"The IT sector needs tax sops"

by CXOtoday Staff    Jun 19, 2009

Maninder Singh Grewal, managing director of Religare Technova had the following comment for our Pre-budget 2009 questions,

Pranab Mukherjee had admitted in the VOA that the global economic scenario is not very encouraging. Considering this, and coupled with the regular Obama rhetoric against India, what should be the incentives the IT sector is expecting from the new FM?

A more balanced view should be projected to the US that this is a win-win situation and the opening up of the Indian economy is continuing to provide US companies with a large opportunity which more than balances some of the outsourcing. At the same time Indian IT companies and BPOs should have preferential treatment in the US to grow there and create significant job opportunities there.

As for direct incentives from the FM, IT spend must give opportunities to smaller companies and change prequalification criteria to allow this and not restrict this to the few very established players. Fiscal incentives and working capital requirements must then be aligned to this.

The Indian domestic economy is large and a policy shift needs to be engineered so that IT as an export income vehicle is more aligned to internal opportunities. Regulatory and compliance changes will be in place and will be mandated and Government must give support to companies doing this. This will be as much a kick start as the Y2k phenomenon which heralded Indian IT.

The industry has for long demanding extension of STPI? It has been promised in principle. Do you think that a year’s extension is enough?

No. In the current scenario a minimum extension of 5 years is needed for any investment to be planned around STPI regulations            

The government has also promised to give a boost to the fab-labs. But considering the luke-warm response India received from global semi-conductor industries, what is the industry expecting from the government in this budget?

Indian IT is more about software and services than the fab labs. However core research needs a boost and the best way would be to increase research funding to the IITs and other institutions to create more innovative and newer solutions which whill then jumpstart the semiconductor business. The telecom industry with its huge valuations and customer base and dependency on India must divert funds to R&D in India and these can be matched by government.

The government is spending a considerable amount of money on e-governance. While the infrastructure is being set, there are a lot of reports where the projects have failed? Does the industry want some kind of an audit policy?

The first is that the L1 syndrome of giving the work to the lowest should be re-evaluated. At the same time some projects will fail. In India a government contract must be transparently audited because no software contract is without delay or without blemish. This has to be realized and appropriate authority with audit controls has to be exercised to ensure that there are more participants in government business. NASSCOM and similar industry institutions have to be allowed to play a larger role in a government-private partnership model of governance and concepts and execution of e-governance.

What exactly are your expectations from the finance minister?

Tax sops to IT professionals which have been hit hardest. At the same time employees need protection from loan commitments in case of job losses. If IT companies get tax benefits for export earnings employees should also get these benefits. Same benefits that are given to IT exports should be available for all domestic assignments and contracts. Domestic business is no longer a second option.

Government must be aligned to customer relationships and thus BPO opportunities in government must be more in number and class. Rural BPOs must be given subsidies as rental correction in Tier 1 and 2 cities will inhibit movements outward.

What are the measures you would suggest government take to improve competitiveness of IT exports?

Give direct subsidies to SME to develop models for innovativeness and generate niche markets for export. Government must provide cleared VC funds transparently. The risk taking so essential to the IT world has to come from  individuals and smaller companies and with foregn VC funding now dry , the risk has to be taken by Government to give funds and IT working spaces . The STPI concept must extend to SEZs.

Should the government provide new tax subsidies for service employees, so that cost to the company will reduce for the organizations?

Absolutely. Also protection from loan installments in cases of unemployment is needed Further the allotment for land housing cooperatives must restart in a bigger manner.