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February 09, 2007
Political showdown coming for India's techies
One of the interesting undercurrents at the NASSCOM conference in Mumbai this week was whether the central government will extend its program of special tax breaks for tech industry companies. Until fiscal 2009, any tech company anywhere can register to be considered part of a government-sanctioned technology park--and get tax breaks. A new law creates so-called Special Economic Zones, which must be large operations (25 acres or more) in specially approved locations. It looks like most large companies will be able to qualify, but not the startups that the country needs to provide the next generation of disruptive innovations.
There were all sorts of conflicting signals about whether the old tax break scheme will be extended. During a speech to 1,500 of India's top techies on Wednesday, telecom minister Dayanidhi Maran said he supported the extension because small and medium companies need it. But he said, "The industry seems to be divided. If you're not united, I can't take it on." Moments later Kiran Karnik, president of NASSCOM, went to the podium to tell him, "I assure you, the IT industry is totally united on this."
I've been told by some Indian tech leaders that Maran is a bag of wind who likes to hold press conferences announcing new initiatives but rarely delivers.
The moment of truth promised to come today when The Prime Minister Manmohan Singh addressed the group and made what seemed to me an eloquent and sincere pledge of allegiance to the tech industry. He said "Your sector has altered forever the nation's global reputation. You have raised the expectations of our people." And he pledged that the government will work hard to improve the country's inadequate physical infrastructure, e-enable itself, and improve the quality of education. What I didn't hear him say is that he would extend the old tax break program.
Afterwards, when I sat down to chat with Ravi Pandit, chairman of KPIT Cummins Infosystems, an R&D outsourcing company, Pandit assured me that for folks in the know and reading between the lines, the prime minister had signaled that he would support the extension. The central government is to issue its annual budget report in two weeks, so the PM can't say what is going to be in it until then, said Pandit--and that explains why the PM didn't directly address the tax issue. "We didn't expect him to make a categorical statement. But he said the industry has done well and the government will do nothing to hinder its progress. This is the most explicit statement he can make about this under the circumstances," said Pandit.
He may well be right. If so, the PM is a very subtle politician.
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The IT industry is definitely an engine of growth for India. it employs 1.5 million directly and another 4 million indirectly. the 1.5 million pay lots of taxes, so anything that helps the IT industry indirectly helps growth. Whether the tax benefits are extended or not, the IT industry will continue to boom - the eco-system has already been created and any new entrepreneur will not suffer from the lack of connectivity, funding, and governmental shackles that an earlier generation did. Having said that, almost every industry in India has tax breaks of one sort or another so in reality what the IT industry is asking for is only the same treatment not special preferences.
Posted by: Lilian at February 12, 2007 03:55 AM