Analysis

Frost & Sullivan on the budget

Next week we carry Frost & Sullivan’s detailed take on the implications of the union budget for the IT industry. This week we carry a preview

Budget 2006 attempts increased social expenditure while containing the fiscal deficit.

The levying of excise duty on packaged software sold over-the-counter will not affect companies like Microsoft which are exporting it to India. However, companies registered in India which have a manufacturing set-up here will bear the brunt of 8 percent levy.

By levying 8 percent excise on packaged software sold over the counter and exempting online downloads, the budget seems to be encouraging adoption of online payments. The expectation may be that companies or individuals would switch to legal downloads, thereby curbing piracy.

IT spending by the government will witness growth in the future. Though the intentions seem bold and positive, its implications would be clear after knowing whether the investments planned are for scaling of projects (for example, expansion to new talukas), initiating new projects or supporting/ sustaining the existing ones which have been initiated some years back.

The announcement of 25 new e-governance initiatives through the National E-governance Plan indicates the government’s commitment. Reimposition of excise duty at 12 percent to enable domestic firms to claim CENVAT would promote domestic manufacture of notebooks, high-end servers, storage systems and the like.