Ahead of the Union Budget, IT industry lobby Nasscom has met the government and placed its list of demands and expectations from the government. In an interaction with FE’s Anand J, Nasscom president R Chandrashekhar talks about the issues affecting the $150-billion IT industry. Excerpts:
Is Nasscom expecting new initiatives in the Budget as far as the Digital India programme is concerned?
For the Digital India piece to fall in place, we need to do two things. There needs to be adequate budget allocation for important government projects like eGovernance and national optical fibre network. The total of Rs 1.3 lakh crore is not going to be spent in one year but whatever allocation is required to fast track implementation should be provided this year.
One disturbing trend for the industry even as they welcome Digital India as one of the most forward looking initiatives of the government, is the huge outstanding amount that needs to be settled with executing agencies in the private sector. This is a worry for private parties in participating in such projects, with many company boards having refused them permissions to even bid for government projects.
Only a small part — may be less than 25% — of Digital India is being implemented. But the government needs to facilitate the migration to a digital economy. For instance, in e-commerce, the incidence of tax — service and VAT — on goods is higher than offline retail because of regressive policies of state governments. Digital migration is disincentivised by taxation. E-commerce players are being made liable for the quality of products and there needs to be some rationality brought into that.
What are the initiatives Nasscom is expecting in promoting entrepreneurship and start-ups?
The other most important ecosystem is the emerging entrepreneurship in the product space. In 3-4 years it has generated tremendous momentum. In the last two years, we noticed a disturbing trend of these companies migrating outside India because of regulatory environment not being good, high taxation or other impediments to growth. So we lose the value they create and the taxes they might have paid. This despite the bulk of the workforce being Indian, that too located in India. We need to incentivise them to stay here. Their compliance requirements are the same as that of large companies.
This becomes an onerous task for start-ups. Even employment generation incentives are available only if one has over 100 employees. Whatsapp, which was valued at more than $21 billion, had only 55 employees.
Also the tax on angel investment is also high because of the way in which it is applied. This taxation is not applicable when you make money and exit, but during investment at 30%. This is at a time when many countries are incentivising Indian entrepreneurs to establish start-ups in their country with infrastructure support.
How do you assess the Narendra Modi government’s performance?
The direction and intentions are right. While most plans are good, actual implementation on the ground is still not rapid in terms of visibility. Interactions with the industry have been limited and we need to see greater movement on issues and the Budget will give indications on that. We are not expecting everything to be implemented in one year. But we need a visible game plan.
Do you think IT has been neglected as a sector in the Budget over the past few years?
The Budget should do whatever is necessary to encourage growth of all segments of the industry. This is not a monolithic industry. The industry is now $150 billion in value with close to 40% share in services exports, employing 3.2 million, with 30% women. It has also become the sector which attracts the largest share of venture capital and private equity.
What are the key issues that need to be addressed right away?
For multinational companies, the operating environment has to be facilitative and transparent. There has been a huge rise in litigation. We also need clearer guidelines in areas like transfer pricing. The other issue is of SEZ benefits, which are available to companies that meet certain criteria. In some cases, they say, the benefit is available only to units of the companies in these SEZs and not for the entire company. Foreign tax credit policy is another area of concern. This is tax paid in another country and how it gets treated in India. The policies we have were all framed with the mindset of a country that imports, not one that exports.
Nasscom has raised the issue of service tax backlog. What are the concerns in this area?
The service tax backlog now extends up to two years. You need to look at duty drawback kind of fee and time bound clearing for the pending refunds. The nature of the industry is such that provision of the service is at a remote location. Again if there is no clarification on how this is treated, it will result in a lot of litigation.