Budget 2013: What it means to you

BANGALORE, INDIA: Indian Finance Minister, P. Chidambaram, might have tried to please all with the Union Budget 2013-14, but it hasn't cut the ice with especially the tech sector on all counts.

There are some major issues it brings along, discounting no major direct measures for the upliftment of the sector, which is one of the major contributors to the country's GDP growth.

Import duty hike of mobile handsets and set-top boxes, inverted tax structure and corporate funding for incubators on academic campuses to be treated as a part of their Corporate Social Responsibility (CSR) initiatives have raised some deep concerns in the industry.

Mobile prices muddle

The proposed hike in import duty on mobile handsets priced above Rs 2,000, from 1 per cent to 6 per cent, will result in smartphone and feature-phone retail prices going up, says Mohammad Chowdhury, leader telecom of PwC India.

"As a result, we will see some dampening in consumer sales. In turn, this will impact negatively the uptake of data services in India and in all likelihood, slow it down, just at a time when it has begun to gain momentum," he explains.

Asim Warsi, vice-president, Samsung Mobile, also feels that the increase will not have a positive impact on the mobile industry and that it would lead to an increase in prices for end consumers. For common users, the differential amount they have to shell out to buy a handset is expected to be in the range of 4-5 per cent.

"If we look back in 2012, close to 4,300 different models of handsets from 400 vendors were sold in India. Out of these, half of the models were priced above Rs. 2,000. An increase in excise duty will virtually increase the price of every second handset sold in India," asserts Tarun Pathak, telecom analyst, Cyber Media Research.

Set-top box surge

The import duty on set-top boxes, too, has been increased by up to 10 per cent, "but it seems out of place and in all fairness should be reversed," observes Harit Nagpal, president of the DTH Operators Association of India, and chief executive officer of Tata Sky.

He reasons saying that the DTH industry is already paying 32 per cent of its revenue as taxes. "At a time like this, when the government's digitization mandate is entering its second phase, the industry requirement is many times normal and there is no local manufacturer of repute who can deliver quality boxes in such quantities."

IT stocks plunge

Despite this being a pre-election budget in the run-up to next year's Lok Sabha polls, many industry stocks stumbled during the day's trade.

Industry veteran Mohandas Pai attributes it to lack of any special measures to foster growth. All the initiatives the FM proposed were "inadequate to spur development," he says, as he rues the lack of any big initiatives to spur the industry growth. Many other industry experts have also shared his opinion on the budget allocation and measures for the IT sector.

Incubator fix

While Ravi Kiran, co-founder of Venture Nursery, India's first angel-backed accelerator, agrees that the move to allow investment in Technology Business Incubators to qualify as CSR investment is a good start and good for tech incubators, he is quick to point to the fact that there is not much of transparency in such initiatives. "Hope it comes with a mechanism to establish accountability of such investments."

The Government needs to recognize private accelerators' role in the entrepreneurial ecosystem as well, he adds. "How many jobs are created by these public incubators, how many start-ups come out of them? There has to be a mechanism to drive accountability," says Ravi.

Inverted tax structure

Though the Government has announced the National Manufacturing Policy that aims to increase the share of manufacturing in GDP to 25 per cent within a decade, says J.V. Ramamurthy, president, Manufacturers' Association for Information Technology (MAIT), "The budget has failed to reverse the inverted tax structure, which has been impacting the industry for years now, making India a predominantly import-dependent country."

Further elaborating on the issue, Anwar Shirpurwala, executive director; MAIT, says, "The prevalent rates of Countervailing Duty (CVD) and Special Additional Duty (SAD) on inputs for IT equipment result in an increase in the costs of a finished product manufactured in India. Thus, the industry will continue to be dependent on imports. In India, it is good to be a trader than manufacturer."