BANGALORE: The fledgling semiconductor industry
in India had a lot to cheer about a week before the Union
Budget was announced.
The cause for celebration was
the Center’s announcement of the semiconductor policy that
could perk up investments in fab manufacturing in the country.
While this policy could fill in the missing piece of India’s
dominance in segments like software development, design and
services, the IT industry is hoping that Palaniappan
Chidambaram, the finance minister, would act on ensuring the
industry’s growth sustainability.
That is why the
common item on almost every IT company’s wish list this year
is the extension of the Software Technology Parks of India
(STPI) policy benefits.
The ten-year sunset clause on
income tax concessions for software companies comes to an end
by 2009. The industry led by Nasscom is hoping that the
Government will not put brakes on this successful scheme that
has proven to be a good industry driver. Nasscom president
Kiran Karnik outlines the crucial nature of the industry’s
demand. “We are very worried. I repeat this everywhere that it
would not be the continuation of tax sops that will end. We
just want a level playing field where small and medium
enterprises can get the same benefits without having to set up
in an Special economic Zone (SEZ) or without having to pay
heavy rents. This continuation is necessary.”
Another
hazy area that needs clearing up is the SEZ policy. “Most IT
companies are looking to move into SEZ, thus all the more
reason to provide greater clarity on its sustainability and
attached benefits in the long run so as to help the industry
to plan better,” says Gowri Shankar, CEO, Aspire Systems.
This lack of clarity in the SEZ policy has kept many
investment decisions in pending, i-Flex Solutions chief Deepak
Ghaisas adds.
Hardware
blues
The mood among the hardware folks seems
to be quite sullen. Both, KR Naik, managing director, D-Link
India and Raj Saraf, chairman and managing director, Zenith
Computers, expect nothing much from the upcoming union budget.
Saraf takes a more Zen like approach; “Neither do I expect
anything, nor do I desire anything from the
budget.”
Naik on the other hand is more pragmatic.
“Though, I do not have much expectation from the budget, I
certainly do hope that some sort of rationalization is brought
about especially on the issue of MODVAT overflow. Government
needs to pay attention on this issue.”
Naik might not
expect much from the finance minister, but he will be keenly
following him nonetheless. “For the past 30 years, I have been
following the budget. It is the same cycle every year; after
all, there is so much at stake in terms of taxes, excise,
custom duties, and others. I wish the industry could be free
from this dependence on the union budget,” he says in a
lighter vein.
Ram Agarwal, CEO, WeP, provides a view on
how past budgets have affected manufacturers. “The budget
tends to focus more on the PC industry more than us
(manufacturers of IT Peripheral Products). It would concern
the industry if the Government decides to have zero per cent
excise tax, in which case the domestic manufacturers would be
affected due to large MODVAT overflow. Then, it would allow
importer MNC companies to thrive. Even with current reduced
duty rates on PCs, the supporting domestic manufacturing
industry like PC, Motherboard suffer from MODVAT
overflow.”
Some players are seeking a respite from the
complicated tax structures that plague the hardware industry.
Polycom country manager, Yugal Sharma calls for simplification
of taxes. “It is a nightmare in Delhi to work out tax
computations owing to different norms for UP and Haryana.
Uniform VAT regime across various parts is required. Secondly,
since we operate in telecom and technology solutions, custom
duties, that currently stand at around 24 per cent should be
at least brought down by half and match the ones that apply
for IT products. The industry should be treated in the same
category as IT products.”
While on taxes, Nasscom has
compiled a wish list relating to tax structures. Some of the
items on its list include an introduction of a separate
self-contained enactment dealing with Service Tax; allowing
companies to file consolidated tax returns; tax exemption to
non-residents outsourcing their back office processing and
call center activities to India and amendment of domestic tax
laws to bring them in line with the Double Taxation Avoidance
Agreements (DTAAs) and allow foreign tax credits.
The
industry also wants the Fringe Benefit Tax (FBT) to be
completely abolished and if not completely, at least on areas
like conveyance, tour and travel (including foreign travel)
and use of hotel, boarding and lodging facilities and
communication expenses, as there is no or negligible element
of personal benefit to the employee on such official expenses
incurred by the company.
Broader
issues
Besides specific industry-centric
issues, the industry also expects the finance minister to
announce substantial investments to provide thrust to
education, infrastructure and rural connectivity. Investment
in all levels of educations especially higher education is a
concern to the industry that seeks access to a larger and
better pool of skilled graduates. On the topic, Karnik says,
“We want more funding for education at all levels not just IT.
We would also like more funding for primary and higher
education. We would like to see the funding bring in reforms
in education both in terms of quality and
quantity.”
Gowri Shankar echoes the same sentiment: “As
business confidence grows across tier-two and –three cities,
there is a dire need to focus on the skill development and
infrastructure in these areas to fuel the growth of the IT
industry. Education spending needs to be increased to provide
financing option to low income groups at affordable interest
rates and easy pay back schemes.”
Industry chieftains
also expect focus in another area that has been dominating the
headlines in the last few years-infrastructure. “The industry
needs better investments in infrastructure so that the overall
growth story is not dampened. I anticipate infrastructure to
be addressed in the Budget this time,” says a hopeful Ganesh
Natrajan, managing director of Pune-based Zensar.
(With inputs from R Jai Krishna in Delhi, Shashwat
Chaturvedi in Mumbai and Pratima Harigunani in
Pune)
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