IT industry voices mixed reaction

BANGALORE: The union budget presented by the finance minister, Yashwant Sinha,

has been received with disappointment and confusion by the industry.

Disappointment because its is harsh on the salaried class and does not offer any

major change in the prices of capital goods of the lay man. Confusion because it

is right away not very clear as to which products is under the duty arm and

which is not.

Rightly put by Cognizant Technology Solutions , president and COO N Lakshmi

Narayanan, "There is no aggressive push to expedite the reforms process and

revive the economy. The current budget shows no indication of opening up our

markets and increasing FDI inflows. The need of the hour is to open up sectors

such as retail to foreign companies and to give the right thrust for

infrastructure development projects like the Golden Quadrilateral."

However the hardware industry has received a boost with their immediate

recommendation of postponing the zero percent duty on IT products to 2005,

instead of the proposed 2003. MAIT’s Deputy Director for Southern region, K S

Nandakumar said, "From a hardware industry perspective, it’s a good

budget as our recommendations are being implemented and taken care of. The

depreciation of 15 per cent on new investment on IT hardware will boost

investment on hardware manufacturing, peak rate duty has also been reduced from

35 per cent to 30 per cent, but still not known which goods come under this.

Import duty is also being brought down to five per cent."

A local manufacturer, Vintron Informatics director, Manish Agrawal said,

" Duty reduction in hardware items of 5 per cent is encouraging but the

specific items have not been mentioned. It is not very clear at the moment which

items are covered. Zero per cent duty on IT products till 2003 being extended to

2005 will give respite to the domestic hardware industry. This will also give

time to the domestic industry to reach Global Standards. We do not see any major

change in pricing for the consumers."

From a telecom perspective FICCI, Assistant Secy. Information Systems, Raj

Pal said, "Although the CVD has been removed from cellular phones but the

increase in the basic duty 10 per cent is not all that encouraging. Above which

it’s not clear if the special duty tax has been reduced or slashed. Another

positive sign is the government’s decision to lay 7500 kms of optical fiber

cables in the coming year. Its very encouraging for the telecom industry to be

included in section 72A of the Income Tax law for Mergers and Acquisition

(M&A). However the service tax on cable operators will adversely affect the

Internet Service Providers (ISP). The decision to remove telephone from taxable

items of luxury goods has not been put forward by the government. We are still

not clear on the sectoral limits of FII and if telecom is included among the

select industries."

Continuing the voice on the same industry is MRO TEK’s, chairman and

managing director, S Narayanan, who states, "IT infrastructure spending is

good news to our industry, Dividend tax to company has been made zero thats

good. Depreciation on the R&D and manufacuring expenditure on the new plant

and machinery will spur the growth and Customs coming down by 5 per cent is not

a surprise."

Motorola India, Country Head Pramod Saxena said, "We welcome the

Government's decision to reduce the overall duty impact on the import of mobile

handsets. We believe that this will help control the grey market menace in India

and benefit all - the government will be able to grow taxes from the sale of

more legal handsets, consumers will get warranted handsets at economical rates

and it will give an impetus for growth to the market. Although it is still too

early to give precise details on the impact of duty reduction on mobile

handsets, the expected reduction in prices for the end - user can be estimated

to be in the region of around 10 per cent."

A further reaction from Narayanan of Cognizant, gives, " The

introduction of corporate income tax to the tune of 10 per cent of the income

will greatly impact the small to medium IT companies. This would also have a

debilitating impact on generating higher employment opportunities in the IT

sector. There has been a half-hearted approach to the IT industry in terms of

giving it further fillip. Barring the 10 per cent reduction in customs duty for

setting up earth stations and the mild concession for hardware and IT products

there is nothing noteworthy for the IT sector. The expectations on procedural

simplifications in the areas of customs bonding, softex forms and withholding

tax have not been addressed. Likewise, there has not been a bold move to help

the IT industry to use the Exchange Earners Foreign Currency Account (EEFC)

effectively."

On the whole the industry is disappointed and this was clearly reflected when

the Sensex dropped by 140 points within an hour of the budget announcement