IMPACT OF BUDGET 2017 ON INDIAN IT SECTOR

by Divya Ramesh

INDIAN IT SECTOR OVERVIEW

IT sector in India can be categorized into the following segments-

  • Software products and engineering services (own software products)
  • IT services (application, website development)
  • IT enabled services (medical – transcription, BPOs, ERP)
  • IT hardware (PCs, laptops, mobile phones)

The IT industry has had a 5-year CAGR of 10.1% from 2008-2009 to 2015-2016 of which the exports markets had 12.6% and the domestic market had 3.8%. Though the export market of IT contributes to a major share of revenue, the domestic market is strengthened with a steadily rising number of mobile applications, e-commerce services and the government’s strategic push to a digital economy.

VERTICALS AND TRENDS

  • Government and BFSI verticals contribute to 35% and 30% of the domestic IT revenue respectively
  • Key drivers of the IT sector:
    • Government projects
    • BFSI
    • Telecom
  • IT infrastructure is key in digitalizing the existing government processes
  • Government initiatives such as “The Digital India” program boosts the domestic IT Industry

IMPACT OF BUDGET ON IT SECTOR

  • The 2017 union budget primarily emphasizes on a digital economy with increased cashless transactions aimed at weeding out corruption within the country. This shift towards digital payments and use of online portals for secured transactions increases the demand for cyber security and it’s applications in future.
  • Statistics for period 2013-16 show that online traffic in the e-governance portal has increased from 2060 million to 4940 million transactions accounting for a 140% increase. This calls for the need of contemporary and competent IT solutions to manage the ever-increasing data and maintain support for such services.
  • Schemes introduced such as:
    • Aadhar pay
    • Digital modes of payment for political donations
    • Removal of service tax for online ticket bookings
    • Digital payments in petrol pumps, universities, colleges, etc. lead to increase in online transaction and thus provide more opportunities for the IT sector in terms of job and revenue.
  • The Budget has proposed to improve the digital payment infrastructure and online grievance handling. This will result in a huge increase in the online traffic and data to be handled thus increasing the involvement of the IT sector services.
BUDGET SCHEMES IMPACT ON IT SECTOR
BHIM app promotional features and Aadhar pay app for cashless transactions Increases the number of cashless transactions which would increase online traffic and would require more IT services help to establish the application on a large scale. Increased web traffic also leads to the growth of cyber security.
High speed internet for Gram Panchayats Increases the connectivity thereby driving the cloud infrastructure of the IT sector. IT would also encourage the gram panchayats to buy phones improving the IT hardware sector
DigiGaon to provide education through digital technology, tele-medicine etc., To create digitally able citizens which would require IT infrastructure in terms of application and data management
Core banking support for cooperative banks and encouragement to provide core banking software Government rope in IT companies to sell core banking software strengthening the domestic IT sector

Thus, domestic IT market is expected to grow at CAGR of 10 % according to CRISIL reports and long-term growth will be achieved through e-governance initiatives of central and state government.

Though the export IT market seems to have become a bit volatile after Brexit and Trump’s assuming office as President of the US, there is a ray of hope with the disruptive Indian market steered by a number of digital initiatives taken by the Indian government.

Budget Impact Analysis – Banking & Financial Sector

By Payal Sachdeva and Tuhina Kumar

Expectations

  1. Increase in tax concessions on bad loan provisioning as the Asset Quality Review by RBI has led to a steep increase in provisioning.
  1. The total requirement of capital infusion by banks till march 2019, as gauged in 2015, is 1,80,000 crores out of which the government has committed to allocate only 70,000 crores under the Indradhanush plan. The rest is expected to be raised by the banks from the markets. This may be difficult due to low valuation of the banks.
  1. Disinvestment in PSU banks to below 51% to help raise capital.
  1. Higher allocation to infrastructure, housing and urban development as a boost in the commodity sector would improve the banks’ asset quality.
  1. Provide a roadmap of incentives for a digital push.
  1. Enhance capital expenditure for credit demand revival.

