Apart from clear reforms for the common man and attempts to spur the rural economy, the Budget does address the problems of the corporate sector, but only partially. With long term visions, the budget comes across as realistic and futuristic, but in the current IT scenario, it is being perceived as but a mixed bag.
“The Government acknowledges the role of taxpayers in nation building. Each rupee of tax contributes towards the Government’s efforts to provide better infrastructure, rural revival and social well-being. Taxation is a major tool available to Government for removing poverty and inequality from the society.” – Finance Minister Arun Jaitley.
On 29th February, Finance Minister Mr. Arun Jaitley announced the Modi government’s Budget for the fiscal year 2016, which encountered mixed reactions from key players in the IT sector across the country. The key highlights of the budget show a clear shift in the focus from urban to rural growth with hopes that a budding agricultural sector will in turn become a catalyst for the economy heralding towards an all-inclusive growth. Most IT majors both domestic and international were appreciable of the budget.
Keeping the Make in India vision of the NDA Government, the budget aims at establishing technology as the backbone of the Indian economy. With an attempt to bridge the gap between the haves and have-nots, it seeks to adhere to the FM’s 9 pillars of Digital India. The Budget vies to transform the economy into knowledge based providing tax exemptions and support for startup businesses, digital literacy to rural India, recapitalization of banks, backing to domestic manufacturing. The common man benefits from tax relief in HRA.
However, going in detail, some unmet expectations from the corporate sector are perceived as cavities which might slow down or hinder the efficiency of Finance Ministers economic model for the fiscal year. The budget only partially attempts to transform the electronics sector from assembly centric to a manufacturing one with preferential duty not extended to some vital laptop/ notebook components. A reduction in incentives towards R&D initiative could also decelerate the growth of the IT sector while the fact that GST wasn’t removed came as a bitter blow. While trying to make the budget all-inclusive and universally acceptable, the finance ministry might have fallen short of its perceived vision and it remains to be seen if the execution model is good enough to back the reforms the budget aims to implement.
With clear emphasis on transparency and accountability, the policy makers have taken a firm step forward in hopes of restructuring and reviving the economy. Key players praised the budget for advocating transformation through digital integration with digital literacy key to schemes like Digital India and Startup India.
“As a key aspect of PM Modi’s Digital India initiative, the proposals announced by the finance minister on e-governance entails using technology to speed up governance decisions and plans. We believe, the budget will help India to take-off on a faster growth trajectory and create a digitally connected India.”
Vice President and GM
Hitachi Data Systems India
With more than 6 crore people to be touched, the government needs to implement a steady and effective PPP model.
“On the corporate tax front, a start has been made in removal of exemptions the full details of which are yet to be analyzed. New manufacturing companies have been given an option of incorporating at a 25% tax rate (without availing exemptions) which is a good step to attract and encourage investment in a fairly neutral basis. Also in terms of reducing tax disputes a number of steps have been announced, which are welcome. If the spirit behind these announcements is carried forward in implementation, it will be a huge boost to the ease of doing business.”
CEO and MD
Dun & Bradstreet Technologies
On the economic front, policies like extension of timeline for the Section 10AA of SEZ Act till 2020, widening the scope of Section 80JJAA by bringing in the Services sector, reduction of holding period for investment in unlisted companies will work in easing out set up and business operations across the private sector. These reforms are expected to boost the already burgeoning start up eco system in the country.
“The Government of India’s Union Budget 2016 has offered tax exemptions for small business units with a turnover of up to Rs 2 crore (up from the earlier exemption limit of 1 crore), which will act as a stimulus for these units to expand their business. Close to 60% of SMBs report anticipating an increase in their IT spending up to 9% in the coming quarters.” commented Partha Sarathi Sengupta, AVP at AMI-Partners. “Spurred by the ‘Digital India’ revolution, the SMB sector is poised to act as a catalyst to bring about socio-economic transformation.” added Sengupta.
In the budget, the nation’s leaders also realized the importance of information technology in facilitating good governance and ease of public and private operations across the country. Adopting technological means across SMBs, digitalization of land records, e-applications and e-assessments will go a long way in streamlining public administration and interaction with ministries and departments.
Ashraf-el-Arman, MD, Xerox India welcomed this decision saying,“The Government plans to establish a digital depository of School Leaving Certificates, College Degrees, Academic Awards and Mark sheets for easy access for students, institutions and employers. We believe there is an opportunity to collaborate and work towards the vision of creating a Digital Depository in India.”
