of well-educated knowledge workers. The Budget is sensitive to this supply side issue by providing 100 per cent tax exemption to corporations donating to engineering institutions. Up-gradation of Roorkee to IIT status and expanding the reach of IIT’s is a welcome step but will benefit only a limited section of the affluent populations. The proposed Central Government scheme for IT education for schools and colleges has far-reaching implications, if implemented well. A critical demand-side requirement for creating trained software manpower as well as enhancing the skills of existing knowledge workers is a vibrant and rapidly growing software services market in India. The penetration of computer hardware will continue unabated through lower hardware prices brought about by the removal of 10 per cent surcharge on customs duty and the concomitant reduction of customs duty on IT and telecom products to 15 per cent.

Jawahar Bekay, Co-CEO, Planetasia: The Finance Minister has clearly recognised that the growth accelerator needed to be pushed harder. By not introducing any service tax on the IT industry, or e-commerce transactions, the Finance Minister has sent strong signals that high-growth sectors need to be further nurtured carefully. Tax holiday has been extended and the inclusion of ISPs and broadband service providers would give an impetus to growth for the players in the segment, thus giving a boost to the vital infrastructure. By permitting onsite services by units located in STP’s to be part of IT exports, exempt from Income Tax, the FM has clarified the long pending ambiguity. Further, even non-STP units have been given the same benefit. Further impetus to IT related education has been provided by centrally sponsored schemes. However, the growth in education will not be realised by IIT’s alone, and we will need to broad base the IT education to include other critical institutions such as RECs. Student friendly educational loans will further facilitate higher education in IT.

By further liberalising the Capital account, the FM has made it easier for Indian companies to invest abroad thus assisting in acquisitions.

Manoj Chugh, President, India and SAARC Region, Cisco Systems: This year’s Budget is focused on fiscal discipline and is certainly growth oriented. This is clearly reflected by the Government’s commitment to promote infrastructure investment and continue second-generation reform, which we believe, will definitely have a positive impact on GDP growth rates.

Further, I understand the government’s initiatives to reduce duties in import of IT and telecom products augurs well for both operators and end consumers, due to lower capital expenditure on key Infrastructure. Also, the tax holiday being extended to telecom service providers, ISP’s and broadband players will help trigger the rapid spread of communication networks across the country.

The overall reduction in direct taxes, rationalisation of Indirect taxes and reduction in cost of capital will result in a positive spiral. This will also result in higher investments in information systems and Internet infrastructure.

Arun Seth, MD, India & SAARC, British Telecommunications: It’s great to see infrastructure development at the core of this year’s Budget. This year’s reform oriented Budget is sure to promote growth while strengthening economic fundamentals. From a telecom sector perspective, the reduction of customs duty on IT and Telecom equipment to 15 per cent is a welcome relief. Further the decision to extend the 5 year tax holiday to other sectors in the communications industry such as ISPs and broadband service providers was also much needed. From a foreign investors perspective, the most important announcement in the Budget was the renewed commitment to policy stability and continuation of the reform programme. Also, by allowing increased investment by FII’s from 40 per cent to 49 per cent means that more investment will come in the infrastructure areas if the policy implementation issues for the sector are sorted out.