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
- 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.
||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.
By Payal Sachdeva and Tuhina Kumar
- Increase in tax concessions on bad loan provisioning as the Asset Quality Review by RBI has led to a steep increase in provisioning.
- 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.
- Disinvestment in PSU banks to below 51% to help raise capital.
- Higher allocation to infrastructure, housing and urban development as a boost in the commodity sector would improve the banks’ asset quality.
- Provide a roadmap of incentives for a digital push.
- 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.
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.
The government’s move towards affordable housing is likely to push CanFin Homes as its loan portfolio is skewed towards the same.
Akanksha Mund & Vishaka Sivanainar
The Budget 2017-18 – Banking Sector
The Union & Railway Budget released on 1st February was highly anticipated for it attempted to overcome the existing global and economic challenges. Possible increase in policy rates by the Federal Reserve, an uncertainty of commodity prices and pressure for protectionism are a few existing challenges. According to the December monetary policy statement, the Rs. 17 lakh crore demonetization of the economy slowed the growth rate down to 7.1% from the earlier estimate of 7.6%. In the past 2.5 years, the administration has become more transparent. Industry expectations included recapitalization, focus on NPAs, consolidation of government-owned banks, the creation of affordable housing, a digital push towards a cashless economy, insurance boost, reduction of the gold import duty and corporate tax rate.
Key highlights include:
NPAs – The allowable provision for NPAs has increased to 8.5%. There is a tax concession for provision on bad loans. The interest taxable on the actual receipt with respect to NPA accounts of all non-scheduled co-operative banks are to be treated at par with scheduled banks.
Cashless economy – No transaction above 3 Lakh is permitted in cash (excluding certain exceptions). After the success of the BHIM app, Aadhar Pay, a UPI for Aadhar Enabled Payment System, will be launched shortly. Banks will introduce 10 Lakh POS terminals by March 2017 and 20 Lakh Aadhar based POS by September 2017
Impressive figures – Income tax has reduced from 10% to 5% for the income slab of 2.5-5 Lakh. Rs. 10000 Crore has been allotted towards bank recapitalization compared to previous year’s Rs. 25000 crore. Government spending in the banking sector will touch Rs. 3.96 trillion in the next fiscal year. The net market borrowing figure of Rs. 3.48 Trillion (considers bought-back securities) was set.
Stock market – Banking stocks rallied more than the broader market with the BSE Bankex gaining 2.7%. Low fiscal deficits and lack of populist measures turned out to be positive for the banking stocks. Asset reconstruction companies would be allowed to list the security receipts issued against bad loans on stock exchanges registered with SEBI.
The penultimate budget in Prime Minister Narendra Modi’s tenure was remarkably neutral, however, it managed to elicit positive reactions from the banking sector.
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.
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.
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?
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.
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.
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.