Showing posts with label GDP. Show all posts
Showing posts with label GDP. Show all posts

Tuesday, March 5, 2013

Way past their vacation time!

The tax holiday provided to Indian IT companies at the dawn of this century was historic and path breaking, as it enabled the industry to reach the enviable stature that it enjoys today. But retaining this tax holiday doesn’t make sense from a futuristic perspective by Ashutosh Harbola

It was one of the few instances when the Indian government actually played a key role as an enabler for business. The tax holiday given under the Sunset Clause u/s 10A and 10B of the Income Tax Act for companies operating under Software Technology Parks of India (STPI), which provided massive exemptions for the IT industry in India, was launched in the heydays of the dotcom boom in 2000-01. The incentives were available for providing software and IT enabled services for 100% exports including exports of physical services and included exemption in custom & excise duty, reimbursement of Central Sales Tax and exemption in corporate tax on 90% of export turnover (applicable for a 10-year period).

The dotcom boom fizzled out, but the tax holiday has been a major component of India’s success as a global outsourcing hub, making more than 8000-odd IT units more competitive. In 1990, the Indian IT industry generated a mere $150 million in software and computer-related services. In FY 2008-09, the Indian IT-BPO sector had reached $71.7 billion in aggregate revenue. Software and services exports (includes exports of IT services, BPO, Engineering Services and R&D and Software products) reached $47 billion, contributing nearly 66% to the overall IT-BPO revenue aggregate.

Ever since the golden decade came to an end in 2009, a debate has been raging on whether it needs to end at all. IT companies pressed for an extension by three years, but were granted only one. In the 2010 budget session, Finance Minister Pranab Mukherjee declared that the holiday will not be extended. Industry association NASSCOM and a number of players feel this will seriously hamper India’s competitiveness. Arvind Goyal , Director-Finance, Pitney Bowes India Pvt. Ltd. cautions that this will also reduce India’s attractiveness as he says, “Local duties and tax structure do play a. vital role in swaying decisions of global IT players in favor or against of setting up captive center in one of the countries.” Infosys Chief Mentor Narayana Murthy however feels that the extension isn’t needed from Infosys’ perspective.

It’s been almost 20 years since the sector has been awarded some or the other kind of benefits. These benefits made sense when the industry was at a nascent stage. In 2009, IT services alone have grown up from $13.5 billion to $35.2 billion since 2005 with exports contributing 76% (CAGR of 32% in 2000-2009 period). Direct employment in Indian IT-BPO sector crossed the 2.2 million mark, an increase of about 226,000 professionals over FY 2008 and indirect job creation is estimated at about 8 million. As a proportion of national GDP, the sector’s revenues have grown from 1.2% in FY1998 to an estimated 5.8% in FY2009. Net value-added by this sector, to the economy, is estimated at 3.5-4.1% for FY 2009.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
 
For More IIPM Info, Visit below mentioned IIPM articles

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Thursday, October 18, 2012

Many feast to manifesto!!!

The disconnect between reality and manifestos continues...

April 11, 2009: Samajwadi Party (SP) released its ‘concave’ election manifesto. The party promises to remove computers, ban English education, ban machineries in agriculture and also put a ban on share trading. What the party forgot is that it is the service sector that is the largest contributor to GDP and the largest employer as well. And the most noteworthy point is that the service sector is only able to churn out such huge revenues because of English and IT services. If by any chance this dream of SP is realised, then India may not only see drop in foreign revenues but a huge increase in unemployment rate as well. Ironically for these anti-English campaigners, let us remind them that even their website that caters to huge vote bank is written in English itself!

Congress also stressed on economic policies that will aim to achieve inclusive growth and low inflation if voted back to power. Ironically Congress is promising to do something they could have done in last five years. Given the current fiscal and economic condition, the whole manifesto seems more like a fairy tale. The BJP is also not far behind in this vote-luring exercise, and it seems that they are determined about not learning from past mistakes. Or else why on the earth would they promise to rebuild Ram temple and promote hinduvta even when this theme has been counter productive in fetching votes for them? Surprisingly, not even a single party’s manifesto talked about the current economic condition and how would they tackle the same. It seems that amidst their political fights they have found economic matter to be too light to find space in their manifesto.


Source : IIPM Editorial, 2012.

