Financial Daily from THE HINDU group of publications
Wednesday, Mar 02, 2005
Industry & Economy - Budget
`In the right direction for hardware sector'
THE Budget was a big step in the right direction for the hardware industry.
Hardware manufacturing will see a renewed vigour and will encourage local manufacturers to invest in new capacity expansion.
The import value-added tax of four per cent on input will bridge the gap between local manufacturing and full system importers, according to Mr Gopal Srinivasan, Director, TVS -Electronics.
Hardware industry currently employs more than three lakh people, and with the growth in demand as projected the industry will employ over a million in the next 4-5 years.
"I am confident that we will have a good year ahead and IT demand will continue its current growth rates of over 30 per cent," he said.
Mr Vinay Mehta, MD, Convergys IMG India: Overall there was not much of an impact to the IT and telecom sector in the Budget, with one notable exception the introduction of the fringe benefit tax.
"We are still evaluating the implications of this seemingly new tax, but on the face of it, we will be exposed to significant new taxes. For example, foreign travel, which represents a significant portion of globalised business generally, and software industry specifically, will now be taxed."
Mr B. Ramalinga Raju, Chairman, Satyam Computer: The continuation of policies in the IT sector coupled with the intention to give priority to employment generating sectors is a positive signal to the industry.
Any support for providing education and training for potential entrants into the sector would further help in sustaining a competitive advantage for the industry.
Mr Deepak Puri, CMD, Moser Baer India: The Finance Minister has done a good job in proposing that all inputs into domestic tariff area units be on zero duty, as this will bring down manufacturing costs. "However, the Budget does not address the countervailing duty of 16 per cent we pay every time we sell, which puts us at a disadvantage against imports which will now attract only 4 per cent duty. Therefore, while this is good news for importers, there is a differential of 12 per cent in addition to central sales tax for manufacturers," he added.
Domestic manufacturers of peripherals such as printers sing a different tune, though. Since they already pay 16 per cent as excise duty, they enjoy a CENVAT credit on the outgoing product. The additional four per cent CVD helps get more CENVAT credit.
Mr Ram Agarwal, MD and CEO, WeP Peripherals: "The proposal to impose 4 per cent additional duty on import of both finished goods as well as specific inputs and raw materials for manufacture of electronic and IT products in lieu of VAT from April 1, 2005 will also help Indian manufactured compete with their imported competition on a level playing field."
The problem arises in products where there is no existing excise duty, such as in the case of PCs. Local PC manufacturers currently pay 16 per cent excise duty on inputs, which they cannot offset as there is no excise on PCs. Therefore, they are forced to absorb this cost. Now, with additional 4 per cent CVD, they will have to absorb additional cost. This makes locally manufactured PCs slightly expensive.
Mr Kiran Karnik, President, Nasscom: The industry is disappointed that taxation issues related to the BPO industry have not been resolved.
These are holding back more rapid growth and larger investment and employment in this industry."
Mr Ashok Soota, Chairman and Managing Director, MindTree Consulting: The best point about the Budget is that its top priority is infrastructure. I am happy that for Bangalore, in particular, the metro railway will receive central support.
Better infrastructure is the only need of the IT industry to further improve its impressive growth in global markets.
Mr Pawan Kumar, Chairman and CEO, vMoksha: "We are seriously concerned about the fringe benefit tax as a number of corporate expenses might be coming under that category. Absence of levies on import of software is good."
Mr Sanjeev Keskar, Country Manager, AMD Far East Ltd. (India): The outlook for PC prices is not clear. Motherboard, graphics cards, etc. will be cheaper; but CPUs and hard disk drive prices have gone up by 4 per cent."
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