SECTOR: INFORMATION TECHNOLOGY & TELECOM
Key Announcements Made
Announcement 1: - Increase in MAT from 18 percent to 18.5 percent
Impact: Negative
Increase in the MAT to 18.5 percent negatively impacts the cash flow putting pressure on the SMEs to compete against the larger firms. The tax holiday benefits for Software Technology Parks (STP) expiring in March this year will only further impede the growth momentum of the industry.
Announcement 2: Impetus to inclusive banking and large investments in government projects Impact: Positive
The budget highlights increasing opportunity for IT/ITes vendors and BPOs with domestic presence especially in the banking and government sectors. The focus on providing banking facilities to all 73,000 habitations having a population of over 2,000 by 2011-2012 will bring about significant spends on IT services and IT infrastructure. The large governments projects around GST implementation, mega food parks, infrastructure projects and tax collection processes will further drive the government IT spending. This will result in a significant boost in the IT services spend across e-government as well as application integration areas.
Overall Impact: Negative
Overall Analysis:
The 2011 budget has not managed to meet the expectations of the Indian software industry. The multibillion dollar export oriented industry needs an increased focus on R&D to meet the 125bn dollar mark in 2020. Increase in MAT, no extension of the STPI schemes and continuing ambiguity over double taxation impede the sector’s growth.
The SMEs which form a critical component of the software growth story will be impacted adversely in multiple by the tax increase and 31st March being the deadline for STP benefits; not only is there a reduction in the cost arbitrage differentiation but also the ability to invest in product and services innovation.
Growth drivers
Increase in IT budgets and spending across across verticals
Increased focus on new geographies
Rise in demand for applications over the cloud
Higher spending by government vertical on citizen services and other large government projects in infrastructure
Attribute to: Nishchal Khorana, Head – Consulting, ICT Practice, South Asia & Middle East, Frost & Sullivan
SECTOR: TELECOM
Key Announcements Made :
Announcement 1: Plan to provide Rural Broadband Connectivity to all 2,50,000 Panchayats in the country in three years.
Impact: This announcement is in continuation to the agreement signed by USOF (Universal Service Obligation Fund) with BSNL on January 20, 2009 under the Rural Wireline Broadband Scheme to provide wire-line broadband connectivity to rural and remote areas by leveraging the existing infrastructure. The Government, under Bharat Nirman II Programme, had envisaged to provide broadband coverage to all 2,50,000 Gram Panchayats by 2012.
Overall Impact: Neutral
Overall Analysis: The Budget 2011 covered too little on Telecom, while this is one of the fastest growing sectors. No significant steps on controlling the spectrum related issues. Neither there was any announcement regarding the renewal of 2G spectrum. Further there are no exemptions of service tax on broadband, which could have increased the penetration of broadband. The overall budget impact may be positive, but no tax incentives to the telecom industry remain an area of concern. Another reason for no major announcement in telecom sector could be the New Telecom Policy expected to be announced in March/April. That would make the impact to this sector more evident.
Attribute to: Parminder Kaur Saini, Program Manager, ICT Practice, South Asia & Middle East, Frost & Sullivan
About Frost & Sullivan:
Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth and achieve best-inclass positions in growth, innovation and leadership. The company's Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined research and best-practice models to drive the generation, evaluation, and implementation of powerful growth strategies. Frost & Sullivan leverages 50 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from more than 40 offices on six continents. To join our Growth Partnership, please visit www.frost.com
