Budget 2001: Full Coverage

The Finance Minister was also rather decisive about the entertainment industry-a sector he has been supporting for the past two years. The Minister stated that two years ago he had given the industry a new Section-80 HHF of Income Tax Act, for facilitating film exports. He stated that he was in the process of finalizing guidelines for financing "bankable" film projects. His idea is that the entertainment sector should not have to depend on ``chori, chori,'' or ``chupke chupke'' support, a tangential reference to the strong underworld backing that goes into this segment. One could see a beaming I&B Minister, Sushma Swaraj during these parts of Finance Minister's speech.

The second leg of convergence, the telecom sector also received the Finance Minister's unstinting support. Mr Sinha spoke about the progress this segment had made over the last few years thanks to government initiatives such as the New Telecom Policy 1999. The minister highlighted the fact that teledensity had increased-in fact, doubled-over the last two years.

He spoke about the rapid-fire expansion of STD/ISD booths across the country which now number over 800,000. Telecom Minister Ram Vilas Paswan seemed quite happy with the announcement as Finance Minister went ahead and provided a major fillip to the Internet and broadband businesses in India. This is significant news for this sector which will now enjoy 100 per cent income tax deduction, particularly if the Internet or broadband service units are set up before March 31, 2002. Even after the first five years, such units will get a 30 per cent deduction.

Neither chori, chori nor chupke, chupke This move by the Finance Minister is expected to result in a higher number of investments and more proliferation of the Internet and broadband across the country. However, a legislation in this regard is yet to come.

With Internet expansion taking place, e-commerce activity will also get spurred. In fact, the minister has also shown consideration for the nascent e-business environment in India by not imposing any taxes on e-commerce transactions. The industry had been expressing concern over such a move by the Finance Minister, but Budget 2001-02 has been reassuring in this regard.

IT, yet another significant part of convergence, has also been envisaged to have a greater role in the country's fortunes. For those who were looking for a drop in computer prices, disappointment was in store. While the Finance Minister reiterated the government's commitment of reducing duties on all IT products to zero by 2003, he only cut the duties very marginally. As the excise rates have now been harmonized at 16 per cent, no reduction of excise rates on computer systems was possible. However, I wish the prices of computers had been brought down to a level which was within easy reach of the masses.

If today all the duties, excise and sales tax are removed on computers, they can sell for Rs 15,000-20,000. What is good however, is the news that e-governance projects are on the anvil this year (with computerization of customs, passport offices, etc. being planned) which will create major opportunities for the Indian hardware and software vendors.

The Finance Minister, as in previous years was extremely soft on the software sector, offering concessions the market had been asking for. A major plus was the clarification of exempting onsite services from income tax with retrospective effect. Almost 60 per cent of India's software exports are through on-site services.

In the year 2001-02, out of a projected software export of $6.24 billion, almost $3.7 billion will be through on-site services. And, one could see a happy IT Minister, Pramod Mahajan who had influenced such decisions. Also, the Finance Minister allowed an income tax holiday to those listed companies that get acquired. This has been a kind of correction over last year's budget. However, this concession needs to be extended to unlisted companies as well.

With the convergence sector finding a spotlight in the Finance Bill 2001-02, we can expect to see this market open up substantially in the coming years. The expansion of this market will also bring with it requirements of skilled manpower, and by all accounts, the Finance Minister has also taken this aspect into consideration in the latest Budget.

Not only has the Finance Minister made provisions for expanding the base of IITs in India (the University of Rourkee has already been accorded IIT status), the Regional Engineering Colleges will also be upgraded. Further, in order to encourage private sector participation in the IT education process and in order to enlist the monetary help of this segment in promoting centers of higher learning in the country, the Government has decided to offer 100 per cent tax exemption to contributions to engineering institutions.

This will further encourage software companies to contribute and fund engineering colleges. Another laudable aspect of the Finance Bill is the provision for educational loans for students, which is a part of the overall impetus to IT education across the country. This will also secure the future of many youngsters in India and also create skilled talent for emerging markets such as convergence (covering IT, entertainment and telecom), the Internet and e-commerce.

The stock markets too will find reason for cheer in the fact that the Finance Minister has increased the FII investment cap from the erstwhile 40 per cent to 49 per cent. Also, the dilution of the draconian laws of the ADR/GDR policy as well as the revolutionary announcement of two-way fungibility are great news. If the stock market conditions in the US improve, we can target at least 100 Indian tech companies (including the emerging convergence majors) listing on American stock exchanges in the next five years.

Mr Yashwant Sinha has anticipated the needs of this emerging market and acted in a proactive manner. Overall, a good starting point in the budget for the convergence market place. After all, Mr Sinha is not only the Finance Minister of the country but also chairs the Group of Ministers on Convergence. So 2001 is expected to start the convergence movement with a big bang.