Budget `08: Little for the IT industry

The last budget of the present Government was expected to be populist and short of any significant growth agenda and it did not belie those expectations.

With one eye firmly on the vote banks, the Finance Minister's whopping farmer loan write-offs and absence of any intent towards boosting industrial investments left many analysts cold! The "conscious shift in expenditure" towards health, education and the rural sector were all on expected lines and will serve to make our society more inclusive but many concerns persist.

There are many good initiatives that will have medium-term positive impact on businesses. Substantial outlays in Education with more IITs and Central universities announced will boost the availability of talent and hopefully elevate the levels of research which are abysmal at present. The focus on vocational education if implemented well in conjunction with the ITI schemes will alleviate the paucity of skilled manpower that is plaguing most of the growth sectors. And the significant albeit small investments in State Wide Area Networks and institutional connectivity will boost domestic and government consumption of IT products and services.

In the tax proposals, the two per cent reduction in the CENVAT rate and the reduction in excise duties in specific sectors are all steps in the right direction. New services under the tax net particularly customised software development is, however, not good news, and while some relief in personal tax is welcome, the lack of any movement in corporate tax is not good for industry.

Though there has been some tinkering with FBT on certain employee benefits, there have been absolutely no proposals for stimulating and sustaining growth in export sectors. Much more was expected here to ward off international competition and keep their smaller companies alive!

Other than these, very few of the IT sector's needs have been addressed. Least of all, the Damocles sword in the form of STPI benefits, will this see a scurry of companies to expensive SEZ options.

Will the industry continue to live with the anomalies on input services tax for the exports industry, FBT on ESOPs and transfer pricing issues for captive centres that are plaguing many companies today? We will need a detailed analysis of the fine print to get answers to this but the current mood is not one of optimism, particularly for small firms and the BPO sector.

Succour to the downtrodden is the hallmark of good governance, said the FM. But, let us hope this does not remain the hallmark of election year politics! A lot can still be done to ensure that the IT and BPO sector remains competitive and will enjoy the fruits of education and skills initiatives announced in the Budget.

Let us hope that during a year which will be tough for many sectors, particularly exports, there will be efforts taken to push a "flat" sentiment to a more positive one.

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