- New tax concessions and reductions in import duties announced this week by the Indian government, are likely to give a boost to IT there.
Presenting the country's annual budget for the fiscal year ending March 31, 2002, India's finance minister, Yashwant Sinha, cut customs duties on telecom and computer products by about half to 15%, and offered tax holidays to internet service providers (ISPs), telecom service providers, and companies setting up broadband networks in the country.
"The government has recognised that the way to boost GDP (gross domestic product) in the long term is through a knowledge-based economy," says Bala Swaminathan, director at KPMG India Pvt.
"The government's initiatives to reduce duties on the import of information technology and telecom products augurs well for both operators and end consumers, as it will translate into lower capital expenditure on key infrastructure," says Manoj Chugh, president of Cisco Systems India Pvt in New Delhi. "The tax holiday being extended to telecom service providers, ISP's and broadband players will help trigger the rapid spread of communication networks across the country."
However, multinational companies that manufacture in India are disappointed. "The budget has been a letdown for the hardware industry" says Balu Doraisamy, managing director of Compaq Computer (India) Pvt in Bangalore, as excise and other duties on manufacturing have not been cut significantly. After tallying in these taxes, the cost of a locally made computer is down by a paltry 1.8%.
Although the annual budget had few new sops for the software industry, it retained earlier concessions, including a lower tax on export profits than is paid by companies in other industries.
"There is nothing specific in the budget for the software industry, except that it removed some of the anomalies in the rules," says Venkatasubramaniam Chandrasekaran, managing director of software services company, Mascot Systems in Bangalore. "We don't need more incentives at this stage. What we do require is better infrastructure like electric supply and telecommunications, and the government has recognised that this is a bottleneck for growth."
The introduction by the government of a scheme for loans to students for higher education, as well as initiatives to boost technical education in the country is likely to help the software industry as it will increase the availability of qualified engineers and other information technology professionals, adds Chandrasekaran.
The software industry is also likely to benefit from relaxations of some of the controls on investments abroad by Indian companies. Besides increasing the amount of money companies can invest abroad, the government has also done away with most of the procedures.
"Speed is essential in acquisitions. Earlier, the Indian software company had to identify a company abroad it wanted to acquire, and then go to the government for permission," says Swaminathan. "The software company can now get a block allocation for investment abroad even before it has decided where to invest the funds."