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Run-up to Union Budget 2002-03: Information Technology (Software and Hardware)

Background

The slowdown in the US notwithstanding, IT continues to be one of the fastest growing industries in India. Its competitive advantage in software business continues with more and more multinationals outsourcing their software requirements to India or setting up development centres in India.

Export revenues of the Indian software industry are expected to increase by around 25% to US$ 7.4 bn in 2001-02, as compared to US$ 6.2 bn in 2000-01. PC sales in 2001-02 are expected to be stagnant or marginally negative, as compared to the strong 34% sales growth in 2000-01.

  • With countries like China close on our heels, the critical challenge for the Indian IT industry is to move higher up the value chain in terms of e-commerce, web based applications and IT enabled services.
  • It is very important to make hardware affordable to increase IT penetration in India.
  • As per the Information Technology Agreement of the WTO, which India is a signatory of, the country is committed to reducing tariffs on 122 items by 2005.

    Key Inputs
    Microprocessors, Storage Devices, Ink Cartridges, Floppy Diskettes etc.

    Products
    Computers and Peripherals, Software applications.

    Duty Structure

     

    Excise 

    Customs (Basic)

    Products

    2000-01

    2001-02

    2000-01

    2001-02

    Computer and peripherals

    16%

    16%

    15%

    15%

    Inputs

     

     

     

     

    Microprocessors for computers

    16%

    16%

    0

    0

    HDD/FDD/CD-ROM drive & Other storage devices

    16%

    16%

    0

    0

    Floppy Diskettes

    16%

    16%

    15%

    15%

    Routers & Modems

    16%

    16%

    15%

    15%

    Major announcements made in previous year's budget

    • Basic customs duty on word processing machines and printed circuit assemblies of word processing machines was reduced from 20% to 15%
    • Basic customs duty on static converters used in automatic data processing machines was reduced from 20% to 15%

    Industry's demands from Union Budget 2002-03

    • Manufacturers Association of Information Technology (MAIT) has demanded that reduction of customs duty on IT hardware items should be as per the original schedule of the IT Agreement of WTO and should not be advanced from 2005 to 2003, as has been indicated by the Finance Ministry.
    • Excise duty should be reduced from 16% to 8% on all products in order to combat the grey market.
    • Customs duty on all capital goods and all raw materials that go into making IT/electronics and telecom products should be eliminated
    • NASSCOM has recommended simplification of procedures related to software exports and clarification related to computation of income tax on income from on-site software development.
    • NASSCOM wants business process outsourcing (BPO) to be classified as an IT-enabled service to qualify for tax exemptions under Section 10(a) and 10(b) of the Income Tax Act.
    • Internet Service Providers (ISPs) have demanded three-year exemption from the 5% service tax imposed in the last budget.

    Key Players
    Infosys Technologies, Wipro, NIIT, Tata Infotech, Satyam Computers, Aptech, HCL Infosystems, Mastek Software, Pentafour Software, PSI Data Systems, HCL Technologies etc.

    YOU MAY ALSO WANT TO READ:
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    The Rediff-Dun & Bradstreet Budget Analysis
    Run-Up To The Budget
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