In an interview with Equitymaster, Ramu gave us his perspective on the Union Budget and how it affects the Indian economy in general and the Indian software sector in particular.
How do you rate Budget 2005 in terms of overall direction?
I think the overall direction is very clear. This year's Budget is something that concentrates on the masses. It is not industry-centric, as the previous governments had depicted in their Budgets. It is also very heartening to note that they were talking about, say, revenue deficit being wiped out over the next five years. They were talking about so many things like gradually increasing agriculture credit over a period of years. So, I got the feeling that it is a long-term thing and not just an eight-month plan. It looks like the start, a beginning of the solid things to come. So, I think that is what stood out in a general sense.
How does the Budget impact your sector, as there was almost nothing for it in the Budget announcements?
Well, there are two ways to look at it. One is, no news is good news because we are tax free up until March 2009. We are exempt from all these import duties and custom duties. So, that is a major chunk of what we already have in the bag as an industry, IT and BPO included. And there were some rumours that there was some sort of a tax brought in. There was a 10 per cent tax on IT and BPO in the Budgte of 2002. Nothing like that happened and that is more of a relief. Well, I think the best way to put is that - 'No news is good news'.
On the other hand, if you also look, it was disappointing to note that, to breach the digital divide, nothing was done in terms of penetrating IT and BPO to the second and third tier cities. I think this was a good opportunity, especially in BPO, for people coming out of the smaller towns to be able to lend themselves better suited for doing BPO work than IT. This is because it (BPO) requires lesser training facilities in the cities, so it is easier to have them do BPO work. Nothing happened on that front and that is disappointing.
Would the raising of FDI in telecom benefit the software sector?
Yes, I think so. More than software sector, I think the BPO sector would benefit from the same. Obviously software also, but BPO, especially call centre type work is heavily dependent on communication links. Companies like Reliance and Tata will quite considerably benefit from this. And hopefully, that benefit will be passed on in their pricing.
What are the areas, which you feel, have been left out in the current Budget?
The finance minister did not say anything about the administration of the tax system. That was completely left out and this is what he has kept for February next year because then he has more time to think on it. After all, he had only six weeks to prepare a Budget. So I think that he could not look at the administrative side and I hope that he will do so when he declares his next Budget in February 2005.
This is because tax administration is very important. Our country should be seen to be friendly in its procedures because that is one of the biggest problems that we in India face. Everything, every procedure, every regulation is mired in unnecessary steps. And tax is no exception to that rule. So, let us hope that February 2005 will take care of it.
What is the one big positive you see in the Budget proposal and why?
I think there are two big positives rather than one. The first one I would say is the education part of it. The great benefit is that he was looking at educating children. He talked about educating children in the smaller cities. I think that should spread to villages as well. He talked about nine years of education for every child and providing him or her with food. One square meal a day and basic education is a noble cause. The future of India is in its agriculture, manufacturing and services. So, the educated group is really going to benefit and boost India's growth further as this becomes India's century.
Well, the devil always lies in the details. The magic is in the implementation. See, the thought is noble. So, let us see what happens in the implementation.
Second big positive is that he said and laid lot of stress on airports, seaports, and infrastructure in general. I think that for the future development of this country, we need to have all our ports, air and sea, and communication within the country, transportation and all that at world-class levels. So, I think he is going to give that thrust. And he has got five years to prove that because in five years a port can be built. In five years, an airport can be built. So, within that term, they can do it.
Where will you rate this budget on a scale of 1 to 5?
I will rate it at 3.
Ravi Ramu is the Chief Financial Officer at MphasiS-BFL. He is also a member of the Institute of Chartered Accountants in England and Wales. Ramu was previously the senior partner and head of the information, communication and entertainment practice at KPMG India and was involved extensively with US GAAP assignments as well as with US initial public offering of shares of leading technology companies. He has also worked in KPMG Holland and in the KPMG International Office in Amsterdam in addition to having had a stint in Financial Control & Planning with the Emirates Bank Group in Dubai, UAE.