For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face
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Monday, October 15, 2012

Global best practices

Safexpress will need to proactively align with global best practices, says Pawan Chabra of B&E

If one goes by the numbers, the future of logistics in India certainly looks dazzling. In fact, according to a study done by Cushman & Wakefield, the Indian logistics industry is anticipated to grow at a healthy rate of 15-20% per annum (way above the average growth rate of 7-10% that the sector have had between 2002 and 2007) to reach a whopping $385 billion by 2015. According to a KPMG report, India’s spend on logistics activities is equivalent to 13% of its GDP, compared to less than 10% in almost all the developed nations. But then this necessarily doesn’t mean big business! The key reason for this astonishing big size is relatively higher level of inefficiencies in the system, with lower average transportaion speeds, higher turnaround times at ports and high costs of administrative delays. Players like Safexpress will need to take the lead in correcting this anomaly.

Moreover, the Indian logistics industry is dominated by unorganised players. Transporters with fleets smaller than five trucks account for over 75% of the total trucks owned and operated in India and make up 80% of revenues. Even the freight forwarding segment comprises thousands of small customs brokers and clearing & forwarding agents, who just cater to local cargo requirements. So, considering this, the biggest challenge for organised players like Safexpress will be to take the growth forward. In fact, “one can even see a major phase of consolidation in the sector in the coming times,” avers Pradhan.

No doubt Safexpress has generated a decent level of loyalty and trust towards the brand in the past few years, but with the sudden flurry of international behemoths like FedEx, DHL, TNT, et al, and considering their edge over domestic players, particularly because of their big pockets, players like Safexpress will definitely find it hard to retain clients.


Source : IIPM Editorial, 2012.

For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face
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Friday, July 20, 2012

God Save The Queen!

British Policymakers find themselves stuck in a Predicament as they try to Tame Mounting inflation Amidst a Weakening Economy. Well, all they need to do is to Focus on Supply side Policies rather than looking at Demand Side Tactics to solve The Problem.

It was just three months ago when British policymakers were on cloud nine. After all, silencing several critics United Kingdom’s (UK) economy had performed above expectations (UK’s GDP grew 2.7% in Q3, 2010 following a 1.6% expansion in Q2, 2010) and was finally out of the devastating recessionary storm that had been thrashing it since Q4, 2008 (when its GDP first contracted by 2.1%).

Even as per the Office of National Statistics (UK), this was the best six-month growth rate (Q2 & Q3 combined) that UK’s economy had recorded since H1 2000. The outstanding performance was even more noteworthy given the uncertainty associated with the public finance and the emergency budget, which dominated the first half of 2010 and had the potential to damage economic activity.

Come Q1 2011, and UK’s economy has once again surprised the economists! However, this time the smile has vanished from the faces of British policymakers who are stuck in a predicament as they try to tame mounting inflation [which is at 3.7% at present and is likely to rise above 5% in the coming months, way above Bank of England’s (BoE) inflation target of 2%] amid a weakening economy [which unexpectedly contracted by 0.5% on a quarter-on-quarter basis in Q4, 2010].

In fact, rising inflation continues to worry British policymakers, who are still struggling to find a way out of this catch-22 situation. According to the minutes of the monetary policy meeting last held on January 12-13, 2010, six members voted in favour of holding interest rates, while three voted against. Of those three, two members voted to raise interest rates by 25 basis points, one more vote than in previous months.

No doubt, the most logical move for British policymakers to curb surging inflation under normal circumstances would have been to boost interest rates and go for monetary tightening. But then, considering the dismal numbers posted by the economy during Q4, 2010, doing so might send the economy back into recession. Agrees Melanie Bowler, the London based Economist at Moody’s Analytics, as she tells B&E, “With the risks weighted firmly to the downside, the chances of the UK economy slipping back into recession in 2011 are really high.”

In fact, a closer look at the numbers and one would surely agree to Bowler’s logic. While manufacturing capacity utilisation in UK has slipped to 79% in Q1 2011 (this is below the euro zone average of 80% and well below the 84.9% reported for Germany) from 79.3% Q4 2010, weakening recoveries in key trading partners in the euro zone will continue to drag on demand for British exports. Services, which account for around 67% of the GDP, also continue to put pressure on UK’s economy and shrank by 0.5% (q-o-q) in Q4, 2010.


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