Budget has a few crumbs for the IT industry

By : |February 27, 2002 0



Contrary to what the industry was expecting, the union budget for financial
year 2002-03 presented by Union Finance Minister Yashwant Sinha, has turned out
to be fairly pedestrian as far as the Indian IT industry is concerned.

Should it be called as the most insipid budget or should it be termed as a
very heartening budget. The answer would depend upon how you look at it.

The overall expectation was that the budget would be a very tough one
considering the prevailing economic and security scenario. If you go by this
yardstick, then it was a very good budget as there were hardly any tough
measures. On the other hand, if you were expecting some measures to stimulate
the economy, then it was pretty disappointing.

But if you go by what the industry was expecting, this has turned out to be a
budget, which seems to have maintained the status quo. Just before the budget
exercise, the industry was thick with rumors that the information technology
industry would have to bear some harsh measures this time. It was expected that
custom duties would remain static and software export earnings, which are tax
free, would now attract tax. Apart from these two, several other rumors were
also floating around.

This is not to say that there is nothing in the budget specifically for the
IT industry. There are a few crumbs here and there. Perhaps the biggest crumb is
the announcement by Sinha that the zero duty regime on hardware will now come
into effect only from 2005, which is two years behind schedule. This should
boost the morale of the domestic hardware vendors like HCL, Wipro, Zenith,
Microtek and Vintron.

There is one sop for software industry also which had earlier indicated that
it didn’t need anything more from the government. Investment upto $ 100 million
abroad has now been allowed through the automatic route. Earlier, the limit was
$ 50 million. This measure will be of great interest to Indian software
companies who have been looking at acquisitions.

For the telecom sector, it is more or less the status quo. They have almost
nothing in this budget except for the fact that cellular phones and pagers have
now been exempted from CVD. But at the same time, the basic duty on both the
products has been increased from five to 10 percent. The net result will mean a
marginal reduction in price of cellulars and pagers.

Overall, the industry seems to have reached where it had started from. Which
means that it should continue with business as usual. Now, that itself is very
heartening considering the fact that nothing substantial was expected anyway.
Notwithstanding the fact that Sinha ended his one hour 48 minutes speech by
saying that this was a budget devoted to development.

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