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Indian Budget 2010-11- Budget Proposals and Industry Reactions

NASSCOM-Union Budget reaffirms importance of technology in realizing the national agenda of the country

NASSCOM welcomes budget thrust on inclusive growth with balancing fiscal deficit Positive for SEZs, Service Tax refunds and thrust on R&D

NASSCOM today welcomed the Union Budget Proposals 2010-11 terming it as progressive, long-term and providing the right thrust on social sector development, education, infrastructure, managing fiscal deficit, simplification of policies and convergence towards GST and Direct Tax Code.

Mr. Pramod Bhasin, Chairman, NASSCOM said, “We are delighted that the Finance Minister has recognized the key role our industry can play in driving technology led inclusive growth across the country, apart from directly contributing as an employment generator and foreign exchange earner. The announcement of the Technology Advisory Group under Mr. Nandan Nilekani, automation of central excise, GST and commercial taxes will enable the vision of citizen centric governance. Our industry will partner with the government to drive inclusive growth within India, while continuing to be the leader around the world in IT and business process solutions”.

Mr. Som Mittal, President, NASSCOM said, “There are numerous positives for our industry in this budget, particularly on simplification. The removal of anomaly in Section 10AA of the SEZ Act and the Finance Minister’s reaffirmation on the importance of SEZs will help the industry to take forward its SEZ plans across the country. The enhanced deduction on R&D investment will propel greater thrust on innovation and IP creation helping India to realize its vision of being the global R&D services hub”.

He further added, “The reduction in personal income tax will greatly benefit the employees in our industry who will help to drive both enhanced savings and consumption within India. At the same time, the clarification on duty applicability for pre-packaged software as well as service tax refunds will provide the much necessary simplification of policies”.

While overall the budget is positive, we are disappointed with the increase in MAT which will be a burden on small and medium businesses who are still struggling with the impact of the global recession.

There was also no move towards announcing parity of incentives between the STPI and the SEZ scheme which is again necessary for small companies and development of tier 2 and tier 3 cities. In line with our recommendation, the IT Taskforce formed by Department of Technology (DIT) had also strongly recommended that the STPIs be brought at par with the SEZs.

The tax benefits under the STPI Scheme are available till March 31st, 2011 and we will engage with the Government and through the Ministry of IT to represent for an equitable benefit to the SME sector.

CII Welcomes Fiscal Consolidation and Tax Reforms

In Budget 2010, the Finance Minister has sent out a positive message for reform that will ensure a stable macro-economic environment conducive for growth. In particular, CII appreciates the efforts made towards fiscal consolidation even as stimulus measures for industry have been largely maintained, said Mr Venu Srinivasan, President, CII, commenting on the Union Budget presented in the Parliament today.

The CII President said that the reform measures proposed in the Budget include major areas such as direct and indirect tax reform, accelerated disinvestment of PSUs, more transparent subsidy regime for fertilizers, financial sector consolidation and efforts to strengthen transparency and public accountability. Simplification of Income Tax returns and the automation of Central Excise and Service Tax are most welcome.

The initiative to target an explicit reduction in the government’s debt-GDP ratio, as recommended by the Thirteenth Finance Commission, is a welcome move that will provide confidence to investors, the CII statement issued here said. Indeed, the reduction in the fiscal deficit from the revised estimate of 6.9% of GDP in 2009-10 to 5.5% in 2010-11 has brought relief to the debt market, as it implies a reduction in net government borrowing. This will allow interest rates to remain stable even as there is a recovery in private sector borrowing. CII also welcomes the move away from the practice of issuing bonds to oil and fertilizer companies, and not accounting for these subsidies in the Budget.

With a few exceptions, CII welcomes most of the changes in the direct and indirect tax rates. CII welcomes the reduction in the corporate surcharge from 10% to 7.5% and the increase in deduction against R&D from 150% to 200%. However, the increase in MAT is a retrograde move, as it dilutes the incentives given to companies for various reasons. The change in the slabs for personal taxes is welcome, as it will provide greater disposable income in the hands of taxpayers.

CII is particularly happy that the Finance Minister has sent a clear message that any unwinding of the stimulus would be calibrated, based on the pace of recovery of industry. Extension of interest subvention of 2 per cent to exports for one year for the SME sector is also welcome. The SME sector will also benefit from the increase in the limits for presumptive taxation and the clarification that no capital gains tax would be levied in case of conversion of small companies into LLPs.

Important measures have been taken to consolidate regulation in the financial sector. The establishment of the Financial Stability and Development Council will help inter-regulatory co-ordination while the Financial Sector Legislative Reforms Council will provide an outline for the expected reforms in this sector. The provision of additional banking licenses to private sector entities will enable greater competition in banking even as public sector banks are strengthened through re-capitalisation.

CII also welcomes the steps taken to encourage agricultural growth. The dual strategy of increasing agricultural productivity on the one hand and initiating reforms in the food supply chain on the other is one that has long been recommended by CII. If implemented well, this can go a long way in overcoming the supply bottlenecks that have been responsible for the current increase in inflation. Incentives provided to the food processing sector will also enable greater investment in this critical area, the press statement said.

CII has always highlighted the need for greater investment in infrastructure which will be a catalyst for growth. Budget 2010 has provided for significant increases in the Plan outlay for the critical infrastructure sectors such as roads, power, housing and rural infrastructure. The National Clean Energy Fund has also been established with an allocation of Rs 1000 crores to promote research and innovation in clean energy. CII is confident that with these measures, there will be a step-up in the amount invested in infrastructure.

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