Announcements made in the Budget

  • Abolishment of FIPB: The Foreign Investment Promotion Board (FIPB) will be abolished in 2017-2018. FIPB is the body responsible for approving FDI proposals which are not cleared through the automatic route. Since 90% of the FDI inflows are through automatic route, the government has taken up this measure. Also, it focusses on ease of doing business.
  • Housing Finance:  Under the government’s aim to provide housing for all by 2020, the government proposed various measures. National Housing Bank (NHB) will refinance loans worth 20k crore in 2017-2018. This move saw a rise in stocks of HDFC (3.6%) and LIC Housing Finance (2.78%).
  • Tax relief on Masala Bonds: The government has announced that the rupee-dominated offshore bonds, called masala bonds will be subjected to a lower tax deducted at source (TDS) of 5%. This would be applicable retrospectively from 1st April 2016. This has been done to provide relief arising due to the appreciation of rupee against a foreign currency.
  • Law on Money Laundering: To curb money laundering by high net worth individuals via fake long-term capital gains, the government has tightened the screws on long-term capital gains. Only those equity investments are eligible for long-term capital gains where securities transaction tax (STT) has been paid.
  • Move to attract FPI: In order to attract funds from FPI, the finance minister made a proposal to exempt category I and category II FPIs from the provision of indirect tax transfer. Category I foreign portfolio investors include foreign central banks, sovereign wealth funds, and government agencies.
  • Recapitalization of banks: The government is going to infuse 10,000 crores out of the 70,000 crores committed under the Indradhanush plan for recapitalization of banks.
  • Set up PARA: An idea to set up a centralized Public Sector Asset Rehabilitation Agency (PARA) that will take over banks’ largest and the most challenging bad loans. PARA will help reduce NPAs and restructured loans.
  • Amendment in SARFAESI Act: The amendment in the SARFAESI act will allow listing and trading of security receipts issued by securitization company or a reconstruction company on SEBI-registered stock exchanges. This will boost capital flows in the securitization industry and aid in dealing with NPAs.
  • Mudra Yojana: The Pradhan Mantri Mudra Yojana has been allocated 2.44 lakh this fiscal as it exceeded the target of 1.22 lakh crore allocated in the year 2015-16.
  • Attempt to push Digital Economy: In an attempt to promote digital transactions in the Indian economy, the allocation to BharatNet Project has been increased by Rs 10,000 crore in 2017-18 which will connect 150,000-gram panchayats with high-speed broadband. Also, BHIM, an Aadhaar-based mobile wallet, would be promoted under two schemes, a referral bonus scheme for individuals and a cashback scheme for merchants.
  • The Role of SIDBI: Moreover, the government wants to ease loan disbursement, where the Small Industries Development Bank of India (SIDBI) would refinance credit institutions for extending unsecured loans to borrowers at reasonable interest rates based on their digital transaction history.

Conclusion

The government has met most of the expectations except for more capital infusion in the banks.  Thus, markets reacted positively to the budget and financial stocks shot up. Both Nifty and Sensex closed at a 3-month high of 28000 and 8700 respectively.

Stock Recommendation

The government’s move towards affordable housing is likely to push CanFin Homes as its loan portfolio is skewed towards the same.

 

Expectations from Union Budget 2017-18

Union Budget 2017 is the most looked forward issue for everybody associating with the Indian economy. This year budget will be announced one month earlier compared to the traditional practice of declaring it on the last day of February, because, Government wants to complete the spending and tax proposal before starting of new financial year.

Here are the major expectations from NDA’s budget:

  • Change in Tax Administration:

Data shows that only 1% of the Indian population pays income tax, whereas only around 2% filed income tax return. So, to take more people into taxpayers’ net, Government might increase the tax level from Rs. 2.5 lakh per annum to Rs. 4 lakh per annum. Along with that corporate tax may get reduced to boost economy. Also, according to the CEO of Mindtree, Rostow Ravanan, Government needs to streamline and update the process of incentives given to individual taxpayers to have more inclusion. GST’s implementation schedule may also be announced in this budget.

  • Encouraging Digital Payments and Proper Implementation:

In the process of creating a supposedly cash-less economy, this budget is expected to incentivize digital payments via plastic money. In a country of 1300 million, banking penetration is only 55% (although 19% of them are dormant), which translates to people having 700 million debit cards but only 24.5 million credit cards. So, the budget is expected to address the huge opportunity. To promote cashless transaction, applications are expected to be part of this budget. Benefits of banking through payment banks are also expected. Infrastructures are expected to be more developed to incorporate SMEs in digital India.

  • Real Estate:

Due to demonetisation and Real Estate Regulatory Act, 2016 was not smooth for major GDP contributors of India’s real estate sector, because, cash crunch made problem for buying material, construction etc. Relaxation in income tax rate, hike in HRA deduction is expected from this budget.

