domain-b.com : Budget reactions

Budget for IT fraternity was mixed. The big plus was the excise duty on computers was reduced to zero. That will benefit the firms, individuals and give a boost to e- governance. Second, the increase in foreign direct investment (FDI) for telecom and aviation will strengthen infrastructure. More FDI can be expected in these sectors.

The minus was no mention on education about training. Foreign firms set up base in India because of the manpower availability. I was expecting more liberalisation in setting up of educational universities. We need to attract both private and foreign investment in education and train our manpower. That was missing.

This is a positive budget. It aims at triggering growth in key sectors like food and agriculture. Indirectly, this will help the manufacturing sector too over the next few years.

For the IT sector, we have no complaints. In fact, we welcome the abolishing of excise duty on computers. This will make Indian industry automate faster and will, therefore, enhance our efficiencies in business several-fold. The cess of two percent for education on all taxes is definitely understandable and is in the larger national interest.

Puneeth Punja and Kobita Desai
Principal analysts, Telecom, Gartner

1. Investments are made on the basis of business viability and growth potential. India's telecom sector has shown good growth with mobile growth as the highest in the region. Network expansion is the growth driver of India's telecom sector. We see this as an important enabler to rural telecom development and increased push towards services beyond voice communications.

2. Size and volume will increasingly matter. Consolidation and restructuring in the Indian cellular industry is ongoing. Operators will expand their presence through acquisition rather than operational partnerships. Options in the domestic market may not be adequate. The rise in FDI cap will encourage and ease foreign investment in this high growth sector at this stage where large funds are required.

3. Excise cut in specified capital goods for manufacture of mobile phones is likely to send out positive signals about making India an investment destination.

4. Reduction in raw material for OFC will benefit manufacturers. Expect them to pass on the benefit in terms of lower prices to carriers who are actively extending their backbone infrastructure.

5. Extension of tax benefit to carriers till March 2005 works in favour of carriers.

6. Increase in service tax is likely to increase the phone bill and increase the burden on consumers.

Partha Iyengar
Research vice president - applications development and IT services, Gartner

Prior to the budget there was great uncertainty surrounding the IT industry emanating from drastic measures like taxation, this would have had a severe impact on the industry. To give you a sense of the hysteria that existed in key markets, players were evaluating measures like pulling out of the Indian market and weighing up their alternatives.

However, with the unveiling of the budget it is clear that no radical policies will be implemented. As a matter of fact, the positive steps to boost the IT industry are definitely a welcome move. The market was looking for reassurance and this budget has delivered it.

According to me this is a mini dream budget, considering the challenges it was formulated under, like the coalition government and paucity of time, this is a masterstroke by Mr Chidambaram, truly worthy of praise.

"The budget will give a big boost to the economy and investments, which is very good for the country at this juncture. Higher outlay on infrastructure will create direct and indirect employment in the country and further make India an attractive destination for investment. The focus on education is a very important step that will enable India gradually becoming a global back-office."

Ashish Bakshi
Country head - India operations, BenQ
"As an active player in the digital lifestyle space with an aggressive focus in the mobile landscape, two developments in the telecom and computer sectors are especially positive for us. Falling computer prices and the resultant PC penetration will lead to an increased demand in peripherals such as LCD monitors, keyboards, mice - this is especially beneficial for a company like ours with diverse offerings in these product categories. Also, the FDI boost in telecom augurs extremely well for us since this will keep up the momentum that the country has been witnessing in the wireless landscape."

About the Budget in general
The budget was in line with expectations. It's a balanced budget, focused on both growth and development. However, the implementation of fiscal management would be critical as revenue growth will have to be commensurate with proposed increases in planned expenses.

What it holds for the IT sector
No specific changes have been proposed on the taxation of the IT services sector which is welcome. The steps taken to boost the local IT industry are extremely well received, leading to the downward direction of hardware costs and boosting growth in this sector. From the investment point of view, we see a possible growth in FDI investments.

The proposed Budget for 2004-05 focuses on growth and development. The government has rightly identified the telecom sector as a key sector that will drive growth.

We welcome the proposal to raise telecom FDI to 74 per cent from 49 per cent. The telecom sector is among the top FDI destinations in the country. Going forward, estimates indicate that to scale up the telecommunications infrastructure to global standards, the sector will need investments of upto $8 billion. Despite the 40 per cent growth in telecom sector, India needs to do a lot, particularly with respect to teledensity, Internet usage and convergence.

Convergence issues have not been addressed. Convergence of telecommunication technologies needs to be addressed in the context of promoting social, political and economic goals. From a technology point of view, convergence is no longer a question about what will be possible in the future. It has already become a reality. In several countries including India, triple play - TV, telephony and Internet access - over one medium such as terrestrial (cable, fibre or wireless) or satellite is not only possible but also widely prevalent.

The FM mentioned the need for thought and passion in governance - and his proposals reflect that, by encouraging investments across all key sectors of infrastructure, industry, agriculture as well as services.

Cisco specifically welcomes the proposal to increase telecom FDI to 74 per cent. The move to abolish duties on PCs as well as the rationalisation of duties on telecom infrastructure is positive. These initiatives are expected to drive demand within the economy and help further improve business productivity.

