Interim Budget: Impact on IT Industry

Provisions

The budget allows for one per cent excise duty on handsets made in India, while those manufactured abroad will continue to attract an excise duty of six per cent. P Chidambaram has said that the excise duty for all categories of mobile handsets will be now be 6% with central value-added tax (CENVAT) credit, or 1% without CENVAT credit.

This means that the mobile phones which are manufactured in India, regardless of its brand, will see price moderation. In a bid to spur domestic manufacturing, the government said the excise duties on mobile handsets will be restructured to six per cent for all categories.

Indian Cellular Association National President Pankaj Mohindroo said in his reaction that he would like to thank he would like to thank Finance Minister for the attention to mobile handset segment.

Echoing his views on the positive aspect of the budget, Mr. Pankaj Jain Director, ESET India, said, “ Reduction of excise duty on all goods falling under chapter 84 and chapter 85, including computers from 12% to 10% is a good move in order to revive the hardware industry. This was in the context of significant slowdown and import threats in certain segments, notably a reduction in excise duty on capital goods and consumer non-durables, reduction of excise duty for the automobile segment (including commercial vehicles), as well as reduction in excise duty on mobile phones. These changes will hopefully have some effect in boosting these segments, particularly automobile, which is reeling under one of the worst slowdowns in recent memory. Since the above measures are effective only upto 30-06-2014, it remains to be seen whether the same will be continued beyond that date by the new Government.”

Giving his reaction, Mr. Sandeep Popli, COO, Lapcare India, said, “Expectations from the present government were high in terms of shaping up of the shrinking IT industry and gearing the economic growth. Since interim budget was only a ‘Vote on Account’, the results were quite balanced. The only good thing is the drop of 2% in excise duty. This decrease will just boost the sentiment and may not help in pulling up of our economy.”

Welcoming government’s proposal to form a research funding body, IT-BPM industry body Nasscom said the move will promote scientific research and help India gain leadership position globally in areas like engineering and R&D. “For technology driven sector like engineering and R&D, funding is always difficult as technology is yet to be recognised as collateral to offset risks. Therefore, the proposal to set up a research funding organisation is indeed welcome,” it said in a statement.

The Finance Minister has announced to set up a Rs 2,000 crore fund in his budget for 2013-14 as well, so as to boost scientific innovations that can improve the life of common man.

“We will work with the government on how best to scope the objective and research areas for funding to build India’s leadership in technology,” Nasscom said. The body added that other announcements like continued support to NSDC and other skill building initiatives and steps to ensure MSME’s participation in public procurement will have a positive impact on the USD 108 Indian BPM industry.

“Some of the policy issues related to encouraging and supporting start-ups, entrepreneurship and simplification of procedures will require a full-fledged Finance bill, and we will continue to work with the government on these issues,” it added.

Calling the budget a balanced one, Mr. P.G Lakshminarayan, VP – Finance, eScan, said, “Being only a ‘Vote on Account’, the interim budget 2014-2015 was quite balanced and absolutely up to the expectations. No major reforms or creativity anyways were not expected, in view of the impending LokSabha polls. Reducing in excise duty to boost manufacturing activities is a welcome move.”

MAIT welcomed the Government announcement for reduction of excise duty on all goods falling under chapter 84 and chapter 85, including computers from 12% to 10%. Also, they welcomed the proposal for Rs.1000 crore transfer to the NSD (National Skills Development) Trust for skill development is also laudatory, which will go a long way in employment generation.

Further, the proposal to make an initial contribution of Rs.100 crore to the corpus of the Ministry of MSME’s “India Inclusive Innovation Fund” will immensely benefit the grassroot innovations in the small sector. MAIT notes that FM in his vision for the future for promoting manufacturing has proposed certain measures like minimum tariffs protection.

Downsides

The interim budget has added an excise duty on mobiles costing less than Rs. 2, 000, which was earlier absent. This means that cheap, entry-level devices will invariably cost more unless the next budget changes this provision.

This reduced duty only applies to cell phones that are manufactured in India, so if the phone you want isn’t made in India you won’t receive this benefit. Mobile phone makers such as Nokia and Samsung, which manufacture their range of phones in the country, will be able to take advantage of paying a lower excise duty of 1% and hence pass on the benefit to customers.

Calling the budget as a move to keep everyone happy, Mr. M A Mannan, Country Manager, Corsair Memory India, said, “This being the last budget of the present government lots was expected to lift the dooming economy and drive up the growth. Good news for IT industry is a drop of 2% in duty and nothing much. More of a budget keeps everyone happy with future elections in mind but with no drastic efforts to pull up the economy of the country.”

Marking the budget as not very encouraging, Mr. Kailash Gupta, MD, ETSC Computers, said, “The interim budget this year was not much encouraging. Not many announcements were made related to boost the manufacturing industry. With Indian companies like Wipro, HCL exiting the PC manufacturing business, Government should have taken some steps to boost the local manufacturing industry. On other hand, with reduction in excise duties, mobiles and laptops will become cheaper. This should increase the demand amongst the end users. So overall it was a neutral budget.”

Agreeing with Mr. Gupta, Shri Arvind Modi, MD, Bits and Bytes, said, “The interim budget was not encouraging with the government making announcements keeping in mind the upcoming elections.”

“We are disappointed to know that GST has not been still introduced. We hoped that the Government will revisit some tax issues the industry is facing today. Tax administration has become a Sore issue. We are concerned about refunds pending at the tax office on account of both direct and indirect taxes. Existing hassles over tax issues should have been resolved for the industry to grow further. Confusion around taxation of multiple entities of the same group remains as it is.” said , Mr. Pankaj Jain Director, ESET India, in his reaction on downhill side of the budget.

“The need of the hour is quick and effective implementation of reforms which are pending for a long time. Other than decrease in the excise duty from 12% to 10%, Interim Budget has not made any great impact on the economic growth of the country. The entire budget was a pleasing exercise to the consumers especially from the middle-class which will last only for next three months. This is evident that the outgoing government is focused more on the upcoming elections and has left behind the key tax initiatives like GST & DTC for the next government.” Mr. Sanjay Garg, CEO, Premium AV, said while calling for economic reforms.

Over the entire budget seems like a valiant effort to woo the voters ahead of the General elections with not many announcements made to boost the economy of the country. This seemed like it had less to with economic compulsions and more to do with political compulsions.

–Shweta Sharma