Budget 2002-03: Soft on hardware, hard on software

The Union Budget 2002-03 has encouraged local manufacturing by reducing

duties on capital goods from 25 percent to 15 percent and on certain electronic

components to five percent. The budget has instilled confidence in local

hardware manufacturers with the rectification of the tariff structure.

However, says Vinay Deshpande, President, MAIT, "The hardware industry

is looking at other higher value-added options like exports of designs, firmware

and even technology. But unfortunately issues like with-holding tax and taxation

on royalty from exports of technology that are proving to be deterrents, have

gone unaddressed."

The budget has disappoi-nted the software and services industry. "There

have been no major announcements to encourage the growth of the domestic

software industry. We had expected measures to encourage joint ventures abroad

but the exemption of taxes vanish when mergers take place," says Sushil

Kumar Gupta, Executive Director, STPI, Pune.

Though there is a negative reaction to the 10 percent tax on software

earnings, Naresh Gupta, MD, Adobe India opines, "10 percent tax on the

software industry is quite reasonable, as compared to other sectors in the

economy that are paying much more." However he does point out that adding

tax burden will not benefit the software industry. Instead, Finance Minister

needs to find other ways to collect revenue for the exchequer.

Abraham Thomas, MD, IBM India says, "The announcement of reduction in

hardware import duty and the introduction of income tax on software export

profit though significant, would marginally impact businesses." According

to him, the budget, which allocated Rs 470 crore for the development and

promotion of IT, has an overall development focus.

Many companies have also welcomed the government’s move to extend the

zero-duty regime. A two-year breather owing to the shifting of the Information

Technology Agreement to 2005 is seen as helpful for the domestic hardware

manufacturing industry to work towards global scales.

"The extension of the zero-duty regime to the year 2005 is

pro-manufacturing and a welcome step," says Ajay Chowdhry, CEO, HCL

Infosystems.

The prices of the IT products are not expected to come down as duty on most

components of the IT products especially PCs and peripherals are already in the

range of 0-5 percent. Avtar Saini, Director-South Asia, Intel says, "We are

neutral to the reduction in duties on computer hardware."

Pradip G Kamath, VP-Marketing, Ingram Micro India says, "The five

percent duty cut in computer hardware products will help bring down prices and

assist the demand generation process."

However, on a different note, Raj Saraf, CMD, Zenith Computers says, "On

the whole, the budget this year is unlikely to boost the much needed growth

rates within the IT sector. I do not envisage a dramatic change in the Indian IT

sector post budget."