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Offer fiscal sops to IT sector, encourage frugal innovation

Sanjoy Sen     February 23, 2015

Sanjoy Sen
I would like to set out my aspirations from the upcoming Union Budget for the Indian IT sector in terms of incentivisation that can be provided to this sector to further the India story.

As we know, the India story for the IT sector hinges on being able to globally deploy India-groomed skills as well as drive frugal innovation in various forms (for which the use of start-ups have now become very popular). Additionally, the IT sector is well-known for preferring global clients over Indian clients and the time is right to expect some fiscal incentivisation to drive behaviour in the reverse direction to further boost the Indian economy.

Incentivising skill and talent development: A cornerstone of the 'India Story' has been skills, expertise and talent which, the current government recognises, also needs constant encouragement. Therefore, my list of aspirations would start with expecting fiscal incentives in whatever form that would encourage IT companies to acquire the skills and expertise. Section 80JJAA relating to deductions for skill development and employment immediately comes to mind in this regard. Favourable TDS for technical services would also go a long way. Additionally, investment in specific research and development can be further incentivised.

Frugal innovation through start-ups: The concept of frugal innovation continues to thematically dominate the 'India Story'. However, while the result of the innovation can continue to support frugality, the start-up companies and 'innovation-generating' entities themselves need significant investment and support. So, anything that the upcoming Budget can do to encourage further investment in these entities or provide preferential treatment in tax matters will be gratefully acknowledged by the IT sector.

Driving the focus on servicing Indian businesses and government: 2015 has brought along with it a refreshed macro-economic and business perspective, which has already resulted in a revival of public and private sector enterprise in India after a relatively long 'go slow'. Both these sectors are likely to accelerate their technology-enabled transformation in 2015/16 and any incentives for the IT sector to serve more Indian organisations would also feature on my aspiration list. Fiscal benefits for Indian IT companies working on projects such as Digital India could be an example.

This can also be done the other way round - fiscally incentivising Indian 'customer companies' in their technology investments to maximise their boom-time returns.

Additionally, some of the enablers such as making transfer pricing more IT-company friendly can also go a long way in providing this encouragement.

The author is Doctoral Researcher, Aston Business School, UK, and former Partner/Senior Director in Deloitte India

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