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February 28, 2001                                       Feedback  

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Software sector upbeat, but
hardware industry disappointed

Fakir Chand in Bangalore and Nidhi Taparia in Madras

The Union Budget unveiled by Finance Minister Yashwant Sinha elicited mixed reactions from IT bigwigs in Bangalore, the IT capital of India and the Silicon Valley of Asia.

The software sector is upbeat over the tax exemptions and incentives announced in the Budget, while the hardware sector is disappointed over the absence of any incentive to kick start the business, which has not been doing well of late.

As expected, the export tax exemption granted on onsite services has been welcomed whole-heartedly by the leading software companies, which are expected to take up more such projects worldwide.

Welcoming the proposal, HP India Ltd President Arun K Thaigarajan said about 60% of the project execution work was being done onsite.

"The lifting of ban on mergers and acquisitions (M&A) in the IT industry will result in consolidation and synergy in the industry," Thaigarajan said.

On Sinha's proposal to allow two-way fungibility of ADRs/GDRs for convertibility on capital account, Thaigarajan said the measure would enable foreign investors, retail and institutional, to convert shares of Indian IT companies listed either on the Nasdaq, NYSE, or LSE into Indian shares.

The raising of the ceiling on allocating ESOPs to overseas employees of Indian IT companies to $20,000 from $10,000 with a lock-in period of five years will enable the industry to employ and retain best of the talent available in the country and abroad, he said.

The permission granted to raise funds abroad, either in the form of ADRs/GDRs or external commercial borrowings (ECBs), up to $50 million by the automatic route after clearance by the RBI on the basis of a three-year profitability record will encourage Indian IT companies to tap sources of cheaper funds for investing in their overseas activities, Thaigarajan said.

Heading the hardware division of Hewlett Packard, Thaigarajan, however, expressed bitterness over the raw deal handed over to the hardware industry.

"It is unfortunate that the finance minister has failed to address pressing problems of the electronics and components industry, which are a part of the larger hardware industry. Other than reduction of customs duty to 15% from the present 25%, there is no other incentive or tax concession for the hardware sector," Thaigarajan

Tyco Electronics India Ltd Managing Director Sameer Inamdar lamented that the finance minister chose to ignore even the request for a level-playing field in the face of increasing competition from April first when the quantitative restrictions on all imports will be lifted as per the WTO agreement.

"The reduction of mere 10% on import of raw materials and components does not make much difference as most of the items already enjoy such benefit, barring a few of the critical items that are having 25% duty."

Even in the case of excise duty, Sinha has not responded to the computer industry's plea for reduction to 8% from the current 16%. "Had it been done, the local hardware industry would have got a boost resulting in greater penetration of computers in the country," Inamdar said.

The organised sector will have a greater competition from assemblers and grey market players, as they do not comply with such duties. In short, there has not been much benefit to the hardware sector from the budget.

Ram Raju of Satyam said, "The Budget has conferred on us the status of infrastructure business, just like telecom. While it encourages us to take the ADR/GDR path, what is disappointing is that the acceleration of depreciation of PCs has not happened as expected."

Vasudevan, Director, Alstom said, "While we were expecting a harsh Budget, the finance minister has surprised us by focussing on the need for reforms in the power sector - like ensuring 100% metering."

Arun Jain of Polaris Systems said, "What the Budget has done for the IT sector is build a road map for a domestic market and ushered in second generations of reforms."

The Budget 2001-2002 Special

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