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IT industry backs Murthy, Premji on policy paralysis

Thursday June 14, 2012 03:20:10 PM, IANS

Bangalore: The resilient Indian IT industry has shared the grave concerns expressed by Infosys' chairman emeritus N.R. Narayana Murthy and Wipro chairman Azim Premji on policy paralysis in the UPA government holding up reforms and growth.

"Our concerns are no different from what Murthy and Premji have expressed. Key policy issues and executive decisions pertaining to our industry have been pending for long. They require urgent attention of the government if we have to remain competitive in a challenging environment," Som Mittal, president of the National Association of Software and Services Companies (Nasscom), told IANS.

Along with IT bellwethers Tata Consultancy Services (TCS), Infosys and Wipro, the $100-billion Indian software and services industry contributed significantly to the Indian economic growth story, creating over two million direct jobs and accounting for 25 percent of the country's merchandise exports, generating $69 billion in fiscal 2011-12.

Alarmed over the failure of the federal government on many fronts and its prevarication over taking tough or quick decisions to revive growth, Murthy was quoted recently as saying that he was saddened by the state of the Indian economy and the crisis of confidence gripping the country due to lack of "big ticket" reforms since 2004.

"There was a huge expectation on the introduction of many reforms by the (UPA) government. There was a lot of confidence that India would do whatever was necessary because the person (Manmohan Singh) who was the face of economic reforms in 1991 is our current prime minister," Murthy told global financial services firm Morgan Stanley recently.

Echoing Murthy, Premji lamented how policy paralysis was hurting investor sentiment. "We are working without a leader as a country," Premji was quoted as saying at his company's meeting with analysts in Mumbai.

Murthy, who co-founded the $7-billion global software major in the 1980s, observed that the government decision to apply tax laws retrospectively had sent a wrong signal to overseas firms on investing or doing business in India.

"The government would have to take steps to do something very positive. It should indicate that it means business, and foreign investors are welcome. This has to happen in FDI (foreign direct investment) because portfolio investments are fickle," Morgan Stanley quoted Murthy saying in its research report.

Endorsing the views of Murthy and Premji, Mittal said that policy paralysis and lack of reforms were hurting even the IT industry as the government had, for instance, not yet resolved the transfer price issue or introduced the safe harbour provision for past and current claims.

"Given the widening current account deficit, we also need the government to take pro-active measures to boost exports and give incentives to promote entrepreneurship in innovative product firms. Providing basic and social infrastructure, especially in tier-two and tier-three towns is another area where the government initiative is wanting," Mittal asserted.

As a former chief executive of HP India Ltd. and an IT services expert with Wipro earlier, Mittal expressed concern over the lack of government support to small and medium enterprises (SMEs) after tax holidays were withdrawn to the industry since 2011.

"Though Special Economic Zones (SEZs) were announced with much fanfare in place of the Software Technology Parks of India (STPI) for the industry, Minimum Alternative Tax (MAT) on SEZ income discourages firms from opting for the scheme," Mittal said.

Sharing the industry's concerns, former Infosys director and Manipal Global Education Services chairman T.V. Mohandas Pai regretted that the UPA government had been simply watching the deterioration of economic activity during the past six months.

"The inability of the political leadership to assume control, take responsibility for economic matters and push the development agenda forward have created an atmosphere where decision-making has almost stopped. Though the government promised to act, we are yet to see any action on the ground," Pai told IANS here.

Noting that the budget for this fiscal (2012-13) had increased taxes by a whopping Rs.45,000 crore when industrial production was declining and under-provided for subsidies to reduce the fiscal deficit, Pai said the government had also brought in retrospective amendment in income tax laws on 28 items.

"What's more, the government had amended the IT (Income Tax) Act from 1961 to nullify the Supreme Court decision in the Vodafone case. The retrograde measure raised the question whether the government could be trusted in policy matters when it was prone to changing the rules with retrospective effort," Pai recalled.








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