The presence of a stable government at the Centre with the promise that it would put technology in the forefront has fuelled the expectations of $118 billion Indian information technology (IT) industry. It is hoping that the forthcoming Union Budget on July 10 would unveil measures which will reinvigorate the sector while removing many of the tax anamolies.
The IT industry in India has now reached maturity stage with more than $86 billion in exports but it is the domestic sector which needs the real big push and this can be achieved largely through investments into technology by the government.
Nasscom, the IT industry’s trade body said, “In order for the industry to contribute on its role as a transformation agent and participate in the governance of the government, it is vital for the government to remove the impediments for the industry and encourage the adoption of IT in government. Nasscom would request the government to streamline procurement process for technology products and services including SME participation, settle long pending dues on projects executed for Central and State government and provide incentives for adoption of IT across sectors.”
The push towards e-governance will have a positive rub off for the Indian IT industry as it brings into play entire gamut of hardware, software products and services. This could also enthuse the private sector step up their investments into IT.
The domestic IT industry which includes services, BPO and software reported a consolidated revenue of R1,14,800 crore for FY14, recording 10% growth. This segment was impacted due to economic uncertainities, the slowdown in decision making and rupee volatility.
The Manufacturers’ Association for Information Technology (MAIT), representing the hardware sector also felt that the budget should provide a major fillip to manufacturing, a segment where the country is still lagging when compared with others like China, Taiwan or Malaysia. Anwar Shirpurwala, executive-director, MAIT said, “Recognising the multifaceted contribution of manufacturing and electronics on a war-footing basis, the government should prioritise reforms that can navigate the challenges the manufacturing and ICT industry face every day. It should give boost to local manufacturing, early implementation of goods and service tax and credible policies to attract investments.”
The changing contours of the Indian IT industry is also witnessing the emergence of strong start-up culture with new companies driven by entrepreneurial fervour. This would perhaps require a different kind of treatment from the government to provide the necessary initial support for these rising firms.
According to Nasscom, the technology start-up and small & medium enterprises (SMEs) contribute about 80% of the industry’s revenue and are characterised by higher upfront investment for software product (IP) development, non-bankable assets, without immediate revenue stream. “These companies are drivers of innovation and require government investment and support across all levels of growth,” it said.
PN Sudarshan, senior director, Deloitte India said that the budget should provide monetary or infrastructure benefits to start-ups focused on IP creation. At a broad level, the IT industry is hoping that the budget would provide clarity on the various vexing taxation issues which has been lingering around for long. Nasscom said that in order to bring predictability, clarity and stability of taxation regime, the government will have to clarify the royalty implications on software (both retrospective and on services), eliminate minimum alternate tax on special economic zones and take steps to minimise litigations.
According to Deloitte, the government will have to bring in more clarity on the taxability of cloud based software product under VAT or service tax as they do not fall under the traditional definition of service or product. It also sought greater clarity on transfer pricing norms with the need to harmonise with market realities.
The biggest bugbear for the hardware industry has been the taxation regime and they have been crying hoarse for many years to remove some of the glaring anomalies like the inverted duty structure where it is cheaper to import a product when compared to the components. This impedes the growth of manufacturing in the country.
According to MAIT, “Reducing the rate of duty applicable on indigenous manufacture of laptops and tablets is a much-needed move to boost computer manufacturing in a country where manufacturing is disproportionate to demand.”
The different tax structures among the various states in the country has also proved to be stumbling block for the spread of manufacturing. “Inconsistency in VAT rates for same goods in different states provides undue hardships for the manufacturer while calculating different rates for states. This difference in rates causes a diversion of trade discriminating free flow of trade within the country,” MAIT said.
As the industry strides forward, it would also keenly watch for the initiatives of the government in the area of infrastructure and education. These two sectors are the key foundation stone for the sector to make a meaningful stride to the future.
P P Thimmaya | The Financial Express