Not much sops, sobs ITeS sector

By : |February 29, 2008 0

CMN Bureau

NEW DELHI, INDIA: The Budget has not brought cheers to many in the Information Technology-enabled services sector, as some of the major expectations for sops have not been met.

Susir Kumar, chief executive officer, Intelenet Global Services, said that he was happy that the government has decided to increase spending on education by 20 per cent and with the focus on knowledge and skill development.

“The measures being introduced by the finance minister on skill development of the working class will help build people with the right calibre and this definitely have a positive effect on the BPO industry which is people intensive,” Kumar said.

“However from an industry perspective, we are extremely disappointed as the industry was expecting the FM to extend the 10 year tax holiday under Sec 10A and 10B, which is set to expire in March 2009. The BPO industry in India is still a young industry as compared to the IT industry and needs the support of the government till it reaches a phase of growth and maturity,” Kumar said.

“BPO is a Capex-intensive industry and has just started making cash profits. To achieve growth we need to have extra cash flow for additional investment in capital expenditure. This is the only way to achieve scale as BPO business model is sustainable only on a scale basis. This scale leads to more employment in the labour pool that is not as highly as skilled as the labour pool consisting of engineers, which are employed by the IT sector. The extension on the tax holiday would have softened the impact of rupee appreciation, which has put pressure on the bottomlines of BPOs,” he said further.

Shiva Ramani, co-founder and CEO, Cybernet-SlashSupport (CSS), felt that the budget has not commented on the extension of the STPI scheme, which is not favourable for the IT industry. “This will necessitate small and medium enterprises to look for alternatives to manage the onslaught of taxes if the scheme is not reconsidered from next year. The increase in short term capital gains tax will impact working class, which has been investing in the short-term market. Reduction in the scope of FBT especially on guest houses is a welcome move,” he said.

“Clarity is sought on the impact of service tax on customized software. Bringing this under the service tax net will impact the software development companies. The impact of this budget on the rupee remains to be seen. This is a time to hold the rupee at current levels without allowing a further appreciation. There has not been adequate stress on management of inflow of funds into the country,” Ramani added.

Devendra Saharia, co-founder and president, Ajuba Solutions India (P) Ltd, said: “Continued allocation of resources to the education sector is a very positive sign. The challenge that we face today is not of unemployment but rather of unemployability. The government’s strong commitment to develop skills of our labour force is absolutely a step in the right direction!"

Biju Nair, senior vice president (Finance) at Four Soft Limited, said, "For IT industry this is a neutral budget. No measure has been taken to support industries suffering on account of rupee appreciation and likely slowdown in US economy. Rationalization of FBT on ESOP, reduction in corporate tax and dividend distribution tax rate, which were much looked for, has been ignored. The thrust given to education and social welfare is appreciable, which were in fact anticipated considering that this will be the last budget before elections."

“From a taxation perspective, the increase in income-tax exemption limits will help consumers and is a step in the right direction. Corporate income tax rates have been left unchanged, but given the buoyant revenue conditions, the surcharge should have been eliminated or at least reduced. The surcharge was introduced for specific reasons, but it conveniently continues without any compelling rationale! The increase in short-term capital gains is meant to curb excessive speculation, but it will have a negative effect on the markets,” Gowri Shankar, CEO, Aspire Systems, said.

”Budget 2008 has been presented with a very clear eye on the upcoming elections and nothing noteworthy has been done to further the reform agenda. Obviously, the most visible and talked about aspect of this budget will be the waiver of farm loans for small and marginal farmers at a cost of Rs 60,000 crores. The increased budgetary support for education, driven partly by the education cess, is a good move. As India begins the transition to a developed economy, reforming the education system and infusing creativity in the learning process is extremely vital to develop vibrant talent. This process begins early on at the primary education level and sit is good to see Chidambaram’s focus on this area,” Shankar added.


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