As we move towards 2010, trends indicate that the IT industry is firmly poised for broad-based growth across industries and service lines, thereby strengthening India's leadership position as the primary sourcing location for software, IT infrastructure and business process-related services.
NASSCOM, the premier trade body and the chamber of commerce of the IT-ITeS industries in India in its latest report observes, software and services exports are expected to cross $40 billion and the domestic market is expected to touch $23 billion in 2008. Positive market indicators and a strong track record strongly support the optimism of the industry in achieving its aspired target of $60 billion in software and services exports and $73-75 billion in overall software and services revenues by 2010.
It is estimated that every rupee earned in the Indian IT-BPO sector induces nearly another rupee of economic spending in the rest of the economy and every job created in the sector induces the creation of 4 more jobs in the economy.
However, the upcoming problem of skill shortage faced by the industry is slowly turning into a sore on the one hand, while many large companies are forced to retrench the non-performing employees on the other hand due to lack of quality manpower supply in the market.
It is very appreciative of the fact that the Union government is setting up a skill development mission in order to address the growing skills shortage in the country with an investment of Rs 31,000 crore, a measure that is likely to be announced in the Union Budget for 2008-09.
The programme, which is expected to be operational in the next fiscal year, is likely to extend training facilities to 10 million people a month, up from 2.5 million a year at present. The skill development mission also has to focus on both soft and technical skills aimed at employability, since several graduates from engineering and vocational institutes do not posses the desired skills to be employed.
Being part of India’s most emerging sector, I feel that although the IT/ITes industry is not looking for any fancy amendments in Budget 2008, the expectations are simple: the tax framework has to be more suited and growth focused and with less of complexity and injudiciously conquered, on the direct tax side.
Extension of tax holidays for STP units at least on par with SEZs, exemption from Fringe Benefit Tax and service tax on office space rentals, withdrawal of Minimum Alternate Tax (MAT), introduction of advanced pricing arrangements for transfer pricing, and simplification of tax holiday provisions are some of the key expectations.
Additionally, the Government could set up IT parks for SMEs with nominal occupation charges and permit co-ownership of space at special economic zones (SEZs). Only those companies buying minimum 25 acres of land are allowed to set up operations in SEZs according to the present scheme.
The government could also look at providing bandwidth interoperability facilities as that will ensure that companies spread their assets and offer same process capabilities to domestic and international projects. Companies currently need to get separate bandwidth to work on domestic and international projects.
While the IT sector has an array of suggestions for Union Budget 2008-09, the Finance Minister has a handful before him. Debates have conquered the minds of SEZ companies on whether the government would impose MAT or not. Today SEZs are operating all over the world and are provided exemption from indirect and direct taxes, though there could be a variation in providing exemption from direct taxes depending on the country in which the SEZ is located.
Hence, the SEZ scheme must be implemented in its totality and coordinated efforts must be made by all central and state government agencies to achieve its objectives successfully.
(G K Muralikrishna is the Managing Director & CEO of Helios & Matheson Information Technology Limited.)
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