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Post Brexit, Trump, and demonetisation, Indian tech firms desperate for relief in Arun Jaitley’s budget

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By Itika Sharma Punit
Published Last updated This article is more than 2 years old.

Battling global headwinds, India’s $150-billion IT outsourcing industry has set high hopes on finance minister Arun Jaitley’s budget for fiscal 2018, which he will present on Feb. 01.

Due to unfavourable developments in key markets, the last few months have been painful for the sector, which contributes around 9.5% to the country’s GDP and employs nearly 3.7 million professionals.

In June 2016, Britain’s vote to exit the European Union (EU) threw up massive challenges for Indian IT sector, which gets around 30% of its revenue from the region. Some 800 Indian IT companies had exposure to the UK at that time and employed around 110,000 people there. Many firms have for decades used the UK as their base to operate in the EU. With this breakup, they may be forced to take a look at their structures in the region.

Meanwhile, in November 2016, Donald Trump was elected the new president of the US, Indian IT firms’ biggest market. Trump has held an anti-immigrant stance for long and has talked about cutting down allocations of work visas. Last March, he said that if voted to power, he would “end forever the use of the H-1B (a visa category extensively used by Indian IT companies) as a cheap labour program, and institute an absolute requirement to hire American workers first for every visa and immigration program.”

“In order to counter rising global protectionist barriers, the sector relies on the government, and policy measures should ensure that the Indian IT industry does not face difficulties on home-ground,” Indian IT industry lobby Nasscom said in its budget expectations statement. “It is important to counter the barriers to free trade coming in the form of restricting entry of skilled professionals from India or making it costlier for global companies to recruit foreign talent, or by curbing (the) movement of data and technology across international boundaries.”

Some of the sector’s demands are quicker implementation of the goods and services tax (GST), simplification of tax structures to ensure overall ease of doing business, and tax incentives for employees.

Given the global uncertainties, Indian IT leaders are also hoping the government would provide a medium-term roadmap that would help firms in policy-making. “We strongly recommend that the finance minister outlines a larger three-to-five year fiscal roadmap…If we have that larger picture, we can make our plans accordingly,” Rostow Ravanan, CEO of mid-sized IT services company Mindtree, said in an email statement to Quartz.

Beyond lip service

While legacy companies are hoping to stay in the game, startups expect much more from the government to give them a push. The government has voiced strong support for startups but not much has happened on the ground.

For instance, more than a year after the Modi government announced a Rs10,000-crore Startup India fund with much fanfare, there is no clarity on who can benefit and who has received funding so far.

In fact, startups are still struggling for the basics.

“The definition of a ‘startup’ needs to be revised to include companies funded by foreign venture capitalists and not just those registered with Securities and Exchange Board of India. The date of such funding should be taken while deciding the time till when a company is considered as a startup rather than the date of incorporation,” Abey Zachariah, ‎co-founder and CEO of Bengaluru-based Goodbox, told Quartz.

Business-to-consumer startups have also been hit hard by the government’s demonetisation move. Several e-commerce portals faced trouble as consumers struggled for cash. Around 70% of e-commerce orders in India are still paid for in cash.

Following demonetisation, which sucked out 86% of the currency notes in circulation (by value), the government has been pushing for digital payments to ensure smooth transactions in the economy. Companies that operate in the sector expect concrete steps to ensure higher adoption of e-payments.

“Transaction fee (on digital payments) needs to be minimised, especially on low-ticket transactions. Tax rebates can be given to merchants doing a significant share of their sales through any digital method,” Madhur Deora, chief financial officer of Paytm, said in an email statement. Startups are also eyeing tax breaks, specifically a concession on taxes on employee stock options.

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