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While the UPA government's first Union Budget promises to boost the telecom and hardware sector, it maintains the status quo on policies for IT and BPO sector.

Announcing proposals of the Union Budget 2004-05, the finance minister, P Chidambaram, has sought to give a major thrust to the telecom industry and has showered a series of incentives on this sector by increasing FDI limit from the present 49 percent to 74 percent. This increase in FDI limit is a huge positive sign for telecom companies like Hutch, Idea, and Bharti who are seeking foreign investments. This would also lead to increased cross border M&A activity expected in the telecom sector. The budgetary proposals reflect clear focus on enhancing foreign investment in the country. 

What's more, the benefits that the telecom sector gets under section 80-IA for services commenced before 31 March 2004, have also been extended till 31 March 2005. Also, the zero percent customs duty announced by government on mobile switching centers (MSC) will benefit service providers like Tata, Reliance, and BSNL. 

To woo domestic and foreign investment in the country, the government plans to establish an independent investment commission. The government will proactively invite investment in the country via the investment commission. "In order to achieve that goal, I propose to establish an investment commission. The commission will have the broad authority of the government to engage, discuss with, and invite domestic and foreign businesses to invest in India. It will be chaired by an eminent person," the finance minister said during his budget speech.

The Foreign Investment Promotion Board (FIPB), that was till now taking care off all the foreign investment in the country, will act as a one-stop service center and facilitator for foreign and domestic investments.

The Union Budget 2004-05 has announced the exemption of duty reduction on PCs and other hardware components. This includes exemption of excise duty on some mobile phone components also. The infrastructure status has showered a host of benefits to companies involved in setting up private basic services networks. Reduction in custom duty on components has also given relief to the telecom and PC equipment manufacturing industry. But, computer maintenance and repairs are liable to service tax. The custom exemption on optic fiber cable raw material will also benefit telecom companies like BSNL, MTNL, Tata, and Reliance.

However, in view of the government's all out thrust to the power, road, and ports sector coupled with low viability of telecom projects, only a small portion of the funds are expected to trickle down to the telecom sector. Software companies have a little to rejoice about in this budget.

As expected, biotech sector got a boost with the finance minister allocating a Rs 1,000 crore package towards research and development in the area of agriculture and biotechnology. The tax concession announced by government in this sector will have a positive impact on companies like Biocon and Wockhardt. The industry has also been given tax incentive under section 80-1B.

Looking ahead, PC's budget seeks to put into action what the Congress-led coalition government had been promising all along, toward making India a global economic power. Chidambaram's budget held a lot of promise for the telecom and hardware industry in the country, though there's no reason for the software industry to believe that the minister has been unkind to them. In fact, the finance minister has put lot of thrust on infrastructure issues that software and BPO industry have been demanding for quite some time now.

CyberMedia News