Budget 2023: Digital infra, cybersecurity spending critical for tech sector

Apart from the direct expenditures, the government is also expected to extend the production-linked incentives for electronics manufacturing schemes to encourage domestic manufacturing

As the government is set to present its budget for FY2023-24 within a few weeks from now, the country’s technology sector will be closely looking at the spending on the needs of digital public infrastructure, skill development, and incentives for boosting electronics manufacturing along with measures that will boost ease of doing business.

The budget will be presented on February 1, 2023, as the final full-year budget under the current administration before the national elections in mid-2024.

The national association of software and services companies (Nasscom), the industry body that represents the $227 billion tech and startup segment in its pre-budget memorandum have suggested measures that will further impact the ease of doing business such as transfer pricing dispute resolution, rationalisation of mark-up rates; standardising process of summons, rationalising penalties; prescribing timelines for - disposal of appeals, various proceedings, refund; increase technology adoption for better taxpayer services.

Analysts suggest reductions in corporate tax have been a pending demand. At present, the corporate tax rate in the country is 22 per cent without surcharge and cess, while the global minimum tax rate agreed amongst most nations is 15 per cent.

“Although the Government provides various tax incentives to encourage innovation and growth in the IT sector, there is still scope for more. Further incentivisation, policy deregulation and focused policies in favour of the IT sector can spur innovation, both for the economy and private institutes and corporations,” said Manpreet Singh Ahuja, Partner & Leader - Technology Media & Telecommunications (TMT) at PwC India.

The most ambitious schemes of Prime Minister Modi’s government were based on the foundation of e-governance and digital public goods. However, a series of cybersecurity breaches at government organisations in the previous year was a setback to this framework. Cyber attacks on institutions like All India Institute of Medical Sciences (New Delhi), Indian Railways, and Central Depository Services led to the denial of service and loss of personal data.  

“Cloud, cybersecurity, data and artificial intelligence (AI) are the top priorities for the tech industry. To build resilient and agile business models, the Government needs to shift its focus to implement policies that promote investments and needs to adopt robust cloud platforms across both digital public goods (DPG) and private platforms and solutions. The incentive should be towards encouraging and necessitating cybersecurity deals for all software products,” said Ahuja.

According to Ahuja, budgetary allocation for resources for cloud, intellectual property, IT services, emerging technologies, supply chain management, and hardware industry will be critical for the sector. He added that any tax relaxations will be a welcome move for the IT industry struggling with the global economic downturn.

In FY2022-23, the centre’s total allocation for the Ministry of Electronics and Information Technology (MeitY) stood at Rs 14,300 crore. Out of this, the Digital India program was allotted funds worth Rs 10,676 crore. The cybersecurity projects had a small share of Rs 300 crore.

Ranjana Adhikari, Partner - Technology, Media & Telecommunications, IndusLaw, said, “Given the recent cyber security breaches in multiple public sector entities, in addition to considering allocating funds for strengthening their digital infrastructure, one of the key areas of investment is likely to be the creation of a National Government Cloud (announced a few months ago by MeitY), with one of the purposes being to store sensitive data such as government and defence-related data, locally. The National Informatics Centre (NIC) has already floated a tender in this regard.”

Technology research and development bodies Centre for Development of Advanced Computing (CDAC) and Society for Applied Microwave Electronics Engineering and Research (SAMEER) had received Rs 250 crore and Rs 150 crore respectively in the FY2022-23 budget. Adhikari said the government’s expenditure on R&D capabilities will play an important role in the innovation ecosystem in the country.

“India’s digital economy is still evolving and to achieve its true potential, needs a lot of investment in research and development (“R&D”) and incubation – whether it be in relation to med-tech, agri-tech, ed-tech or AI, etc. The government should consider enhancing its outlay for initiatives such as the Startup India Seed Fund Scheme to help bring together the experts and innovators for various technology use cases. The government should also consider having public-private partnerships in R&D and setting up infrastructure for the same,” Adhikari said.

Apart from the direct expenditures, the government is also expected to extend the production-linked incentives (PLI) for electronics manufacturing schemes to encourage domestic manufacturing. Minister of State for Electronics and Information Technology Rajeev Chandrasekhar on Tuesday said the ministry would soon announce a PLI scheme aimed at supporting manufacturers of IT hardware and computer servers.

“With increasing digitalisation around the world, there has been an increase in the demand for products as well as talent. The supply chains are also being redesigned around concepts of trust and innovation and not on lines of price and efficiency as was done earlier. These are exciting times for all professionals connected to these sectors,” the minister said.