More than anything else, it is the non-withdrawal of Section 80 HHE from the Income-tax Act which had the software industry heaving a sigh of relief. Tax incentives provided under Section 80 HHE were widely being expected to be withdrawn for software exporting companies.

Said Tata Consultancy Services executive vice-president Phiroz Vandrevala, "I am very happy. It is nice to have a threat and then feel protected."Such was the scare about this that former Hewlett Packard India president Suresh Rajpal and IIS Infotech executive chairman Saurabh Srivastava literally beamed upon being contacted. "I am glad software is budget-proof," said Rajpal.

Another important demand of the industry was to providesoftware the benefit of Section 35 (2ab) of the I-T Act which allows 125 per cent tax exemption to software R&D projects till 2005. This will mean more software production packages coming out from the country and help smaller companies who are getting in the production packages in a big way, the industry felt.

Structural Dynamics Research Corporation (India) country manager Narendra Reddy felt the concessions for R&D would give a fillip to companies to invest in corporate tools that will improve productivity of employees, profitability of the organisation and quality of the product, making India globally competitive.

"The setting up of a national foundation for innovation and encouraging R&D by extending the weighted deduction of 125 per cent by companies is a landmark step towards making India a net creator of technology. It particularly recognises the potential of the knowledge-based industry like IT in creating intellectual property," said NIIT managing director Rajendra Pawar.

``Besides makinginformation Y2K proof, it will give a big boost to the growth of business for companies with strong domestic software business,'' said NIIT chief operating officer P Rajendran.

However, Vandrevala sounded a note of caution saying it may lead to a lot of corporates trying to take undue advantage by classifying a lot of routine work as Y2K related.

Srivastava said it is absolutely critical to retain skilled human manpower. With the clarification that stocks will only be taxed at the time of exercise of the option by employees and later as capital gains at the time of sale of the security, it will encourage many more IT companies to introduce ESOPs and for employees to accept them, Srivastava pointed out.The industry felt that with the government working towards venture capital environment by relaxing the strict guidelines of lock-in period and time-bound investment, venture capital investment in IT sector is bound to become more attractive.

However, CMD of Eastern Software System Anil Bakht, said, "I hopethis is not dampened by the way corporate taxes have gone up. Banks are willing to give money to software companies. With the step on venture capital funds, the sector might attract more investment from not only venture capitalists, but also from mutual funds. Citibank Finance and Citibank Information Technologies had picked up a 40 per cent stake in Bakht's company last year. A bitter hardware industry, on the other hand, could not believe that it had been completely ignored in the Budget exercise and is likely to seek clarification about some of the provisions.

The hike in customs and excise duties on finished computers as well as parts and components will result in making the personal computers costlier by three to five per cent, said Manufacturers Association of Information Technology director Vinnie Mehta.

"The finance minister has managed to give something away with one hand and take it back with the other," said Som Mittal, MD, Compaq India. He added that in the case of the IT industry, this wasvery much the case. "Prima facie, and in the absence of all the details about the changes in the various duty structure, it appears that the cost of IT will actually go up by about 7 to 10%."

At the same time, the so-called ``substantial reduction'' announced in customs duty on critical inputs like integrated circuits and micro-assemblies, storage devices and CD ROMs had not been clearly spelt out, he pointed out.

``What the Government has done is merely rationalise the classification of items such as the ICs and micro-assemblies costing above Rs 1,000 and storage devices other than HDDs, FDDs and CD ROMs such as the optical drives and magnetic tape drives which attracted 10 per cent customs duty earlier,'' said Mehta. Mait also bitterly criticised the finance minister for not making any reference to recommendations made by the prime minister's national IT task force in its hardware report. ``I am not disappointed by the Budget. The industry will continue its momentum,'' said task force member-convenor NSeshagiri, when contacted. He expressed hope that provisions of the hardware report will be notified separately by the Government.

Custom duties on finished PCs appeared to have increased to 25 per cent from the present 20 per cent, Mehta said. However, since the IT industry is bound by the IT agreement of the WTO, a clarification will be sought in this regard by the hardware manufacturers. Mehta also pointed out that there was no reference to the abolition of special additional duty. ``Hence, the manufacturing sector will continue to be disadvantaged due to lack of adequate duty differential,'' he added.