What the Budget does

• The budget has allocated Rs 1,680 crore to the Department of Information Technology in 2008-09 as against Rs 1,500 crore in 2007-08 and has announced three new schemes namely:
• Two schemes for establishing 100,000 broadband internet-enabled Common Service Centres in rural areas and State Wide Area Networks (SWAN) with Central assistance. This is already under implementation. Rs 7,500 crore is allocated for common service centre and Rs 750 crore for SWAN.
• New scheme with budgetary allocation of Rs 275 bn launched for State Data Centres.
• Customised software has been brought under the service tax net and will attract 12% service tax.
• Excise duty has been increased on packaged software from 8% to 12% to bring it at par with customised software.

Also read: How Budget affects your stocks

Impact on sector

• IT/ITES sector will benefit largely because of increase spending on education, which will result in large talent pool of professionals. This spending on education will also help in reducing the supply side constraints that is currently faced by the leading companies in hiring quality professionals.
• The service tax on customised software is a negative for technology companies but it will be passed on to the clients. 

Impact on companies

• While the Tier-I IT companies will not be severely impacted as they can easily move to SEZ, it is the mid tier IT companies which will feel the heat.
• Companies like NIIT Technologies [Get Quote] and MindTree Consulting [Get Quote] will be adversely impacted from April 2009 onwards when the tax benefits end. These companies will find it difficult to migrate to SEZ, as it would entail huge cash outflow.
• Companies like NIIT, Educomp Solutions [Get Quote] and Everonn Systems, which are functioning in the e-learning area will benefit due to the increased thrust on education to raise the talent pool in the country. 
• Tulip IT services [Get Quote] will benefit due to implementation of SWAN projects.

Powered by Equitymaster.com, an independent equity research initiative. Equitymaster is currently celebrating its 10th Anniversary. To know more about the special offers on its equity research subscription services, please click here