The Union Budget 2024 is being hailed for its focus on inclusive growth and focus on fostering innovation in the tech sector. The domestic information technology sector is likely to focus on a potent mix of measures in the recent Union Budget which could have an influence on it directly or indirectly. Public investment in digital infrastructure and innovations by the private sector have helped in improving access of all citizens, particularly the common people, to market resources, education, health and services. We will step up adoption of technology towards digitalization of the economy, she stated.

Budget for technology sector

The technology sector also found mentions in the Budget with provisions favoring the growth and sustainability of start-ups. In order to bolster the Indian startup ecosystem and boost the entrepreneurial spirit and support innovation, the finance minister abolished the so-called angel tax for all classes of investors with effect from Assessment Year (AY) 2025-26. This will create a more nurturing environment for start-ups, potentially leading to increased investment and growth opportunities, boost the entrepreneurial spirit and support innovation. This will also help in facilitating funding and mitigating any potential disputes around valuation. FM noted that for enhancing ‘Ease of Doing Business’, we are already working on the Jan Vishwas Bill 2.0. Further, states will be incentivized for implementation of their Business Reforms Action Plans and digitalization.

Sitharaman also announced that the government will set up a venture capital fund of Rs 1,000 crore with an aim to boost the space technology sector of India. The government plans to increase the space economy five-fold in the next 10 years. The announcement is likely to help Indian startups and companies in the space technology sector.

For improving data governance, collection, processing and management of data and statistics, different sectoral data bases, including those established under the Digital India mission, government will be utilized with active use of technology tools. FM has announced allocation of Rs 551 crore towards "India AI" mission.

FM stated that buoyed by the success of the pilot project, government, in partnership with the states, will facilitate the implementation of the Digital Public Infrastructure (DPI) in agriculture for coverage of farmers and their lands in 3 years. During this year, digital crop survey for Kharif using the DPI will be taken up in 400 districts. The details of 6 crore farmers and their lands will be brought into the farmer and land registries. Further, the issuance of Jan Samarth based Kisan Credit Cards will be enabled in 5 states.

Startup employees in tech sector are likely to face a higher tax incidence on their employee stock option (ESOP) exits via buybacks from this year, as the Budget has proposed to treat share buybacks by companies like dividend income from October 1.

FM announced reduction in TDS rate on e-commerce transactions from 1% to 0.1%. TDS rate on payment by e-commerce operator to e-commerce participant for online sale of goods or provision of services is reduced from 1% to 0.1%.

The announcement to expand the scope of safe harbour rules and the streamlining of transfer pricing assessment procedures is a welcome step. Once done, this would make India’s transfer pricing regime more attractive and competitive, boost IT exports and ease business for Global Capability Centres (GCCs) and the IT services industry.

Meanwhile, the budget’s commitment to skill development by prioritizing large-scale skilling of youth with courses designed to meet current and emerging needs, alongside a central skilling program is crucial. The proposal to allocate to ₹ 1.48 lakh crore for education, employment and skilling will ensure a future ready workforce for India.

Digitalization is transforming India’s financial sector: RBI

According to a recent RBI report on currency and finance, the central bank noted that digitalisation is transforming India’s financial sector by changing the way financial institutions operate and interact with their customers and provide financial products and services. Banks and NBFCs benefit from collaborating with FinTech companies in providing products and services, and they prefer regulation of FinTechs.

The Reserve Bank has been undertaking proactive policy measures to harness the benefits while mitigating the emerging risks of digitalization in the financial sector. By integrating digital payment systems and FinTech innovations into its regulatory framework, the Reserve Bank has maintained financial stability while fostering economic growth. The RBI has set out guidelines for banks to implement robust cybersecurity measures, ensuring the safe and secure functioning of digital financial transactions. While encouraging innovation, the Reserve Bank is also proactive in safeguarding customer interests.

Gartner Forecasts Worldwide IT Spending to Grow 7.5% in 2024

Worldwide IT spending is expected to total $5.26 trillion in 2024, an increase of 7.5% from 2023, according to the latest forecast by Gartner, Inc. This is a decrease from the previous quarter’s forecast of 8% growth, but an increase of the overall spend forecast of $5.06 trillion. Spending on data center systems is expected to increase 24% in 2024, up from the previous quarter’s forecast of 10% growth. This is due in large part to increased planning for GenAI. IT services spending is now projected to grow 7.1% in 2024, down from 9.7% within the last forecast, due in part to slower spending across subsegments that include consulting and business process services, Gartner said.

Outlook:

The Indian IT companies make up a large portion of the worldwide IT market, and the growth of the domestic tech industry is closely tied to global market conditions. Despite global growth concerns, geopolitical tensions and higher interest rates worldwide, the NIFTY IT sector has managed to rebound by a good 12% so far in 2024 after registering a 25% growth during 2023.

Following the Budget 2024, Indian tech companies and leaders hailed it as a landmark moment and praised the new measures that were announced. The Union Budget 2024 focused on sustainable development and growth needed in India to achieve the dream of becoming a mature economy. Seeing it from a tech perspective, Nasscom president Ghosh appreciated the number of initiatives announced by the Finance Minister for internships that will be proven to be a generator of employment in the coming years. According to the industry body, the Union Budget sets the foundation for India’s long-term growth fueled by job creation and skill development. From fostering start-ups and attracting investors to advancing manufacturing, agriculture, solar power, and the space economy, it seeks to leverage both traditional and contemporary avenues for sustainable progress. The budget’s reinforced focus on inclusive development and digitization initiatives through Digital Public Infrastructure (DPI) applications across sectors such as agriculture, e-commerce, education, and healthcare are highly commendable, Nascomm noted.

Meanwhile, domestic IT firms that generate a substantial portion of their revenues from the United States is awaiting a positive signal from the Fed regarding potential rate cuts that are particularly significant for Indian IT companies. Higher interest rates in the US typically result in reduced consumer spending and lower corporate investment, which in turn leads to decreased orders and lower growth prospects for Indian IT companies.

Worldwide IT Spending Forecast (Millions of U.S. Dollars)