The Union Budget 2023 will be announced tomorrow by the Government of India, which will be extremely pertinent for the IT industry. To establish some context, the global IT industry is entering a new chapter in 2023. After years of enthusiasm, particularly in the past 2 years in the immediate aftermath of Covid, the IT industry is going through a time of consolidation. The expectations of the IT industry from Union Budget are high. The year 2022 observed corrections across segments, as interest rate hikes and high inflation in western economies deferred client budgets.
As investors closely examine the growth plans and profitability events, technology companies mounted back on riskier investments and focused on corporate-level reorganizations and workforce rationalization with a higher focus on expanding near-term operational efficiencies. In the private markets, this shift is frequently known as the ‘funding winter’ specifically for late-stage startups, which are following a similar focus towards generating profitability.
Also read: Role of Technology in Digital Transformation
Expectations of the IT Industry from Union Budget
The expectations of the IT industry from Union Budget, on the domestic market, there was an increasing adoption of digital services across the board. India also successfully decided on the auction of the 5G spectrum, and crucial telecom operators have announced plans for launching 5G services within the current year. Therefore, with reliable and effective connection speeds, 5G is projected to usher in the next phase of the digital revolution in India. Thus, accelerating the digital transformation at an unprecedented scale
On the manufacturing side, after the successful response to the Production Linked Incentive (PLI) scheme for Electronics Manufacturing Services, India announced a PLI scheme of 10 billion US dollars for the semiconductor and display board manufacturing industries. The initial reply from the industry has been very optimistic, with domestic business houses and global semiconductor companies assessing business opportunities in this emerging industry
It is in this context that we are looking forward to the Union Budget in 2023. Opportunities like Electronics Manufacturing, Semiconductors, etc. will be potential growth factors. As the sector is buoyed by supply chain realignments in the regional markets. It represents an opportune moment for India to redouble the policy thrust and devise strategic capacity.
Focus on sunrise sectors
As we manufacture the domestic semiconductor ecosystem, it may be sensible to target sunrise sectors. Since India is having an opportunity to create a new ecosystem. Unlike segments like consumer electronics with set value chains and regional leadership, sectors like Renewable Energy, Electric Vehicles, etc. give an opportunity for India to be an early adapter and create regional and global value chains from India.
Funding options greenfield Semiconductor projects will require high capex and have long gestation periods. While PLI schemes and various state-level incentives offer considerable subsidies on the capex. It will also be helpful to provide flexible financing solutions via development finance institutions and/or infrastructure funds at attractive prices. Specifically, in the current context of increasing interest rates, this will be a crucial enabler to kickstart and sustain investments.
Ease of doing business
Nowadays, with advancements in technology, several products get imported with advanced descriptions. Another expectations of the IT industry from Union Budget is to facilitate in business. Due to these technologically advanced products, customs officers frequently raise questions about classification, availing of concessional advantages, etc. This leads to delaying of clearances and importers are required to get the goods provisionally assessed under Section 18 of the Customs Act. As well as get it cleared upon submission of a bank guarantee along with the bond. It is anticipated that the government comes forth with suitable amendments to Section 18. Hence, enabling clearance of goods upon submission of Bond, enhancing the ease of doing business.
Clarity on duty concessions
For Telecom products there are various uncertainties with respect to exemption from customs duties on telecom products. Telecom products, like Voice Over Internet Protocol products (phones Multi Input Multi Output), and Long Term Evaluation (LTE) products. These have been made a part of the exclusion list under Sr. No. 20 and are appealing Basic Customs Duty (BCD) by 20 percent. From the industry point of view, these products are categorized under Information Technology Agreement. Such exclusions based on the technical characteristics of the product are resulting in ambiguities. And it is anticipated that the government come forward with requisite clarifications and amendments to offer clarity
Startup ecosystem development
As private market investors reconsider their priorities, public funding can be stepped up in strategic technology areas. Such as artificial intelligence, cyber security, space technologies, robotics, etc. While we have beforehand utilized the fund-of-funds approach for financing startup, we can also take the path of direct funding of strategic technology areas. Through the incubators / accelerates in institutes of higher learning such as the Indian Institutes of Technology and the Indian Institute of Science. Along with intensifying the allocation of funds tied to particular research and development objectives.
Also read: The Use of Technology in Management
The expectations of the IT industry from Union Budget, as the world economy and the technology industry, are established in the new equilibrium. India is having a unique opportunity to capitalize on the strategic shifts. As well as supply chain realignments. And therefore, creating domestic capacity in both the manufacturing side and in emerging technologies. We should anticipate the Union Budget 2023 to build on the policy successes in current years. And allow the industry to accomplish scale and growth in technologies of the future.
Contact us to know more details on emerging technologies!