  • Revival of Private Investment:

The government is expected to take major steps to address the issue to decreasing private investment. Demonetisation may not affect the private investment directly, but it has kept the investment in abeyance, which will delay the recovery in private investment. So, domestic consumption, purchasing power and cash-driven transaction in the rural economy need to be boosted by the policies taken by the Government in this budget.

  • Agriculture:

Farmers were not able to sell their khariff crops due to unavailability of notes after demonetisation. So, they are expected to get some benefit from this budget under Pradhan Mantri Fasal Bima Yojana. It is also expected to provide a measure for cashless transactions and digital payments in the farming sector so that seeds, fertilizers, and other necessary equipment can be easily be purchased by farmers. Also, import duty on vegetable oil needs to be increased to help domestic refining industry, which is currently facing a crisis of under-utilization. The government can also think of introducing FDI in the agriculture sector to boost the investments and technical expertise. The budget is expected to introduce a framework for more transparent procurement of grains by official agencies. It may include the system of direct procurement from farmer to prevent exploitation by placing suitable safeguards.

  • Housing Loan:

The government announced Pradhan Mantri Awas Yojna (PMAY) aiming for housing for all. Then, it is expected that government would increase the tax deduction on the interest paid on housing loan. An extra benefit is expected beyond the interest payment of Rs. 2 lakhs per annum.

  • Social Sector:

Gross enrolment ratio in India is only 23%, which is well below the world average. So, to address that, the government is expected to have more allocation (more than 3% of GDP) in the education sector. Increasing the internet coverage would be an effective step to address this gap to educate the students of rural India. Along with that, the learning gap between academic curriculum and practical arena needs to be addressed by imparting more technology and collaboration in between educational institutes and industries.

This budget may announce a new cess for social security of around 20000 railway coolies. It is expected that every railway ticket would cost 10 paise more to generate around Rs. 4.4 Crores per year to provide the basic minimum facilities like PF, pension etc. for the coolies.

  • Railway:

Ending the 92 years-old tradition, the Government decided to merge railway budget with the union budget. Railways is expected to get around . 1.3-1.4 Trillion rupees this year to spend in building over-bridges, under-bridges, track renewal, freight corridors etc.

At last, the share of India in global GDP has increased from 4.8% in 2001-07 to 7.0% in 2014-15 according to the Economic Survey 2016. So, it is very critical for the finance ministry to make a roadmap to achieve the country’s goal – to be a global economic power with sustainable growth rate.


rooptejaRoopteja Tamatam, a student of Shailesh J. Mehta School of Management, IIT Bombay, is a finance enthusiast and an avid follower of western classical music and is looking to carve a unique career path amalgamating both of his passions.


sayanSayan Poria, a student of Shailesh J. Mehta School of Management, IIT Bombay, is a finance enthusiast, opinionated and avid follower of recent political and socio-economical affairs.

Impact of Blockchain Technology on Banking Sector

By Aditya Alamuri & Mounika Duvva 

What is Blockchain?
A blockchain is a chronological and logical sequence of transactions that are recorded in blocks. A block is a sum of all recent transactions and once completed, the block gets added to blockchain in a permanent database. They behave like bank account statements of an individual. Therefore, we can infer that a full ledger of transaction details can be obtained via blockchain of every bitcoin transaction that has ever taken place. Now, what is Bitcoin? Bitcoin a mechanism through which currency is encrypted and is also virtual in nature thus enabling bitcoin to use the Blockchain technology to complete financial transactions.

Advantages of Blockchain technology – emphasis on payment systems of banks

1. The blockchain technology eliminates all the intermediaries in a financial transaction – elimination of sites such as PayBill etc.

2. Transactions authorized by Miners – thus eliminating the threats of hacking

3. Superior Risk Management – counterparty risk, settlement risk etc.

Transactions that might get disrupted

Blockchain technology is evolving from an experimental phase to usability and adaptability phase in the payments world. Payment companies, financial institutions, have started with research on the real-world payment products and services which integrate blockchain technology. If successfully implemented, financial transactions like Domestic Payments, International Payments, Remittances have the highest probability to get affected.

Regulatory concerns and Security issues

If an economy wants to adopt the Bitcoin technology, then it must make sure that the right set of regulations are passed. Also, if countries decide upon using bitcoin as a medium of exchange (Inter country), thus eliminating cash transactions, then appropriate policies and guidelines must be ratified between the same. The primary goal of these regulations is to promote transparency and increase the security of the transaction. The problem with crypto-currency is maintaining anonymity with respect transactions. To what extent can these operations be monitored by the government of any country is a major concern. Uncontrolled transactions might be exploited by money launderers to fund anti-social activities, whereas micromanaging these transactions rules out the very basic characteristic of crypto-currency.

