Middle of the road approach, say corporate big wigs

BANGALORE: The corporate big-wigs had mixed reaction towards the budget. Here are some of the immediate reactions to the first budget of the new millennium.

Subroto Bagchi Vice President and Chief Operating Office, MindTree Consulting: There is two aspects in this budget. First is what will happen to infrastructure part. This industry is driven by infrastructure. On this, there are three good things that have happened. Firstly, improved penetration on ISPs, secondly, VC funding is liberalized, from this lot of start-up companies will spur up in the country and lastly government has supported the hardware sector. I think, finance minister has done a fairly good job. On the software export side, this is the gentle wind in favour of sailing and with perfectly good weather. Overall, this Budget has taken middle of the road, not bad, neither good.

Cabletron country manager, India and SAARC region Uday Birje

The telecom and datacom sector looks positive. In his opinion, the massive drop in customs duty on fibre optics cable from 25 percent to 10 percent will have spillover effect. Especially since many Indian companies have been looking at building a fibre optic dependent backbone across the country for building their Internet platforms. " This will help build high speed backbone as well as further internet usage in the country." He also feels the general drop in duties on computer components and peripherals are likely to have an overall positive impact.

Likewise, the 20 per cent to 5 per cent drop in customs duties on mobile phones are expected to boost the telecom industry besides reducing the grey market.

While it is not clear as yet what the duty drop for datacom products like routers, switches and hubs are, he is quite confident that it is unlikely to go up. Says Birje, "It is a small sector in comparison–about Rs 400-500 crore. It has the potential to grow significantly. So it does not make sense to increase the duty. Besides, it is the infrastructure required for ISPs."

He also feels that other manufacturing sectors may get hit as a result of the excise and special additional duty, which in turn may have a detrimental affect on the IT industry despite reduction in customs duty, etc.. "It is to be seen how the other manufacturing sectors will react. Whether it will affect their investment decisions, which can impact the IT industry." Conversely, he is of the opinion that the small ISP and service provider market, the other market for the IT industry, is poised to grow at over 100 percent. "This market has the potential to offset any set back that may arise from the enterprise sector, which is growing at just 10 percent, going slow on their investments in IT."

Ingram Micro India Ltd. president and CEO managing director Prasad Mamidanna

There is nothing spectacular about the budget announcements for the IT hardware industry. In fact, it is a balanced one. If there is reduction in duties from 5 per cent to zero, the special additional duty of 4 per cent has been introduced on all components.

There will not be much affect on the prices of computer. If at all there is any reduction, it will be marginal. Some amount of price reduction is expected on some of the networking products tjhat are classified as telecom products, as the maximum cap of duty has been brought down from 40 per cent to 35 per cent.

More spending has been announced in the infrastructure sector, which will use a lot of IT. This is a welcome step. Also, liberalisation of venture capital norms will augur well for the hardware industry who wants to set up big projects as this will provide capital at low cost.

For IT industry the relaxation norms for FII & VC investment is something to cheer about. Phasing out tax concession for exports over a period of five years is acceptable because if Indian IT industry is to be globally competitive it is not fair to expect artificial sops. The Government has not been sensitive to the present impractical. ESOP taxation methodology is a real dampener and IT companies will find it extremely difficult to cope with the problems faced by their employees. Interaction with Customs for bonding and de-bonding is a nightmarish experience and nothing seems to have been done to cut such red tapes. Stock market will take a hit in the short run because the retail investors are in a near panic situation due lack of comprehension. In a month or so this phenomenon will correct itself.

Tax Consultant S. Suresh

The raising of dividend tax from 10 per cent to 20 per cent will affect the software industry. Also, the removal of the provision of exemption of capital gains on shares when invested in bonds is not seen as positive. Now, that exemption is made available only if invested in Nabard Bank with a lock in period of 5 years, up from 3 years before.

Also, removal of full exemption of tax on export earnings is seen as a means of phasing out the advantages of software companies. For instance, 20 percent of export earnings will be taxed.

In his opinion, the favorable stance towards hardware sector is merely to neutralize the present imbalance, as the hardware sector has always been neglected in the past.

Indirect tax consultant K.A. Ravishankar

The budget has made it a point to ensure that foreign exchange earnings industries–IT and other infrastructural industry–is not harmed by overseas competition. "All the measures taken by them are by way of increasing performance of software and other foreign exchange earning sector."

In his opinion, the single uniform rate of 16 percent excise duty is likely to affect small manufacturers who fall in the small-scale sector category and those who sell directly to end consumers.

Also the removal of concession of SAD to those in stock and sale (distributors and resellers) is not expected to reduce prices nor increase prices for goods.

Wipro Corporation corporate executive vice-president, finance, Suresh C. Senapaty

The good thing about the budget is that it has taken forward the process of simplification and rationalisation in respect of indirect taxes. Certain initiatives like reduction of duty on cellular phones and components for manufacturing of computers will discourage grey market and encourage usage of state of art IT systems and communication systems by common people.

The not so good things in the budget are subtle changes in the tax rates particularly in the area of direct taxes, dividend, non withdrawal of surcharge etc. are not in line with stable tax regime which the new generation Finance Ministers have been promising.

Additionally, the budget does not address adequately the issue of Government expenditure, high fiscal deficit in general, FDI, taxability of Employee Stock Options, relaxation on acquisition of overseas companies etc. which need to be addressed at the earliest.

Some of the moves of the Government with respect to encouraging Venture Capital funding, setting up of Debt Recovery Tribunals, statement of intention to improve literacy to 75% by 2005 are encouraging and welcome features of the budget.

In any case so far as impact vis-a-vis WIPRO is concerned the budget is neutral to favourable. It is neutral in case of Software exports and favourable in case Computers and Peripherals and Lighting business.

By and large the budget is quite positive in particular to the IT sector and it is in line with the "Globalization effect" and also in line with the "Technology convergence" that is happening across global.

Liberalizing the ADR permissions & increase in the limit on the acquisitions abroad would help our Indian companies to compete globally. Increase in the limit of the FII investments to the Indian companies is in line with the increased confidence of global investors in Indian firms.

Even though there is corporate tax on the imports on the IT Companies which are out of the tax Holiday, this does not effect the new companies which are coming in to the market and they will continue to enjoy the tax holiday for 10 years. It gives opportunity for the companies to contribute back to the Government after 10 Years of performance.