Union Budget 2013-14 – A Story of Odds & Ends

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As a follow-up to my previous blog where I highlighted pain points IT decision makers are facing in India, below are some of my observations from the budget announcement yesterday. While a can of worms might be in the offing when the government rolls out more details, the budget announcement has only marginally uplifted sentiments in the technology sector. With a mixed bag of hits and misses and little definitive guidance, IT buyers and provides are still left shooting in the dark. Does this ring worry bells for the sector? Read on.

1. Government has initiated an IT driven project to modernise the postal network and post offices will become part of the core banking solution and offer real time banking services. A total of 532 crore will be spent on the project in 2013-14. Move towards financial inclusion and complying with the government mandate to expand to smaller towns through network of existing players will trigger the need for banks, financial services institutions and insurance companies to standardize systems and processes. Orgs will need to implement new IT systems (Core banking solutions, e-payment gateways, ATMs) and/or expand the availability of existing ones to new locations and stakeholders.

2. Fresh impetus on Technology upgradation fund scheme (TUFS) will add much needed momentum to the suffering textile sector. Government has announced Rs. 2,400 crore for 2013-14 to launch these initiatives. The announcement will offer partial relief to the textile sector and encourage organizations to invest in IT systems to better manage operations and also comply with international laws and regulations.

3. A sum of 2,200 crore has been proposed to set up 15 additional Tool Rooms and Technology Development Centres. In addition, funds provided to technology incubators located within academic institutions will qualify as CSR expenditure. The decision to extend technology and design support to MSME and Start-ups will be well received both by existing smaller businesses and budding entrepreneurs that have traditionally lacked the IT systems to allow for growth and expansion.

4. The push to attract new ventures, encourage domestic manufacturing of semiconductor water fabs and the decision to establish industrial towns will all spur investments in across multiple levels. A sum of 5000 crore has been proposed to finance construction of warehouses and cold storage units designed to store agricultural produce. This will include an indirect need for newer IT systems and processes.

5. Mobile phones priced more than Rs. 2000 will now attract a higher duty of 6 percent. This move is touted to spur domestic manufacturing of mobile handsets. While this is partially true, it is unlikely to either displace the position of global brands that chiefly import handsets or force these brands to setup additional manufacturing units locally.

6. No announcement was made on the issue of double taxation on software. Government still does not have a clear stand and orgs continue to pay 15-25% higher for software products. Government must implement a simplified tax regime which clears this confusion and ultimately reduces the total cost of ownership for organizations. This is increasingly critical given the higher number of organizations now turning to Software-as-a-Service and leveraging public cloud to deliver applications.

7. No guidance was offered to increase on broadband and mobile internet penetration in Tier -3 and Tier-4 towns. Key deterrent to current higher penetration is the 12 per cent service tax which the government currently levies on internet, like other telecom services. Abolishing this service tax will help increase broadband penetration and allow orgs to offer services (hence more revenue opportunities) to consumers living in smaller cities of the country.

8. The government did not offer any clarity on the sensitive issue of Cyber security and data privacy. RBI must go beyond 3D-Secure and 2-factors authentication and build stricter policies to establish trust in e-commerce.

9. Government has not done justice to Cloud and not offered any perspective or guidance on how both the state and central government departments can harness this innovation. Cloud offers huge potential in driving government to citizen services and government needs to adopt a formal approach moving forward.

10. The government has offered no definitive guidance on GST roll-out and has issued vague comments that point to little consensus between various government bodies. Lack of clarity and direction on multiple policies like transition to GST has paralyzed orgs’ IT investments. Definitive announcement on such matters of grave importance will help IT decision makers define next steps.

What are your observations from the announcement made in the Union Budget 2013? Has it done much to uplift your sentiments?

For a pre-budget analysis, click here.

SVG 200x200About The Author: Sanchit Vir Gogia is the Chief Analyst & CEO of Greyhound Research, an independent IT & Telecom Research & Advisory firm. He also serves as Founder & CEO of Greyhound Knowledge Group that operates under four brands – Greyhound Research, Greyhound Sculpt, Greyhound Technocrat and Greyhound Vivo. To read more about him, click here.

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