Given its potential as a growth driver for the economy, the knowledge sector had its share of long-term bets and short-term hedges in Budget 2007-08. Though the finance minister did not reveal any grand new vision -- not that anyone (other than the Dalal Street) expected anything new given the galloping economy. After all, 'why fix it if it ain't broke?'
To nurture the long-term viability of the knowledge economy, the finance minister gave further impetus to agriculture and the social sector -- with sharp hikes in outlays on health and education through focused programmes like funds for finishing schools for graduates upgrading vocational education, as well as the additional cess to fund secondary education. This is a good start towards skill development, improving the talent supply, and strengthening the talent supply for the IT and BPO industry.
The government's intention to reap the benefits of technology through greater funding of e-governance projects of over Rs 700 crore (Rs 7 billion) is good news for citizens. Running large countries, like running large corporations, efficiently requires a technology backbone in today's wired society and the satisfactory experience of the finance ministry, whose revenue collections have been greatly helped since the introduction of e-filing of taxes, has greatly advanced the cause of e-governance.
The effect of e-governance will be felt in the rural areas too where the NREGA scheme, which is being run on TCS software in Andhra Pradesh, is extended to 330 districts.
And here ends the good news.
For Indian IT, the finance minister's budget has cast a short-term cloudy spell. The imposition of MAT on IT companies on book profits will lower profits and hurt valuations of a sector that was recently described by the prime minister at the Nasscom Summit, 'as an industry which is the torch-bearer of India's image in the world.'
Not only has the wealth generated by Indian IT been widely distributed, it has also generated over a million highly-paid skilled jobs and helped build the nation's physical and human infrastructure.
The IT industry does pay tax in other geographies currently, but it remains to be seen whether the MAT burden can be off-set to some extent. While the IT industry does pay tax in other geographies currently, it remains to be seen whether the extra burden can be off-set to some extent.
Another burden for this sector is the increase in dividend tax paid by corporations to 15 per cent from the current 12.5%. The IT sector has been good at utilising its profits by investing in physical infrastructure and human resources for the future, rewarding shareholders consistently and has been a magnet for drawing in large FIIs into the Indian market.
Higher costs for leased space will adversely affect SMEs, which do not own office space, and reduce the competitiveness of India vis-à-vis other destinations. A change proposed with regard to ESOPs is not in keeping with international practice. And for a country that is competing globally on the strength of its human talent, bringing ESOPs under the FBT umbrella could increase the costs of hiring and retaining talent.
The author is Executive Vice President and Head, Global Corporate Affairs, Tata Consultancy Services. He is also Executive Council member, Nasscom.
