Budget 2006-07: Good if not better

BANGALORE: The populist budget, which finance minister P Chidambaram presented today, gives IT and telecom sectors something to cheer about.

Chidambaram said that IT ministry would announce a policy on manufacturing of IT products. This includes wafer, assemble, test and manufacturing of semi-conductors, Flat LCD/OLED/plasma panel displays and storage devices.

This is a positive move to encourage IT manufacturing in India, which has been predominantly looking at services.

Meanwhile the finance minister has introduced 12 percent excise duty and four percent countervailing duty on computer and peripheral. “This means, now there is a level playing field for both Indian manufacturers and MNCs. Earlier there was no excise duty on the finished computer (complete product). So most of the MNCs use to import finished products. Whereas, Indian IT manufacturers use to pay excise duty on the products use to manufacture the computers. In today's budget, finance minister has brought in excise duty and CVD. So now it is level playing field for both. However, there may be a marginal increase on the price,” said Vinay L Deshpande, Chairman and CEO, Encore Software.

Imposition of eight percent excise duty on software package will make software prices dearer. “This will have an impact on both software packages developed in India or imported,” said Anant R Koppar, President, MphasiS Technologies.

“We are deeply concerned about the increase in levies on packaged software and on IT hardware. These will result in higher prices and have an adverse impact on millions of customers and on the domestic IT market. It will be a setback to efforts to promote IT utilization in the Indian economy and for vital applications like education and health. At a time when technology and market demand were driving down prices, we see this as a retrograde step. We feel this is an intended consequence of adjustments of excise, countervailing duty, etc and hope that the Finance Minister will correct this aberration,” says NASSCOM.

Imposing of excise duty on software package is a discouraging element, according to B Ramalinga Raju, Chairman and founder of Satyam Computer Services Ltd. ``The budget has largely been neutral for the IT services sector though the stress on infrastructure and education should be positive for the industry from a long term perspective. The imposition of 8% excise duty on packaged software and the increase in service tax apart from bringing items like international air travel under the service tax ambit are dampeners that could have been best avoided,'' he said.

However, this budget has failed to address the industry's request on simplifying fringe benefit tax. “IT industry had three demands: Reduce the rates, increase the super annuation limit and to simplify the procedure and assessment. The finance minister has addressed the first two demands, this will help BPO industry, in a smaller way, but has not done anything on assessment and filing the returns of FBT,” T V Mohandas Pai, CFO of Infosys Technologies said.

Meanwhile, at the post-budget press conference in New Delhi, P Chidambaram said that FBT return is due only in October 2006. “How can one say that assessment and filing is a difficult process,” he asked.

Significant allocation of funds for improving education and infrastructure is a welcome move. Last year the FM had announced Rs 100 crore research grant to IISc. This year, apart from Punjab Agricultural University, no other research institute got this special incentive. “Government should have increased this grant,” said industry experts.