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The Change
While some specific demands from the IT/BPO sector including request for reduction of MAT rate have not been acceded, it was overall a good budget for the sector. The thrust to digital India initiative, the tax sops for start ups and the sunset date for commencement of activity of a unit located in a SEZ (under section 10AA) being pushed to 31 March 2020 from March 31, 2017 as indicated earlier by the CBDT are all positive. However, new SEZ units starting operation on or after 1 April 2017 will not get tax deduction. The IT hardware companies have have got concessions on excise duty front (excise duty on routers, broadband modems, set-top boxes for internet connection of 12.5 per cent removed completely).
Background
Nasscom recently lowered 2015-16 growth estimates for the IT-BPM industry to 12.3 per cent, from its initial estimate of 12-14 per cent. In 2016-17, it expects the industry to grow at an even slower pace of 10-12 per cent. Pressure on the top-line is building up for IT companies on weakness in the US manufacturing sector and the oil price collapse that’s hurting banks. In recent quarters, BFSI and manufacturing verticals of most Indian IT companies have seen drop in sales growth as clients cut discretionary spends. Further, with competition on rise, profit margins too have been squeezed. Given this backdrop, the thrust to digital India initiative by the government is only going to be of help to the sector.
Verdict
With the push to rural connectivity and e-governance again, domestic business for IT companies should be good over the next one year. Infosys, TCS and Mindtree make about 2-6 per cent of their revenues from India. Over the last one/two years, several new initiatives from the government including- the e-biz platform, the mygov.in portal and preparations for GST, have seen domestic IT companies bag a number of deals. The GST network project worth ₹1,380 crore, was won by Infosys last year. Going ahead too as more government departments go digital, more opportunities will open up for domestic IT companies. However, the one issue that companies have been voicing about government contracts is the delay in payment. Last year, in the bidding for the Centre’s crowd-sourcing platform- mygov.in, not many big names were seen (bidders were- Zylog Systems, PC Solutions, SAS institute India, HP and IBM). If measures are taken to address this concern, it can help the domestic IT sector. Players including Infosys, TCS, Wipro and Mindtree who have earlier shown interest in government contracts may pick up more of such tenders. The move to push start-ups will also help as many large IT companies such as Infosys and Wipro have been investing in start ups. Wipro for instance in January picked up a 20 per cent stake (for ₹9.8 crore) in Altizon Systems, a Pune-based big data company.
Takeaways
* Thrust on digital India to see order inflows for domestic IT companies
* Infosys (won GST project last year), TCS (India Post) and Mindtree (Aadhaar) may pick up more new digital projects
*Sunset date under section 10AA pushed to 31 March 2020
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