Author: Dewang Mehta
Publication: The Times of India
Date: February 23, 2001
It's time again for finance minister
Yashwant Sinha to unfold the budget 2001. Last year, in fact, the minister
virtually swept the IT industry off its feet with his thoughtful financial
plan. It was as though the minister had been conducting an IT philharmonic,
specially "tuned" to the requirements of the rapidly growing software and
hardware sectors.
This year too the industry is hoping
for a similarly orchestrated performance. The vision this year is for creating
an environment where both the software and hardware industries can continue
their strides and percolate the benefits of IT down to the masses. An important
tool for such IT penetration is the PC, which will deserve additional attention
this year. Undoubtedly, the budget this year will be presented under the
shadow of mass destruction caused by the earthquake in Gujarat.
One of the key priorities this year
is expanding the base of personal computers across the country. Until now,
PC penetration in India has been at best modest. Compared to television,
which boasts a healthy base of 75 million units across the country, the
installed base of PCs stands at a meagre five million. One of the chief
reasons for this low figure is the high cost of the personal computer.
The aim this year should be to make PCs cheaper, and in line with this
strategy, pressure will have to be put on the government to bring down
duties and excise rates on computers at the earliest. Currently, duties
on PCs are over 40 per cent (including CVDs) and the government will need
to bring this figure down to zero at an appropriate time and industry will
have to bring down prices.
The government has, in fact, signed
the ITA (Information Technology Agreement) at the WTO, under which India
will have a 'zero' import duty regime on IT products by March, 2003. Therefore,
what we should be looking at in the near future are PCs that cost less
than Rs 10,000. This is the only way we can really beef up the penetration
levels of PCs and take IT to the masses. So, Mr Sinha should bring down
the customs and excise rates on computers, peripherals and various components.
If a basic computer is sold for less than Rs 10,000 it will at least create
a market of five million PCs, each year.
It is being recommended that special
schemes like the Vidyarthi Computer Scheme, the School-College Computer
Scheme or the Shikshak Computer Scheme be announced wherein import duties,
excise or sales tax will not be applicable on sales of computer systems
or software to students and educational institutions.
An expanding base of PCs will also
provide a boost to Internet penetration across India, which, in turn, will
spur e-commerce activity. A major thrust also needs to be given to e-commerce
by the government this year, and one of the ways it can be done is by ensuring
that no fresh taxes be levied on e-commerce transactions.
Action will need to be taken on
yet another front. It is being stated that the government is looking at
imposing a service tax on ISPs. This step in my opinion will serve a death
blow to the ISP market which is only now coming out of the cold. VSNL has
recently dropped its prices by over 70 per cent, bringing some measure
of sanity into the market. A service tax on ISPs will reverse the trend
and the end consumer will once again have to bear the brunt of a price
hike.
Knowledge workers are the other
key priority today. Not only does the domestic IT market require thousands
of skilled knowledge workers, overseas markets are also projecting a significant
demand for trained Indian software and hardware talent. Towards this end,
the government, (under the 10th five year plan) should envisage an IIT
(Indian Institute of Technology) in every state in the country. Also, an
allocation of at least Rs 1,500 crore needs to be made during 2001-02 for
partially upgrading 43 RECs to the level of IITs and starting new IIITs
during the year.
The hardware industry will also
need to be incentivised this year. Today, giant MNCs or even Indian companies
are not producing hardware in the country simply because they have not
been provided with a proper global level manufacturing environment. The
need of the hour is reliable power, excellent highways that link the manufacturing
facilities to ports and international airports and hassle-free customs
procedures.
Today, a significant demand of the
software industry is that whatever concessions have been given should not
be taken away. Import duties on software that currently stand at zero should
remain so and not be raised.
Furthermore, some refinement will
also have to be brought into Sections 10A/10B of the Income Tax Act. The
problem with the new sections is that they follow a narrow definition of
computer software, with the result that many income tax officials believe
that onsite services exports are not exempted from income tax under the
new sections. The fact is that almost 60 per cent of India's software exports
are through on-site services. In 2000-01, out of the projected $6.2 billion
of software exports, almost $3.7 billion were realised from on-site services.
The requirement this year then is for on-site services to continue getting
income tax exemption under the new Sections 10A/10B of the Income Tax Act.
Another suggestion relates to SMEs
(small and medium companies) which are currently working on projects sub-contracted
to them by larger software players. It is being recommended that such companies
and their services also be exempt from income tax, a move that will boost
the growth of this segment. Also, changes need to be made in section 10A/10B,
so that we allow tax holiday also for those companies, whose ownership
changes during the year.
All in all, the industry is looking
forward to an IT friendly budget 2001. The hope is that the finance minister
will do a hat trick and like the previous years live up to the expectations
of the software and hardware industries. In view of the Gujarat earthquake,
the government has already levied a surcharge without waiting for the budget.
Hopefully this will be sufficient and no new levies will be imposed by
the Financial Bill 2001. A soft budget in hard times might well be the
answer we are looking for this year.
(The author is president NASSCOM)