Emphasis on IT is also highlighted in nationwide implementation of schemes like Universal ID (Aadhaar Card) and Universal Account Number (UAN for PF transfers), which will prove immensely beneficial for citizens over time. The government also aims at improving infrastructure in the smaller, lesser developed cities which otherwise have the potential to become major commercial hubs.
“This budget’s allocation of Rs 1282 Cr to Digital India Program, Telecommunications and Electronic Industries and Rs 7205 Cr allocation to Smart Cities & Atal Mission for Rejuvenation & Urban Transformation (AMRUT) look impressive.” He added, “As an IT Company, we are happy to see that the new budget brings technology into various sectors from agriculture to education to healthcare and infrastructure, and rural areas are targeted equally as the urban centers.”
According to the PM, digitalization is the key to modernization of India. The Union government supports this stance and promotes inherence of digital media through points like tax exemptions on phone bills and data usage, e-filling of return for higher income groups and implementation of Electronic Verification Code (EVC) for digitally signing official documents. Points like e-registering, online public forums and electronic income tax assessments aim to make tasks like public grievance and redressal, tax hearings completely paperless. The government hopes to touch more than 60 million people with its initiative to implement digital literacy and this tough task demands marked improvements in the current IT infrastructure of the country, something that the budget does address.
“The Budget has laid out big investments for the infrastructure sector which is a positive in the transformation of India. We hope that government’s ongoing reform programme will also result in the passing of the Goods and Services Tax bill soon, which in turn will contribute to the ease of doing business in India”.
Various aforementioned points make the implementation of IT inevitable across sectors. The policies are bound to give a boost to companies in IT sector with large scale implementation and adoption of technologies across both public and private sectors. However, experts on the subject argue that the budget only partially addresses the current economic problems and it remains to be seen how successful will its policies be in the long run. The budget reiterates the 7.6% GDP growth rate for the country and provides a slew of incentives for the rural, agricultural sector to enable inclusive growth. However, in the backdrop of global economic volatility, there are unmet expectations on policy announcements that enable ease of doing business for our sector.
“Our wish list for Budget 2016 included three key priorities – policy bottlenecks including ease of business; nurturing start-ups, products and ecommerce sector; and clarifications on transfer pricing to enable inward investments in India. Budget 2016 only partially covers these priorities. Extension of Section 10AA for SEZ units till 2020 is a positive outcome though the imposition of MAT on start ups will not allow the full impact of the benefits to be realized”
“Make in India continues to be an important agenda for the government as the new manufacturing companies are going to reap benefits in the segment. The proposal on reduction in excise duty on inputs, parts and components, subparts for manufacture of charger/adapter, battery and wired headsets/speakers of mobile phone, being exempted from 12.5% to nil is a welcome move and will eventually promote the manufacturing of these components domestically.”
Concerns like dual taxes levied on IT and software services, higher tax burdens for domestic investors, continued imposition of Minimum Alternative Tax, and insufficient backing of R&D in the IT sector are some factors that might hinder the growth of the sector at a warranted rate.
“One did expect some good income tax relief for the salaried class; that’s been a letdown. And on IT hardware like PCs, the focus on enabling manufacturing, while encouraging, falls short of its scope by excluding PC products and limiting it to rather insignificant things like batteries and adaptors”.
Hoping for special exemptions and relief from CGT, many players in the sector were left a bit disappointed. This perceived shortcoming of the budget was duly reiterated across the sector.
Mahesh Lingareddy, Founder & Chairman, Smartron, India was slightly critical of the budget, “To boost the morale of entrepreneurs, the capital gain tax could have been exempted for investment in upcoming industries. Keeping in mind the employees of an organization, the taxes should have been deferred for the Employee Stock Option Plan (ESOP) to buy the vested stocks. Also, the taxes should have been waived for five years for start-ups on revenue of 1000 cr rather than 25 cr.”
“Capital asset formation is not happening and we are not seeing many measures in that direction. Exports are key. With present exchange rates and the ‘Make in India’ campaign, exports should have been given some thrust. We cannot bank on present oil prices to support our forex needs in long run. As profit is already after tax and there is dividend tax of 20%, another tax in the hands of the individual is unwarranted. It will also impact HNIs investing in start-ups / encouraging enterprise.”
M. P. Vijay Kumar
In all, the budget seeks to adhere to new technologies and innovations in order to achieve modernization across the country. However, with a shift in focus towards financial restructuring at the grassroots level, many concerns on the enterprise level appear to have been overlooked. Although the budget provides plenty of opportunity for IT companies to grow with implementation of technology among various sectors, a few unaddressed concerns and policies could prove unwanted hurdles, thus leaving the sector somewhat unsatisfied with the Budget 2016.