Rediff Logo Infotech IBM Banner Find/Feedback/Site Index
June 1, 1998


Infogain Banner

         Budget_98.xls: New Delhi's workbook alters bottom lines across the IT industry. Here's how the mother of all spreadsheets scores.

Priya Ganapati in Bombay

Email this story to a friend. Finance Minister Yashwant Sinha's Budget for the infotech industry has been rated from "growth-oriented" through "okay" to outright "disappointing". And if you believe that these pronouncements are only as good as the people who made them you have turned to the right page.

Here's the crème de la crème of the industry with their criticism in black and white, especially for the Rediff faithful...

Budget '98
MTNL results
Wipro exports up
Taxman blamed
N R Narayana Murthy, chairman and managing director, Infosys:

This Budget has been IT and software friendly. However, in other areas, it has been mostly incremental. It is understandable why it is so. The finance minster had to strike a balance between the Swadeshi and the Videshi camps.

The introduction of dollar-denominated, employee stock options for the software industry is a good step and will go a long way in enhancing the brand equity of Indian software companies abroad.

Not reintroducing any customs duty on software, as was rumoured, is another good step. Rationalisation of the duty structure in the IT area is very welcome.

Introduction of non-visa identity card for non-resident Indians is a good move forward and will lead to the dual passport scheme for NRIs. While the privatisation of the insurance sector is a welcome move, I wish foreign investment had been allowed there.

The attention given by the finance minister to agriculture, education, infrastructure, SSI and the unemployed is extremely encouraging.

The acceptance of some recommendations of the Narasimham Committee is bound to make our banking sector very healthy. The replacement of the Foreign Exchange Regulation Act with the Foreign Exchange Management Act is also a very good step.

Divestment in some of the public sector corporations is a welcome move. The VRS benefits being proposed as well as the formation of restructuring fund is the first step towards a win-win exit policy in the PSUs.

Overall, it is a reasonable Budget.

Pradeep Kar, chairman and managing director, Microland:

The Budget wasn't easy to make if you account for the constraints under which the finance minister was.

The government has proposed spending on education, and rural development among other such social sectors. However, we are concerned whether the money will be spent wisely.

Both customs and excise duties have increased and petrol has become more expensive. I would term this as an inflationary Budget.

This Budget is like robbing Peter to pay Paul. I am a little disappointed with some of the provisions in the Budget.

We are a bit confused about the 8 per cent across the board import duties. We are not sure what it is applicable to. If the IT industry also comes under its purview then it would mean a negative growth rate at this stage.

In general, I am disappointed that there is no mention of depreciation rates for computers, the 8 per cent tax, general increase in excise duties and with the petrol hike.

As far as employees stock options are concerned there are only a few companies that could have gone for ADRs and GDRs. So, this is a very limited advantage, a very limited aspect of the Budget.

In case of futures and options, overall there is some positive development for the capital market. Divestment in public sector units, derivatives for the stock market were a much-awaited thing.

The people-of-Indian-origin card is just to create a nationalistic feeling for Indians settled overseas.

There is a little confusion regarding the 8 per cent across the board import duties. For that, I need to see the fine print.

Overall, the Budget is average and not very growth-oriented.

I would even term it as protectionist in the sense that it is trying to protect the Indian industry.

Som Mittal, managing director, Digital India:

In general, I would say there is nothing exceptional about the Budget. It is just an okay Budget.

Of course, there has been some opening up in some form like the insurance sector but these are all long-term steps.

We are not clear about the 8 per cent additional import duties. But I think this would make Indian PCs cheaper by 5 to 8 per cent while international PCs will become expensive by 5 to 8 per cent. However, I am not sure, whether the net cost of the PC is going to increase or remain the same.

I think it is a very average Budget with nothing that gives the reassurance of increase in growth rate. And this has been reflected by the bearish stock market after the presentation of the Budget.

One of our demands was lower duty on components. It has been met to a certain extent. The first view should be to revive the economy and for that government spending should increase. However, government spending has not been increased.

The employee stock option is the positive part of the Budget. Yet if you see, not even 5 per cent of the companies will benefit. Stock options will just cater to the top three to four companies in India. But they are the ones who will make a difference. Flexible share pricing would have been of more help.

The PIO card only indicates Indian with American passports can go in and out of the country without any hassles. This would be very convenient. You just don't want them to feel like foreigners in the own country by using visas.

