Pop quiz: Two items saw excise duty increases during the Union Budget. One was cigarettes. The other?
Software, of course. The IT industry had asked for a rollback in the 8 percent excise duty on packaged software introduced last year. Rollback? Ha! Mr Chidambaram might have said. Let those rich buggers who want to buy software really pay for it. And he proudly announced an excise duty hike to 12 percent.

The perfect targets in a populist budget. Cigarettes, and Software. Companions for the elite and the rich? (Okay, there was a third item, clinker, which is ground down to make cement; but that was some expected rationalization.)

In an election year, its politically incorrect to support an elitist sector, even if its a tenth of Indias GDP (as ICT already is, in 2007-08), and even if they employ over 2 million people.

And so there no review of the impending closure of the STPI scheme in 2009. The scheme that drove the success of the services exports industry. It allowed small and midsize services exports units to flourish, giving them STPI status and benefits where they were, subject to rules. Some of those small units became giants.

Now, were saying: we have no more use for small or midsize businesses that cannot relocate to expensive SEZ infrastructure, perhaps far away.

These second and third tier companies will suffer from the triad of the rising Rupee, increasing wage bill and other costs (including corporate income tax and FBT, and expensive infrastructure) and falling margins. Nasscom predicts that the STPI schemes non-extension could mean the loss of 400,000 jobs in the next four years.

Prasanto K Roy pkr@cybermedia.co.in

One industry person put it rather well: We are increasingly seeing a disconnect from one Budget to the next, with each reflecting the immediate pressures the Government faces. Today when IT industry needs support, it gets none.

The Budget may not immediately affect the entire tech industry. The large, billion-dollar companies wont be affected: they can set up or move to an SEZ, and pay for all that infrastructure. But for the small and midsize companies, who bring in nearly a third of the pie today and could power growth up aheadthis could be the death knell. To be competitive, their pricing for services needs to be much lower than the big brands like Infosys. But their costs will be much higher. Even their wage bill needs to be higher, to attract talent.

The future growth of services exports depends a lot on the emerging next tier of companies, beyond the Top Ten golden geese. By letting a pollside view drive his 2008 Budget, Mr Chidambaram has begun the task of killing off tomorrows golden goslings.

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