However, the FM has restrained supply by keeping peak rates of customs duty constant, even as he mentioned that the duty rates need to come down to the ASEAN levels in the future.

For overall growth, both the demand and the supply sides should have been provided the right impetus.

The Indian budget has thought and passion. Now, it is for the government to follow through and implement; and for the market to invest.

In Union Budget 2004, the finance minister has preferred to rollout initiatives that address socio-economic imbalances that exist across income groups and regions rather than initiating reforms focused on the corporate sector. However the steps being undertaken to boost infrastructure development and education as well as simplifying FDI in the country will enhance India's long-term competitiveness and ensure that 'India shines' in the eyes of foreign investors.

For the IT industry, the removal of customs duty on computer hardware will act as a catalyst spurring growth of the domestic IT hardware market and in effect turn PCs into household devices that further home education and small businesses. Further, keeping in mind the estimated gap between demand and supply of trained IT manpower, the focus on enhancing technical education by upgrading ITIs is a small but welcome initiative which the finance minister would do well to build on.

Union Budget 2004 - incentives that will make PCs household devices
AMD welcomes the Union Budget 2004 - the finance minister has presented a forward looking budget that provides a big impetus to the Indian hardware industry by bringing down the cost of IT hardware and creating a larger domestic market by identifying technical education as a thrust area.

By abolishing the excise duty on computers (from 8 per cent to 0 per cent), the finance minister has significantly reduced the cost of owning a personal computer and I expect this to act as a trigger for the large scale proliferation of PCs, turning them into common household devices. Additionally, the incentives announced for developing low cost IT infrastructure and upgrading technical education standards across the country should also spur growth of the domestic hardware industry.

"The absence of 8 per cent excise duty on computers will definitely affect our business in a positive manner. It will strongly aid the penetration of PCs. Since UPS are a derived demand, we expect similar growth in UPS units. The budget looks balanced and pro-growth and the future does look good."

From a telecom perspective, this year's budget reflects the government's focus on telecommunications as a key infrastructure sector and its efforts to provide impetus to one of India's fastest growing industries. The initiatives to raise the FDI limit and exempt MSCs from import duty are a welcome move and will help mobilise much-needed investments and drive down the cost of telecom equipment, further accelerating overall growth in the sector. These initiatives will supplement the operators' efforts to build telecom infrastructure across the country and provide affordable services to the masses and help India move quicker towards becoming a wireless dominant country.

General outlook
"A very different and extremely positive budget. The priorities of some of the core necessities, which will be essential for the achievement of Vision 2015, have been extremely well spelt out. The availability of credit in the rural, banking / cooperative sector will boost demand for all products including ours. The decision to upgrade 500 ITIs at 100 ITIs every year will create new technology for all IT products such as computers and create a more empowered workforce for tomorrow. The housing of an international container terminal at Kochi will benefit companies like ours, as it will offer quicker turnaround and more economical logistics for our products. The reinforcement of the decision to impose VAT from April 2005 is a welcome decision; it will need a strong IT backbone. The raising of FDI cap in the telecom and insurance segments specifically will definitely lead to growth in these segments, both of which are traditionally Acer's strong customer base."

Specific to the IT sector
"Considering that the government is set to adhere to the April 1, 2005 decision to abolish customs duty on all IT-related imports, the decision now to abolish excise duty is definitely a healthy sign to encourage local manufacturing. However, the impact on end user price points cannot be commented upon yet, as we await clarification on CENVAT credit on account of CVD paid for imports of components."

"We welcome the government's decision for restoration of water bodies as a measure to address the impending water problem. Our experience with the lakes restoration project in Bangalore last year has proved that cleaning and desilting of large reservoirs improves catchment and water storage capacities. We will leverage the central government initiative and offer our experience and expertise in the desilting and restoration of the national water bodies."

David Friedman
Managing director and president, Ford India

The budget has a broad based focus on important issues like agriculture, education and infrastructure that would give momentum to economic growth and development in the country.

We are heartened that the finance minister has recognised the auto industry as a key contributor of growth and has provided incentives for research and development (R&D). He has renewed the imperative of the government towards fiscal reforms. We are pleased that the implementation of value added tax (VAT) was reconfirmed and do wait for further rationalisation and reforms in the next budget announcement seven months from now.

Sudhir Valia
Whole-time director, Sun Pharmaceutical Industries Limited

While there is nothing specific for the sector, the increased spend on rural healthcare may have a trickle down effect on the pharma sector. The tax holiday for biotech and the increased emphasis may benefit companies in this area, whereas the pharma sector, which has shown global skills in process and product development, has been ignored. None of the demands related to creation of intellectual property or innovation have been considered. The increase in service tax, the expansion of the service tax, and the educational cess on all taxes will impact margins.

IT bullish on budget

Sajeev Nair
Mumbai

The Information Technology sector heaved a sigh of relief on discovering that the union budget neither touched the existing tax structure nor imposed any turnover tax as feared. Moreover, an exemption of the existing eight per cent duties on computers was a much needed relief to the industry, which would benefit the industry in the long run.

