IT industry unlikely to get special sops

IT industry unlikely to get special sops

It will be a populist budget with a focus on agriculture, manufacturing and infrastructure, and the IT sector may not get any special attention

Priya Padmanabhan

Thursday, February 21, 2008

BANGALORE, INDIA: If the budgets of the past two years are any indication, the IT industry would do better than to expect any incentives and concessions coming their way.

The 2007 budget brought with it some disappointments for the IT/ITES sector. Introduction of MAT, increase in dividend distribution tax and FBT on ESOPs came as negative surprises to the sector.

Union Finance Minister Palaniappan Chidambaram also ignored the industry's pleas for an extension of the STPI tax holiday.

The industry has been pushing for an extension of the tax holiday available to software and ITeS (IT enabled services) exporters registered under the STP (software technology park) scheme beyond the year 2009, to bring the tax benefits on par with those available to SEZ (special economic zone) units.

Last year's budget was focused more on overall growth in sectors like agriculture, healthcare sector and education. While the mantra of "inclusive growth" was on the agenda, there did not seem to be any willingness to take radical steps to reform and improve the basic sectors. And so the FM's platter featured bland fare that failed to impress any sector.

However, the saving grace for the IT sector and the public at large last year was the importance given to e-governance projects. The Central Government allocated Rs. 200 crore towards e-governance projects.

Another welcome move for the IT industry came in the way of Rs. 33 crore for a new scheme to promote manpower development for the software export industry.

But these were not enough to satisfy the industry. This being the election year, the general feeling of India Inc is that this year's Budget would be a populist one.

India Inc.'s view

A survey by the Indian industry body Assocham recently involving 200 CEOs on budget expectations threw some interesting pointers.

Majority of CEOs felt that Budget 2008 would favor the Aam Aadmi (common man) than the industry.

Most CEOs think that there would be higher budgetary spend to ensure growth of sensitive sectors like agriculture, education, health, defence and manufacturing.

Around 85 per cent felt that the forthcoming parliamentary and assembly elections would mean that the FM would not provide fiscal concessions to India Inc.

Over 90 per cent of CEOs felt that Chidambaram is likely to effect a balancing act in his budget proposals to appease Indian industry and that there would not be any additional cess levied.

CEOs expect that in order to maintain India's growth momentum, the Government could collect more revenue needed to improve infrastructure, agriculture and hike subsidies for sectors such as food, fertilizers and petroleum by nearly 10 per cent.

Around 270 CEOs don't expect any considerable decline on customs duty rates as the government may defer some of its obligations towards WTO in a bid to spur revenue collections.

Assocham members have urged the government to ensure 15 per cent manufacturing growth and to keep inflation at 5 per cent over the next 10-15 years; also to give manufacturing industry ample incentives to enable them to regulate prices by making supply side management stronger.

Given the slowdown in manufacturing sector and also in the non-food credit sector from 30 per cent last year to 20 per cent this year, the FM's priority would be to ensure that these sectors get a boost.

In a recent pre-budget interview, Chidambaram was of the view that the industry and the services sector needed to sustain high growth rates, as a four per cent growth in agriculture alone would not help achieve ten per cent economic growth.

In the wake of US slowdown, international prices of crude soared to unprecedented levels forcing the government to go in for a marginal hike in fuel prices even before the presentation of the budget.

With many such concerns weighing on the continuation of Indian growth story, the FM's priority would be ensure a balance of growth and populist measures.

With the Indian IT exports growth showing strong stability in the last four years, perhaps the thinking is that it could propel forward on the strength of its own momentum and no longer needs any incentives to foster growth.

So, this year too it is unlikely that the IT industry would receive any special sops or tax holidays.

cmn@cybermedia.co.in

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