Welcome FDI with riders

Hanuman Tripathi

The special economic zone (SEZ) scheme may fuel large-scale industrial growth in the nook and corner of the country. Obviously, it will help creation of infrastructure, employment and education across the country.

The noteworthy feature of SEZs is that it is conducive only to large companies. In IT exports, where a sizeable contribution is now coming from mid-cap companies, SEZ policy is not likely to impact much.

The expectation of the government that large stretches of land and thereby office infrastructure will be procured in smaller cities, sub-rural areas, for creating IT and ITES infrastructure, by itself is not meant for smaller organizations.

Unavailability of trained manpower and smaller office infrastructure to accommodate between 200-2000 people in a SEZ sscheme is likely to be a rarity.

Continue tax rebate

Important is to know that the tax break IT industry enjoyed for last 8 years has created a huge exporting industry out of India, generated large employment of educated youth in the country, created world-class infrastructure in the country and made India one of the most trusted and powerful brands in the international community. The government with tax collection in lieu of, would have not been able to achieve these objectives even remotely.

Thus, IT/ITES industries must continue to get the tax break under section 10A to meet its large export targets in coming years. This is especially relevant as in last two years India is facing the threat of becoming uncompetitive due to rising salary costs and sky rocketing cost of real estates, in all cities of the country.

On the other hand, the countries which have silently worked in creating competitive English knowing manpower, infrastructure and tax reforms are all becoming a threat to India’s IT supremacy; be it China or other South East Asian countries or Israel or countries in EEU block and Latin American countries.

Tax reforms

Like most developed countries, it is expected that India should move to uncluttered tax rates, devoid of surcharges and deductions, etc. I believe the tax collections will improve if a streamlined tax regime is implemented.

There are some who believe that it is better that the Finance Ministry this year reduces the tax rates considerably and puts clearly identified surcharges for specific growth areas with forced cut off after 1-2 years. This will ensure that corporate organizations will know that the tax rate two years later would be lower, giving them motivation to plan bigger balance sheets.

Implementation of VAT

It is necessary to have a uniform tax regime for internal consumption and therefore VAT is essential. Today, differential tax rates in various states has created disadvantage for the population.

Trade liberalization

It is seen in India that the quality as well as price of any commodity or service has become better or affordable only when international competition has been allowed to have its fair play. The government instead of protecting our industries should probably concentrate on signing bilateral trade treaties to boost our exports in large number of countries.

Domestic trade barriers being removed, may give unfair advantage to China, etc, but it will also force our industries not to work-up artificial costs in manpower, land infrastructure etc and will create a self-balancing competitive pricing environment.

Privatization

Privatization is a reality as the government is continuously using tax revenues in largely funding its own salary expenses and not on development. The higher privatization appears; the country will achieve better infrastructure, quality and standard of living and obviously will generate quality employment.

Foreign direct investment

FDI must be welcomed with riders for stock markets. We cannot grow without FDI for want of large investment in infrastructure and for want of know-how and quality. However, foreign funds must have restrictions for operating on stock markets so as to ensure that we don’t see roller coaster rides.

(The author is managing director, Infrasoft Technologies Limited. The views expressed are personal. CyberMedia News or the CyberMedia Group need not necessarily subscribe -- in full or in parts -- to the views).



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