The government will be spending Rs 4 billion on infrastructure but this is not adequate.

Despite of the sops offered to the software industry I feel that the net costs of PCs is not going down because of the 8 per cent duties across the board.

Dewang Mehta, executive director, National Association of Software and Service Companies:

I am very excited about the Budget. I think it is very growth-oriented. It proves the sincerity of the government to give thrust to the software-driven IT sector in the country.

In general, there has been no increase in the corporate budget. This is a big relief as our industry is very global and any small increase in the corporate budget even to individuals would affect the Indian software industry.

I am not disappointed at all with the Budget. In fact, all our major demands have been met. There were rumours that import duties on software would be re-imposed but that did not happen.

Also, by allowing stock options in dollars, we are giving NRI perks to professionals in the Indian software industry. The scheme would encourage more offshore software development, restrict brain drain and reduce dependence on visas. It will give Swadeshi companies a level playing field abroad.

One of our major demands was that employees stock options be provided and this has been granted.

In some ways we are making the industry more global. Employees, after selling their options can retain the amount in dollars and this has been a major development. The options will restrict brain drain. However, forex will retain neutral and there will be no drain on the country's foreign exchange resource.

NASSCOM is very happy that the government has clarified that excise duties are not applicable any more on embedded software.

Service tax has not been imposed on software development, keeping in mind the industry's demands. We are encouraged by the fact that there is no increase in corporate income-tax structure.

We are confident that most of the increase in the education budget would go towards increasing computer literacy and literacy through computers.

We are also delighted that export incentives would continue and provisions have been made to increase working capital for small-scale industries from Rs 20 million to Rs 40 million.

With this kind of growth budget, we expect software exports to increase by over 50 per cent and the domestic market by over 40 per cent in 1998-99. NASSCOM is confident during the current year India will be able to achieve Rs 100 billion of software exports. To this, the domestic market is likely to add Rs 50 billion.

Continuance of zero-duty imports of software will help restrict software price in the country.

Allowing of options trading on the stock markets is a very positive move.

Many associations, including NASSCOM, demanded the people-of-Indian-origin card that the finance minister has promised. This will reverse the brain drain and overcome visa problems.

Overall, I think, the Budget is very software friendly. It is almost like the government playing a software philharmonic!

Vinnie Mehta, deputy director, Manufacturers Association for Information Technology:

I think it is a very positive Budget and a very IT-oriented Budget. I am hopeful that the Budget will help restore the confidence of manufacturers. I am definitely satisfied with the Budget.

We were not really expecting anything more. We had hoped that there would be some mention about more depreciation on computers and rationalisation of excise duties.

The industry has been asking for employee stock options for a long time. It is a standard practice abroad and will help companies to retain their employees. As it is, we have a shortfall of labour and these sops will help retain people.

On the manufacturing front there is some reduction in duties. But we are not clear about the 8 per cent increase in duties across the board. If that happens, we will be in a little bit of soup.

Before the budget there was 15 per cent duty on parts and components and a 22 per cent ceiling on finished products as per the World Trade Organisation IT agreement.

Now though there has been a reduction in duties in parts and components to 12 per cent, with the addition of 8 per cent across-the-board duties, the sum would be 20 per cent. So, the duty differential is only 2 per cent. This will not be enough for sustaining growth in the manufacturing sector.

Yet, I am saying this only if I am correct about the IT industry being included in the 8 per cent duties across the board.

The reduction on import duties for most hardware products will definitely lead to decrease in street prices and increased PC penetration. This would mean increased IT literacy and increase in IT employment.

Right now the PC penetration in India is 1.8 PCs per 1,000 and we expect this to increase up to 10 per 1,000 by 2002. In a year, this will go up to 2.5 PCs per 1,000. I think this was a very IT friendly Budget.

S Ramadorai, managing director, Tata Consultancy Services:

Overall, there has been no substantial change for the IT industry. There are certain things that need to be clarified.

Tax on software 80HHC needs to be clarified. Tax on software exports needs clarification. I would say, the Budget has been more or less on expected terms.

The only thing is service tax has been made applicable to chartered accountants and management consultants among others. One has to see the implications of this on the software industry.

If companies are going to list overseas, employees will be eligible for stock options in dollars. I think this is extremely good, as it will help in retaining people.