IT firms welcomed the Budget, terming it as pro-industry, even though they were quick to add that the finance minister has not gone overboard in providing any kind of sops.

Computer hardware-maker Zenith Computers chairman and managing director Raj Saraf said the exemption of duties in the budget would make computer more accessible to consumers and added that the complete waiver of the excise duty would result in a definite drop in personal computer prices by around 10 per cent.

Saraf added that the budget would help in underlining India's position in the hardware sector also.

According to BPO major Aftek Infosys Ltd chairman and managing director Ranjit Dhuru, the budget has not disturbed anything, contrary to the fear of an imposition of turnover tax.

"This is a positive budget and not a populist one as the finance minister has not gone overboard in giving any kind of sops," he said.

The exemption in customs duty for computers would result in a reduction in cost to Business Process Outsourcing (BPO) companies, with many of them opting for either replacement or upgradation of their equipment, he said.

The Manufacturers Association for Information Technology (MAIT), which had proposed an eight per cent excise duty, on all IT products has hailed the exemption of duty on personal computers.

"This will help in abolishing the grey market and provide IT products on a competitive pricing. We believe that this will help in improving IT penetration in the country," MAIT executive director Vinnie Mehta said.

This would also increase the use of IT peripherals as their purchase goes had-in-hand with that of a PC, she added.

Software ad services major Infosys Technologies Ltd chief executive officer, President and managing director Nandan Nilekani said abolition of excise duty on computers would help education and improve productivity.

"Overall, it is a good budget considering the time constraints, the government had to formulate it," he said, even though NilekaNi was of opinion that much was not done for the infrastructure development.

Software firm Patni Computers chief financial officer Deepak Sogani, said the budget in general would help IT exporting companies, as the finance minister has emphasised on Special Economic Zones as catalysts to growth.

The exemption of duties on computers would result in a fall in hardware prices, he said, adding, "this is a positive step for the hardware industry, while the benefits would also be reaped by the software sector."

Acer India managing director W S Mukund said: "The government is set to introduce value added tax (VAT) from April one, 2005, which, in turn will abolish customs duty on all IT-related imports,"

The decision to abolish excise duty is a healthy sign to encourage local manufacturing, he opined.

The sentiment was also mirrored by AMD Far East and India (country manager) Sanjeev Keskar, "The Budget provides a big impetus to the Indian hardware industry by cutting down costs of IT hardware, apart from creating a larger domestic market by identifying technical education as a thrust area."

He also said that the new duty structure would act as a trigger for the large-scale proliferation of PCs turning them into common household devices. AMD is a processor maufacturer.

Ajai Chowdhry, chief executive officer and chairman, HCL Infosystems, said: "This will help the organised sector in making more investments in manufacturing. We can look forward to increased PC penetration, as PCs will now become more affordable."

R Manikandan, product group head (IT Products), LGEIL considers the budget to create a rapid swift towards the branded market, there by reducing the gap with the assembled market.

"Few more clarifications are required to be addressed in terms of whether the excise and CVD for stand alone products will continue to remain to be 16 per cent," Manikandan said.

Datamatics Ltd chairman and managing director L S Kanodia mirrored the industry opinion that sector was left untouched and added that the cost of hardware would come down.

"It is too early to say how much reduction in prices would be, as the duties are not uniform and vary from sector to sector," he said, adding, it is only being calculated, and would take some time to attain a final result.

Hardware manufacturer PCS Industries Ltd director H C Tandon said the duty exemption of personal computers was the need of the hour, which would result in a price reduction of personal computers.

"As part of the industry, we have been lobbying for the same since a long time and we are happy that this has been granted under this new regime", he said.

Zero excise duty would rapidly fuel demand for computers and affordability leading to enhanced market penetration for personal computers, he said.

i-Flex chief executive officer Deepak Ghaisas said the excise duty exemption for computers would result in an additional demand for both hardware and software, including core-banking solutions.

Software major zenith computers chairman Ganesh Natrajan said the budget was pro-agriculture but would not make much difference to the services sector.

He said there were no specific initiatives for the manpower, but the excise duty cut on computers would increase usage.

"Most of the manufacturers are expected to pass on the benefits to customers, which would result in computers becoming more affordable," Gartner India research analyst Vinod Nair said.

However, there is an ambiguity as it is not clear whether the exemption would be extended to other hardware parts, including monitors and keyboards, he said.

IT education and training major Aptech Ltd expects the exemption would help in more computerisation, while the cess would go a long way in improving educational segment.

Providing of education loans of around Rs 7.5 lakh without collateral, would also help the IT educational sector, which is on an upswing, Aptech chief executive officer Pramod Khera said.

Software products major Opus Software Solutions Pvt Ltd managing director Ramesh Mengawade said, "Good news in the Budget for IT industry is the continuity of favourable policies of previous government."

"Abolishing excise duty on computers, long term capital gains tax exemption and emphasis on education through surcharge on tax are good measures. These will fuel growth in domestic IT market and generate larger pool of IT talent which are important for the growth of IT product companies in India," he added.