Post Budget Reactions from Digital India in 2012,

The Indian market’s initial reaction to the budget for 2012-13 has not been positive as the big picture in terms of policy reform action from the budget has been missing. India Digital Review compiles a list of reactions from the Indian digital industry on the budget 2012.

Dinesh-AgarwalDinesh Agarwal, Founder & CEO,

“We welcome the Union Budget 2012-13 presented by the Hon’ble Finance Minister.

While the FM called for speedy reforms today, the Budget did not indicate much in that direction. The key highlight, however, was ‘GST’ which is now expected to be operational by August 2012. We hope that this timeline is met as it would certainly help address the multiple taxation issue faced by the MSMEs currently. We had also expected some effective mentions to simplify taxation and also consolidate multiple departments to allow better compliance by MSMEs. This still remains to be looked at by the government.

Another positive for MSMEs in this budget was allocation of Rs 5,000 cr to SIDBI for venture fund which would enhance equity availability to MSMEs. Exemption of capital gains tax from sale of property when proceeds are used for investment in SME would also help augment funds for SMEs to a certain extent.

The fillip to handloom, powerloom and leather clusters is seen as a positive move for growth of small enterprises in these sectors.

With the manufacturing sector facing deficit in skilled manpower, the FM’s proposal to provide weighted deduction for expenditure on skill development will help bridge some gap.

Also, the move to raise the turnover limit for compulsory tax audit for SMEs to Rs. 1 crore from Rs. 60 lakh would also bring relief to many SMEs.

We believe that there was a scope for bolder announcements for MSMEs which could have brought a sea-change in their productivity and growth by eliminating the challenges faced by them.”

Satya Prabhakar, CEO & Founder,

“Overall, the budget gives a feeling of Brick-and-mortar sensitivity in an era where subsidies in technology infrastructure is crucial to growth. Absence of specific subsidies in cost of Internet access a critical concern. This is a key growth requirement, considering the fact that India is amongst the weakest in Internet penetration. We Hope that the PPP in infrastructure as a part of the 12th 5-year plan will give a fillip to technology/telecom infra investments.”

Sunil Dutt, Managing Director, Research In Motion India:

“It can be said that the Budget was well balanced and focuses more on long-term growth aspects instead of short-term populous measures, can be termed as positive and growth oriented. It indicates some prudent steps towards fiscal consolidation and reflects that the government is sincere about the fiscal situation going forward. The proposed full exemption on mobile phone part may further make the smartphone affordable to larger section of the masses and basis the direct taxes, the increase in disposal income will further enhance the penetration of smartphones. The budget is expected to stimulate growth for agriculture, banking & m-payments industry with development of tier II, III markets. This will in turn enhance the adoption of mobility contributing to the overall growth of the economy. Introduction of a constitutional amendment for GST is also a positive development.”

Dippak Khurana, CEO & Co-Founder,

“The Union Budget 2012 is a balanced one and has put forth many provisions to improve macroeconomic environment and strengthen domestic growth drivers. Although the budget doesn’t majorly focus on telecom and allied industries, there are a few provisions which are very crucial from a populist perspective.”

MP Vijaykumar, Chief Financial Officer, Sify Technologies:

“Not a disappointment in its entirety. The FM had too many compulsions and issues to address and they cannot be addressed in a fiscal budget. Atleast, there is reaffirmation of GST, DTC becoming a reality. The announcements towards fiscal discipline in terms of subsidy cap and focus towards long term growth –R&D, venture capital funds scope enhancement, Investment linked deduction are steps in the right direction. The key differentiator now will be in how the government holds its nerve in delivering on hitherto taboo subjects like subsidies and fiscal deficit.”

Ganesh Vasudevan Vice-president and Business Head,

“The overall budget 2012 for the realty market is not very convincing both for the buyers and the sellers alike save for a few interventions in the affordable housing segment. The service tax, which has been raised from 10% to 12%, will have a direct impact on the property prices. The cost of construction will go up and it will directly impact on the selling price in the market. But at the same time it is also expected that the demand for affordable homes will go up despite all the recent fluctuations and tax amendments.

The exemption of duty on mobile phone parts is surely an ecosystem enabler as it will lower the market prices of phones which are being assembled in India. This will help us achieve not only last mile connectivity but will fuel growth of ancillary sectors such as mobile content development, mobile banking, mobile advertising etc

Over all, the government realises the role that mobile devices have to play in enhancing and streamlining IT oriented citizen centric governance framework. This is reflected by two provisions in the government 1) creation of a mobile-based fertilizer management system that will provide end to-end information on movement of fertilisers and subsidies. 2) roll out Aadhaar tablet enabled payments for various government schemes in at least 50 districts within next 6 months.

However, the increase in the service tax from 10% to 12% will adversely affect the masses as mobile phone bills will become higher. Barring this negative point, the rest of the provisions in the budget are encouraging for the sector per se.”

Vikaas Gutgutia, MD and Founder, Ferns N Petals:

“The budget aims at an equitable and sustainable growth which will act as a catalyst in specifically the growth of agriculture sector. With the announcement of Rs 1,00,000 crore increase in the agriculture credit target to Rs 5,75,000 for the next fiscal and increase in the outlay for farm sector by about Rs 3,000 crore, this is a huge support to the backbone of the Indian economy. But at the same time, we are hugely disappointed as there is no significant announcement for the Retail Industry. With the increase in service tax as well as excise duty slab, the ladder of inflation will shoot further.”

On Clause 21 of Section 56 of the Direct Taxes:

Finance Minister Pranab Mukherjee in his Budget 2012 has, among the details of direct tax proposals, put one (Clause 21 of Section 56) on start-ups that receive funding from angel investors and non-registered venture capital funds. That means angels will have to pay 30 per cent tax, too. Although registered venture capital firms are exempt, the new tax on unregistered start-up backers is ill-conceived and is probably a kneejerk response to the 2G scam.

Saurabh Srivastava, co-founder, Indian Angel Network:

“I believe this clause is extremely ill advised and has probably been triggered by the 2G scam. Unfortunately, it is the equivalent of dropping an atom bomb on a city because one criminal needs to be killed. This clause will completely kill all angel investment in the country and, with that, spell the death knell of first generation entrepreneurship that had begun to mushroom over the last few years.”

“Various measures enunciated for SMEs will come to naught because of this one clause. This is because angel investment precedes venture capital investment. For VC’s to fund 10 companies we need 1000 entrepreneurs to be funded by angels. It is common knowledge that when you fund an entrepreneur who just has an idea and not much else, the definition of fair market value cannot possibly be determined by any valuer and certainly not by a tax authority but only resides in the minds of the entrepreneur and the investor. A tax officer could legitimately see the value as close to zero, whereas any angel investor who chooses to invest will do so because he / she sees great value and would buy shares at a huge premium because they would want the entrepreneur to hold a majority of the company,” adds Srivastava of Indian Angel Network that has invested in over 30 start ups in the last 6 years.

“For example an angel investor may invest Rs 1 crore in the Company that has no revenues and no profits and the tax official, unless otherwise “persuaded,” would tax the company at 30 per cent for no reason at all and convert an investment into income,” he adds.

“Rather than giving the angel investor a tax break for making such risky investments for “common good” ( creation of wealth and employment), as is done by most countries in the world, we are in effect taxing them and therefore, encouraging them to put their monies in unproductive assets like farm houses and real estate. It is hard to think of a more retrograde measure and one can only hope the framers of this clause did not fully appreciate the unintended damage it would do. It deserves to be withdrawn immediately,” appeals Srivastava.