Questions that Industry is still working upon

Though there are several plus points for implementing blockchain technology, questions like what will happen to the current structures such as SWIFT and CHIPS are still left for open discussion until there are regulations put into place by regulatory bodies.

Rise of Bitcoin in India

By Sachit Modi

Bitcoin – World’s Best Performing Currency

Bitcoin, one of the most famous cryptocurrency, has become the world’s best performing currency for 2016, with rates hovering at around $970 per bitcoin (as of 28/12/2016), which is almost a rise of 120% as compared to the start of the year. In India, since the last 2 months, it has been trading at a premium of 10% as compared to the international markets.

Several factors have been attributed to the steep rise of this investment vehicle in the international markets, one of them being the need for currency stability in the highly volatile geo-political scenario of China and U.S. Also, Bitcoins have a relatively lower correlation with international assets classes, thus giving them the status of being an entirely different class.

The Indian Context – Demonetization and Black Money

In India, the monumental move of removing almost 86% of country’s currency out of circulation, taken by the GOI on 8th Nov’ 16 lead to the rise of this lesser known currency.  Demonetization may not have had a direct impact, but it has triggered an interest in the citizens towards everything which is cashless and digital, including bitcoins. Also, since bitcoins act as an attractive and viable option of sending remittances from abroad, it has seen a huge spike in demand. Due to these factors, bitcoins are facing demand-supply mismatch, which is being reflected in its trading prices.

There has been a widespread belief that Bitcoins are being used as an alternate option to park cash, post the ban on Rs. 500 and Rs. 1000 currency notes. However, chances of this happening are remote as all bitcoin transactions are completely cashless and are only possible through linked bank accounts and KYC procedure.

Future Prospects

In India, there are 4 major Bitcoin exchanges – Zebpay, Unocoin, Coinsecure and BTCXIndia. All of these have seen an increase in queries in the last couple of months and have now been adding 50000 users per month on an average, owing to which they have levied a premium on the prices of bitcoins. However, bitcoins enjoy the benefit of having lower transaction costs (almost 90% less than a typical credit card transaction), which has worked heavily in its favor.

This year has been one of the most successful in the eight-year history of the crypto-currency, and this trend is expected to continue. There has been a widespread increase in the knowledge of bitcoin among the general public, and in India, demonetization has already set the stage for its popularity. It is just a matter of time before Bitcoin emerges as the mainstream payment and investment alternative.

E-WALLETS – NOT JINGLING ALL THE WAY

Nandita ShyamSundar

As the holiday season is around the corner, shopping for gifts for our mothers, bosses and Chris Children among others, is in full swing. The e-commerce revolution has brought a wide range of products to our fingertips (literally!). And demonetization has increased the workload of our fingertips by making us click to pay. Cash-back offers and reward points are added incentives to use plastic money and e-wallets. Yet, quite a few of us still struggle with giving/receiving the right amount of change in day-to-day situations. This article is an attempt to explore some of the elements that cause friction on the path of progression for e-wallets, and possible solutions to address these issues.

Illiteracy

Many people do not know how to use PayTM, MobiKwik, and other e-wallets, and hence do not use them. Conducting workshops and setting up telephonic assistance for set-up/installation and routine use can increase their usage. Increasing the number of languages in which the services are available can also make consumers feel more comfortable.

Security

Even those who do know to use e-wallets are apprehensive since security breaches aren’t a rarity. Fraudsters are always prowling and people see avoiding the situation altogether as a way to mitigate the risk. A well-known media company recently reported that “Paytm has made headlines for showing its weakest side of security compliance”. Are we willing to take a chance with our hard earned money?

Culture

A taboo on the unknown is not a recent phenomenon. People are apprehensive about trying something new, especially when it involves putting their money in a virtual location.

Regulation

Inadequate regulation can make the buyer beware even more. Integrating technical aspects and creating/amending laws to protect the interests of different types of customers can make the industry more reliable.

Redressal

If customers are to understand and accept that technical glitches are always a possibility, a mechanism to ensure that their genuine concerns are addressed quickly and satisfactorily must also be in place. Unresponsive staff and irresponsible answers are bound to ward off users.

In essence, the e-wallet industry is still half-baked. Promotions and advertisements alone will not encourage usage. The shortcomings have to be addressed by the government as well as companies, if they wish to see a truly cashless economy.