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The Week That Was:

From: Vartaa Editorial Team on Feb 5, 2017

Union Budget 2017 - Walking the tightrope

Finance Minister Arun Jaitley presented the 2017 Union Budget in parliament this past week and sought to strike a balance between pushing for growth and exercising fiscal responsibility. The government boosted allocations to rural programs and employment schemes such as MGNREGA to record levels while also committing to reduce the fiscal deficit to 3.2% in 2017-18 from a projected level of 3.5% in 2016-17. The government also offered sops to the economically weaker sections who have been hit hard by demonetization by reducing personal income tax rate as well as the rate for taxation for small firms. While the markets and analysts reacted positively, others warned against over-optimism given the ambitious goals set by the government of fiscal reduction and boosting growth.

Turbulent winds for Indian IT sector

US President Donald Trump's assault on immigration to his country and the tabling of multiple bills in the US congress for reforming the H1B program has caused waves of concern in the Indian IT sector. Stocks of IT firms plunged in the market and Infosys founder Narayan Murthy called for IT firms to stop fighting the government and relook their business models. Indian IT firms though have not given up as yet and decided to present their case before the US administration.

New administrators for BCCI

In the last act of the Lodha Committee reforms saga for the BCCI, the Supreme Court this past week appointed a 4 member administration panel for running the cricket body. The panel is headed by former Comptroller and Auditor General of India Vinod Rai and also includes cricket historian Ram Guha, banker Vikram Limaye and former women cricketer Diana Eduljee. The panel also met for the first time this past week though doubts still remain about whether the Supreme Court's action may cause more harm than benefit. The ICC meanwhile seems to be taking advantage of the BCCI's confusion and trying to loosen its influence within the global body.

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Chart of the Week

Shares of major Indian IT companies plunged more than 5% in intra-day trading after Congresswoman Zoe Lofgren from California introduced a new H1B legislation which would require H1B visa holders to have annual salaries of greater than $100,000. These companies depend heavily on H1B visas to staff their IT consultants at US client locations and execute their lucrative IT projects. In fact, these companies are among the largest beneficiaries of H1B visas- you can see how many visas they receive in our previous chart here.

But just how dependent are the top Indian IT firms upon US-based companies? Turns out, a lot. TCS derives over 60% of its revenue from North America. In FY 2016, the company earned $16.5 Billion. HCL Technologies too earns almost 60% of its revenues in North America, Infosys earns 57%, while Wipro earns just over half there. While these companies are gearing up to make an appeal to the US government, Infosys Chairman Emeritus Narayana Murthy has urged them to reduce their dependency on US visas and innovate. Indian companies have adapted to the turbulent Indian regulatory environment in the past so investors should expect them to adapt to these new developments as well. IT has emerged as a strategic function for companies and the opportunity to innovate, serve customers, and earn a handsome profit in the process should persist for a long time to come.