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How can IT sector benefit from Union Budget FY’2016?

The challenge in the upcoming budget will be to take a longer term strategic view bringing all required policy reform together

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Sanghamitra Kar
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Thomas George

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The last successful and winning formulas are always the most preferred method to ensure a cruise through dilemmas. After witnessing populist promises and corruption-free state agenda gaining more popularity and succeeding in wooing citizens during last Delhi Assembly election, the government might be in a dilemma to drive a more populist or a radical budget for FY 2016 this month. However, the challenge for the finance minister in the upcoming budget will be to take a longer term strategic view bringing all required policy reform together to put India’s economy back on track.

Today, it’s well placed to capitalize on the favorable macro environment and positives like inflation control, lowest fiscal deficit since 2008, declining oil price, general business confidence and better business rating for Indian economy by global agencies. But, will the recent outcome of Delhi assembly election, might push finance minister to harbor around more populist program in his forthcoming budget? Hope government learns from their predecessors' mistakes which caved-in UPA to an all-time low abyss on account of higher inflation, poor governance, rising corruption and its over populist program approach.

The finance minister focus should be multi-fold to have a tighter fiscal consolidation roadmap and keep it under 3.6 p.c of GDP. The government expenditure should likely increase in more productive government’s expenses as the subsidy payment will decline in the coming year close to 0.5 p.c of GDP in 2016 year.

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The IT industry can capitalize and ride on the opportunities getting created by major policy reforms and program like “Digital India” and “Make in India”. Today, the government understands the importance and long term impact of manufacturing sectors' contribution to the overall GDP growth, which made it to embark on initiatives like “Make in India”; which will get further boost by incentives extended to IT Sectors like enhanced clarity on IT companies’ eligibility of a weighted deduction in their R&D spend, where we are currently behind the global standards.

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Another expectation from industry would be of increasing depreciation rate from 60 p.c to 70 p.c by introducing technological upgradation allowances for IT companies hardware and software investments. Many such initiatives, incentives and policy reforms will accelerate the technology adoption. The associated impact and business opportunities from initiatives like creation of 100 smart cities along Dedicated Freight Corridor (DFC), roadmap for GST implementation in 2016, increased capital expenditure around infrastructure build-up, defence modernization and agriculture sector reforms enabling real time price information to farmer etc. will be enormous.

The e-commerce companies will be looking forward to have more transparent taxation policies for their complex business models and different payment methods boosting their businesses. The concessional tax rates and incentives would be another expectation from organization in IT/ITeS sector along with removal of MAT on SEZ’s, as they will aid services sector growth momentum and will continue to generate more employment in the country. All efforts and policies to keep currency stable will also help IT Industry and players indirectly.

The author is senior VP, head, CMR

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