INFORMATION technology and telecommunications are the key sectors supporting the country’s phenomenal growth. We expect the finance minister to give due importance to the sector while finalising hisBudget.
One of the top concerns is the expiry of tax concessions available to the IT industry after fiscal 2008-09. The industry gets tax exemptions under the section 10A/10B of the Income-Tax (I-T) Act under the software technology parks of India (STPI) scheme. The scheme, however, would come to an end in 2009 under the sunset clause mentioned therein.
The finance ministry should realise that the software sector is one of the largest employers in the service sector and is growing at over 33% year. Employment by the sector is growing at 26% a year. It is also a major contributor to export earnings. Total export from the sector is expected to touch $40 billion this year and $60 billion by 2010. Also, the sector contributed 5.3% of the country’s GDP in fiscal 2008, a big jump from 1.2% in fiscal 1998. However, the sector has been badly affected in the last one year because of a steep rise of the rupee.
If the government does not address the sector’s problems it would give wrong signals to the industry and would see a decline in investment and forex earning.
It should also be noted that small and medium companies cannot move to SEZs very easily, and would be badly affected by the expiry of the scheme.
Also, the government should protect the BPO sector which is facing intense competition from other countries like Russia, Ukraine, Hungary, the Czech Republic, Vietnam and the Philippines. Many of these countries are offering tax holidays, free space, reimbursement of salaries and training costs, among other sops to companies setting up centres. Most of these companies also have superior infrastructure, resulting in lower operational cost.
Also, it is the tier III & IV cities that actually offer cost advantage to the companies coming to India. Not continuing tax incentives beyond 2009 may result in an adverse impact on the development of the IT/ITeS industry in tier III & IV cities. This would lead to the increase in the cost of operations.
I hope the FM finds some ways to ward off such lurking dangers. Also, I expect that he takes some steps towards improving the education system of the country to tackle the talent crunch faced by many sectors, including the IT and ITeS sector. The country’s infrastructure also needs a push, which is essential for the development of the electronic hardware industry. While the government has taken steps for the development of the electronic hardware manufacturing, including the implementation of semiconductor policy, a lot still needs to be done on the tax front.
The prime minister’s special task force has also suggested to bring down excise rates on all types of hardware production to 12% from the prevailing 16% in the first phase and to reduce it further to 8% in the next phase. However, I expect the Budget to be in line with the 11th Plan and Planning Commission recommendations.