I don't think giving away of ADR and GDR stocks to employees will affect India's forex position. As far as allowing of options trading on stock markets is concerned, the Securities and Exchange Board of India had approved of it a couple of weeks ago. But I am not sure whether the Bombay Stock Exchange will adopt this system or go with badla.

Performance-wise this will be good because real wealth and assets will become transparent.

I don't know whether the PIO card is going to change anything. I am not sure that any fee will be charged for it. Even if there is a fee then it is a way of getting money into the country. As a non-NRI, I will definitely be happy.

However, clarification is required about the reduction in customs duties. I am not sure if the end user will have to pay more.

Overall, it is a step in the right direction. The key message was IT is the most important thing of the future. IT is going to improve productivity and automation in the domestic industry. We want to see an IT enabled government.

For exports and domestic market, the Budget was good but one has to read the fine print before making any comment.

Girish Paranjpe, group vice-president (finance), Wipro Infotech:

Generally, the Budget raises taxes on manufacturers. We are not clear about how the 8 per cent across the board import duties will work.

Overall, they are trying to make some effort along the path of reforms. It is a mixed Budget. It's in line with what the industry was expecting. However, if the 8 per cent tax is considered, then we are back to where we were. This would have a negative impact on reduction in MODVAT.

They have exempted the IT industry from the 8 per cent surcharge; IT industry, being one of the thrust industries. However, more could definitely been done.

The employee stock option announcement is a step in the right direction. It will put Indian companies on par with their global counterparts. I don't think this will affect India's forex position. Because there is going to be a circular flow of money, after all.

Allowing of options trading on stock markets is a good step.

The PIO cards sop is to take care of the dual citizenship issue. The government is not going to all the way but it is moving in the right direction.

We had asked for some special things, which have not found favour with the government. We had proposed that every two years deduction should be permitted for individuals investing in PCs. This would lead to increased sales of PCs.

The 8 per cent tax across board is not clear but if it applies to the computer industry, also it will offset all the sops offered. Whether there will be increased penetration of PCs is not clear from the Budget yet.

Jayaram Krishnan, business manager, Redington:

I am happy that the government has decided to divest in the public sector except that we are worried about the 8 per cent special customs duty imposed.

We will have a better playing field now because of improvement in infrastructure, less of government role in the public sector like the core industries of steel, coal and insurance.

This would mean that a lot of opportunities for the IT industry will now be opened up. Multinational will now find it easier to come in. This would mean more money available in the industry.

I am disappointed to a certain extent. The government has been silent on the repercussions of the anti-nukes sanctions. However, to my knowledge this should not be severe though defence requirements might be affected.

We were expecting some special schemes in terms of infrastructure and some sops for local hardware vendors. We had hoped that something would be given to them in terms of protection.

I will have to see on which particular items the 8 per cent import duties across the board will be applicable.

Redington is into imported products only but we would take into consideration the pricing effect. I predict a 30-40 per cent growth for the IT industry.

Because of the sops offered to hardware importers, penetration of computers will increase. Today, disposable income in the middle class has gone up and also loans are being offered so there are two aspects to this.

One is the home segment that will show an increase of over 50 per cent over last year. And the other is the collection of retail chains. They will show an increase of 35 to 40 per cent.

But this would have happened even without the sops. There is no stopping this increase. Sops are just by the way. Another benevolent aspect of the Budget. The sops may accelerate growth by another 3-5 per cent only.

Employee sotck options would help retain talent in the companies. In the software industry, over a third of the employees change jobs every year. The stock options will be an effective solution. However, it is too early to comment on how the options will affect the bottom lines of the company.

The IT industry will benefit only if the overall stock market benefits. The options trading may not have any significance for the infotech industry.

A lot of people of Indian origin have gone abroad. Because of the PIO cards they may come back and set up their own units here, which will encourage development in the industry.

Yet PIO cards ESOPS, stock options are all very small things. The government has not said anything about inflation. Sanctions and their impact have also not been discussed very well. Small sops have been given but not too many.

Much more could have been done for IT parks. The government has said nothing about promoting them. Andhra Pradesh Chief Minister Chandrababu Naidu had, some days ago, spoken of sponsoring an IT park. More on those lines would have been welcome.

The government could have dwelt more on infrastructure like roads, telecom, transport and educational facilities. This would have had a big effect. Some multinationals that had come down to Bangalore virtually ran away after seeing the conditions of the roads.

Tell us what you think