The Times of India

Hard Times, Soft Budget Let’s hear IT for e-commerce

IT’s time again for Finance Minister Mr. Yashwant Sinha to unfold 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.

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 meager 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 percent (including CVDs) and the government will need to bring this figure down to zero at an appropriate time. The industry too 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. Therefore, 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 percent, 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 incentivized 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 on-site services exports are not exempted from income tax under the new sections. The fact is that almost 60 percent of India’s software exports are through on-site services. In 2000-01, out of the projected US$6.2 billion of software exports, almost US$3.7 billion were realized 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.