Budget 2012 disappoints Indian IT

While some measures that leverage IT for effective implementation of government delivery programs welcomed, industry expresses general disappointment new budget not focused on driving economic growth.

NEW DELHI--The Union Budget has failed to address key concerns of India's IT community, barring measures such as big public spending on some nationwide projects, leaving little for the industry to cheer about.

Presented by India's Finance Minister Pranab Mukherjee in Parliament on Friday, the budget did not have any major items on the wish list of IT market players.

Partha Iyengar, Gartner's India vice president, distinguished analyst and regional research director, described the budget as "political" with very little in the way of reforms to drive economic growth. The research firm gave it a 3 rating out of 10.

"In the current economic climate, the budget seems to be focused on not upsetting anyone, (read: political 'allies') too much, by not trying to please anyone too much," Iyengar said.

Rajdeep Endow, managing director of Sapient India, coined it an "average" budget. Noting that it had presented an opportunity to move the needle on growth and investment, he said the Indian government instead chose a "safe" budget.

Hanuman Tripathi, group managing director of Infrasoft Technologies, added that Mukherjee had announced "no benefits" for businesses and with the global downturn, the IT sector needed some benefits to boost the segment.

The National Association of Software and Services Companies (Nasscom) also expressed disappointment, calling it a "lost opportunity" for the Indian economy. The trade body for India's IT-BPO (business process outsourcing) industry said in a statement: "Budget 2012 is disappointing on various counts. There is no focus on putting the economy on a high-growth trajectory; fiscal deficit reduction is through higher taxation, rather than expenditure management; there is no roadmap on implementation of the Direct Tax Code (DTC) and Goods and Services Tax (GST); and also issues of tax simplification, litigation have not been addressed.

However, the Manufacturer's Association of IT Industry (MAIT) welcomed the allocation of 10 billion rupees (US$199.4 million) for the National Skill Development Fund as this would help bridge gaps in skillsets. Sabyasachi Patra, executive director of the industry body which represents the country's ICT hardware, training and research services sectors, said in a statement "Setting up a Credit Guarantee Fund to improve flow of institutional credit for skill development will also be a good move as it will help in acquiring specific skills by individuals."

Increase in tax burden may lead to higher prices
The IT industry was hopeful of revisions around the minimum alternate tax (MAT) on special economic zone (SEZ) as last year saw investments in SEZs dip. "Amendments toward this end would have helped the industry create a conducive environment to attract both local as well as foreign investments into the country," said Sanjay Deshmukh, area vice president for India subcontinent, Citrix Systems India.

Instead, the government increased service tax and excise duty from 10 percent to 12 percent in order to generate additional revenue. India's IT industry believes this would increase input costs, fuel inflation and lead to further slowdown in economic growth.

Samsung India expressed concerns over the rise in excise duty. Mahesh Krishnan, its vice president of home appliances, said: "The budget does not bring any relief to the consumer electronics industry which has been reeling under the impact of rising input costs and rupee depreciation in the recent times. The rise in excise duty may lead to an increase in prices of consumer electronics products."

Ashutosh Prabhudesai, controller and director finance at Fujitsu Consulting India, suggested the increase in excise duty and service tax could have been accompanied by a reduction in corporate tax rates, which did not materialize.

In addition, several provisions related to withholding tax, international cross-border transactions and GAAR (General Anti-Avoidance Rules) have been introduced in the budget, which Nasscom noted would bring further complexity.

The government also announced a US$1 billion venture capital fund for MSME (micro, small and midsize enterprises). "While this is welcome, it is far too little," Nasscom said. It recommended the need for a reduction of tax deduction at source (TDS) for SMEs and introduction of non-profit linked incentives--both of which had no mention in the budget.

Leveraging IT for govt schemes
The budget did include plans to extend the Unique Identification Authority of India's (UIDAI) Aadhaar-enabled payments for various government schemes, in at least 50 selected districts within the next six months.

Under Aadhaar-enabled payments, subsidies are directly transferred into the beneficiaries' bank accounts. According to the finance minister, the Aadhaar platform is now ready to support payments of the Mahatma Gandhi National Rural Employment Guarantee Act; old age, widow and disability pensions; and scholarships.

The government, to date, has enrolled 200 million persons under UID initiative and has adequate funds to enroll another 400 million Aadhaar cards, according to Mukherjee.

MAIT welcomed this move as it would lead to financial inclusion through various government schemes.

The budget also unveiled a mobile-based Fertilizer Management System (FMS) designed to provide information on the movement of fertilizers and subsidies. This would be rolled out nationwide across 2012.

"This is a welcome move as it will cut down leakages in disbursements of subsidies and will increase the purchasing power in the rural areas," MAIT said.

Swati Prasad is a freelance IT writer based in India.