Perhaps the best budget for infrastructure market
Union budget 2017 has again turned out to be a mix bag for the Indian technology industry as it does not have direct mention of incentivization or creation of policy framework for the desired sectors including core manufacturing of electronics and ICT. Of course, the fine prints are yet to come out.
Debjani Ghosh, Vice President, Sales and Marketing Group, Managing Director, South Asia, says: While it continues to build on the government’s efforts of fiscal consolidation with economic reforms, higher investments and growth at its core, we are disappointed with the lack of provisions for creating a robust domestic electronics manufacturing ecosystem in India beyond smartphones. I strongly urge the government to re-consider this as the absence of a robust electronics manufacturing ecosystem will only restrain the ambitious Make in India and Digital India Vision.”
Nitin Kunkolienker, Vice President, MAIT and Director -Corporate Affairs, Smartlink Network Systems stated, “We were very hopeful that Government would extend duty differential scheme to PC, Laptop, servers and also cover more critical CPE products such as Switches etc as it would have encouraged manufacturing in a big way and would have also created a manufacturing value chain in the country.” “The domestic value addition of around 20 to 30 percent on Bill of material would have been feasible and would have also helped in creating a good export potential from India to be aligned with ‘Net zero import’ strategy of government and we will continue to impress upon MEIT, MOF and other authorities on this,” further elaborated Kunkolienker.
Noting that the budget does not have solid impetus for Make in India, BS Sethia, Past President ELCINA and Co-Chairman Policy Committee said, “domestic value added manufacturing is not supported by the budget and it will encourage imports especially of POS Machines, Micro ATMs and Scanners to promote cashless economy as all duties including BCD, CVD and SAD have been waived. The industry had recommended differential duty or imposition of BCD on the finished products to give an immediate boost to their assembly. Waiver of all duties will result in a flood of imports without enabling creation of a local industry and a big opportunity for manufacturing these products in the country would be lost.”
Nasscom on the other hand commended the efforts of the FM and said that The Budget presented today reinforces Government’s reliance on technology for achieving development goals, as it focuses on Infrastructure and empowering startups and SMEs, although IT industry expectations on facilitative proposals remain largely unmet.
The budget evangelizes digital payments and infrastructure, along with promoting a transparent business environment. It is also promising that the Government is dedicated to “change the colour of money” on the back of tax reforms, political funding, digital transactions and policies that dis-incentivise the use of cash for high value transactions.
The Technology sector sees many emerging opportunities arising out of Govt. reliance on Technology driven development like initiatives like SWAYAM, separate policy for Metro with focus on indigenisation, Pension platform for defence, Digi Gaon etc.
Medium and Small Enterprises occupy bulk of economic activities. Government’s encouragement to SIDBI to refinance credit institutions providing unsecured loans, at reasonable interest rates, basis transaction history, should benefit Technology sector where tangible collaterals are difficult to offer.
The continued focus on digital payments is as per expectations. We welcome the Govt’s announcements of setting up the Payments regulation board and the intention to undertake a comprehensive evaluation of the Payments and Settlement Systems Act. Related and maybe more important is the security aspect and setting up of CERT for financial transactions needs to be expedited, to maintain momentum as India transits into ‘less cash’ economy.
Reinforcement of Government’s intent to rationalise and simplify regulations and in particular labor laws will have far reaching effect in ease of doing business and protecting employee interest. For the IT sector, which did not exist at the time when applicable legislations were framed, such an initiative holds promise and NASSCOM will work with Industry and Central and State Government to develop streamlined regulations for the sector.
For the IT sector, leading the start-up journey, extending the time period for eligibility for the 3 year income tax exemption, from 5 years to 7 years will allow for startups to actually avail the benefit, as most startups do not make profits in the initial years of their operations. Govt support for investments and scaling up, by allowing carry forward of losses even if stakes are diluted beyond the stipulated 51%, subject to safeguards, was part of several recommendations from NASSCOM on strengthening the start-up ecosystem. However, other equally critical recommendations related to harnessing domestic investors and removal of angel tax have not been accepted.
TDS on payments to call centres have been reduced from 10% to 2%. This will improve working capital available with call center companies and potentially support cos in their expansion to Tier 2/3 locations, However, this is possibly the only IT sector focussed announcement in the budget. Several Industry recommendations to help sustain and grow global competitiveness of the sector like support for Research, development and innovation, rationalising safe harbour margins to more realistic levels and roadmap for corporate tax reduction have not seen place in the Budget 2015-16.
Mukesh Butani, Managing Partner, BMR Legal, said, “The proposal to abolish FIPB is a bold move, expected to reduce M&A timelines, create new investment opportunities for foreign investors. The economic secretary of course cautioned that the existing FDI limits on defence etc. And FDI in sectors that entail national security shall be subjected to controls. An interesting announcement has been the creation of integrated PSU oil major, this could lead to consolidation of existing oil PSUs and possibly look at international markets for funding and/or possibility of leveraging on larger balance sheet for bidding for upstream assets, given India’s thirst for oil.”
He added, “An unexpected announcement in the budget is the proposal to reduce holding period from 3 years to 2 years for long-term gain on transfer of immoveable property, this is going to boost the investment in the real estate sector. Further, keeping upto the expectations, proposals have been made to digitalize the payments including no deduction for the expenditure above Rs 10,000 in cash. On indirect tax side, no tinkering has been made with the excise duty and service tax rates, possibly the Finance Minister would make one-time increase at the time of implementation of GST.”
