Stimulus package should be removed gradually

WHEN THE previous Union Budget was announced, the global economy was slipping into a recession with unprecedented business upheavals. As a result of the government of India's prudent economic policy, particularly the timely stimulus package and the inherent strengths of the economy, India has managed to withstand the global disruptions. 

    The last quarter has shown, not only did India survive the recession but is also well placed to take advantage of the opportunities arising from the global economic revival. A sound Union Budget will strengthen India's chances of capitalising on these opportunities and accelerating growth. 
    While the finance ministry recently revised the expected GDP growth for the current year to touch 8%, there have been some concerns expressed by industry that the government may see this as sign to withdraw the stimulus. Since the revival is still in early stages, the government should be gradual and measured in the removal of the stimulus package. 
    In the last budget, the finance minister spoke about the creation of twelve million jobs, reaching a growth rate of 9% and investment in infrastructure at the rate 9% of GDP. As we strive to achieve these goals, the budget needs to ensure adequate provisions to lend impetus to these efforts. The need to upgrade India's physical infrastructure is critical to maintaining and accelerating the growth rate. The budget must provide for suitable incentives to promote investment in the infrastructure sector. 
    Education is another sector which requires greater focus and investment. The finance minister should allocate more money to the education sector which will ensure quality supply to the booming services industry in this country. 
    The fiscal deficit is an area of concern and the aim is to reduce it to 5.5% of GDP from the current 6.8% of gross domestic product. While the budget deficit understandably widened after the government borrowed Rs 4.51 trillion ($97.3 billion) to protect the nation's economy from a global recession, the efforts to reduce this deficit needs to be handled carefully, without impeding economic recovery. Some areas for review include—rationalization of expenditure, augmentation in revenue, enhancing the efficiency of funds spent on various flagship programs like NREGA, etc. The government should come out with a clear road map on bringing the fiscal deficit within the acceptable level as mandated in the FRBM Act. This will enhance the global investors' confidence on India. 
    Direct taxes are an area of some interest as well. The implementation of the Direct Taxes Code (DTC) could broaden the tax base, simplify the tax structure and possibly improve tax compliance. The government should provide a clear road map on the implementation of the DTC and come out with a mechanism to address certain concerns raised by the industry. Specifically with regard to the IT/ITeS industry, extension of the sunset clause under section 10 A and 10 B beyond Mar 31, 2011, for at least the next 5 years would help new undertakings and buffer the industry which is major foreign exchange earner. This should be done at least for smaller companies with a group turnover of Rs. 100 crore. 
    Another big ticket reforms relates to implementation of GST. 
ET 
SECTOR WATCH 
INDUSTRY 

• The Indian IT & BPO industry constitutes nearly 6% of India's GDP 

• The industry serves top global customers such as GE, Citibank and JPMorgan 

• With almost $50 billion in revenues, the industry helps these firms maintain their IT and business systems 
BACKDROP TO THE BUDGET 

• Predominantly exportoriented, India's top tech firms have been helped by tax incentives including STPI incentives over past decade 

• The incentive is set to expire by March 2010. Effective tax rates for companies in the sector expected to cross 20% from 10-13% until three years ago 
WISHLIST 

• Extension of STPI tax holiday, at least for smaller firms with Rs 100 crore in revenues 

• Increased government technology spend from less than 1% currently to 2.5% of the total spend by 2020 

• A dispute resolution authority for sorting out tax-related litigations

WHILE THE BUDGET DEFICIT WIDENED AFTER THE GOVT BORROWED RS 4.51 TRILLION, THE EFFORTS TO REDUCE THIS NEEDS TO BE HANDLED CAREFULLY. 
KRIS GOPALAKRISHNAN CEO OF INFOSYS