Indian Information Technology Services Sector and the Domestic User Industry – An Uneasy Partnership?

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India has grown to be a powerhouse in providing Information Technology (IT)
Services to myriad clients all over the world. This sector has shown that it has what it takes to move beyond pure cost arbitrage and up the value chain. Despite the successes of this sector and its prowess in providing world-class solutions, there is empirical evidence which suggests that the domestic user industry remains woefully underserved
for its IT requirements. This study theorises that this is due to the tax-break based incentives provided to the Information Technology Service providers, which have resulted in an environment where servicing the domestic IT users, especially the Micro and Small Scale Enterprises, becomes non-remunerative.

Therefore, domestic industry's use of Information Technology happens without any government aid or ncentive. On the contrary, current government policies result in a number of missed opportunities, rendering Indian businesses uncompetitive.

In this paper, we analyse the impact of export oriented tax incentives on the domestic sector and attempt to identify a few policy mechanisms that could obviate their negative effect.

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Indian Information Technology Services Sector and the Domestic User Industry – An Uneasy Partnership?

  1. 1. Indian Information Technology Sector and the Domestic User Industry: An Uneasy Partnership? Indian Information Technology Sector and Sachin, Rashmi, the Domestic User Industry: Lokesh An Uneasy Partnership? Introduction Indian IT Services Sector Evolution of the Sector Market Size Sachin Garg1 Rashmi Sarita2 Lokesh V.3 SWOT Analysis Domestic IT 1 Navankur Users Tax Incentives 2 FICCI to the IT Sector 3 Larsen & Toubro Net Foreign Exchange Earner vs. Non-NFE 21st November, 2009 Future Work
  2. 2. Indian Information Technology Sector and the Outline Domestic User Industry: An Uneasy Partnership? 1 Introduction Sachin, Rashmi, Lokesh 2 Indian IT Services Sector Introduction Evolution of the Sector Indian IT Services Sector Market Size Evolution of the Sector Market Size Strengths, Weaknesses, Opportunities & Threats SWOT Analysis Domestic IT 3 Domestic IT Users Users Tax Incentives to the IT Sector 4 Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. 5 Net Foreign Exchange Earner vs. Non-NFE Non-NFE Future Work 6 Future Work
  3. 3. Indian Information Technology Sector and the Outline Domestic User Industry: An Uneasy Partnership? 1 Introduction Sachin, Rashmi, Lokesh 2 Indian IT Services Sector Introduction Evolution of the Sector Indian IT Services Sector Market Size Evolution of the Sector Market Size Strengths, Weaknesses, Opportunities & Threats SWOT Analysis Domestic IT 3 Domestic IT Users Users Tax Incentives to the IT Sector 4 Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. 5 Net Foreign Exchange Earner vs. Non-NFE Non-NFE Future Work 6 Future Work
  4. 4. Indian Information Technology Sector and the Outline Domestic User Industry: An Uneasy Partnership? 1 Introduction Sachin, Rashmi, Lokesh 2 Indian IT Services Sector Introduction Evolution of the Sector Indian IT Services Sector Market Size Evolution of the Sector Market Size Strengths, Weaknesses, Opportunities & Threats SWOT Analysis Domestic IT 3 Domestic IT Users Users Tax Incentives to the IT Sector 4 Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. 5 Net Foreign Exchange Earner vs. Non-NFE Non-NFE Future Work 6 Future Work
  5. 5. Indian Information Technology Sector and the Outline Domestic User Industry: An Uneasy Partnership? 1 Introduction Sachin, Rashmi, Lokesh 2 Indian IT Services Sector Introduction Evolution of the Sector Indian IT Services Sector Market Size Evolution of the Sector Market Size Strengths, Weaknesses, Opportunities & Threats SWOT Analysis Domestic IT 3 Domestic IT Users Users Tax Incentives to the IT Sector 4 Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. 5 Net Foreign Exchange Earner vs. Non-NFE Non-NFE Future Work 6 Future Work
  6. 6. Indian Information Technology Sector and the Outline Domestic User Industry: An Uneasy Partnership? 1 Introduction Sachin, Rashmi, Lokesh 2 Indian IT Services Sector Introduction Evolution of the Sector Indian IT Services Sector Market Size Evolution of the Sector Market Size Strengths, Weaknesses, Opportunities & Threats SWOT Analysis Domestic IT 3 Domestic IT Users Users Tax Incentives to the IT Sector 4 Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. 5 Net Foreign Exchange Earner vs. Non-NFE Non-NFE Future Work 6 Future Work
  7. 7. Indian Information Technology Sector and the Outline Domestic User Industry: An Uneasy Partnership? 1 Introduction Sachin, Rashmi, Lokesh 2 Indian IT Services Sector Introduction Evolution of the Sector Indian IT Services Sector Market Size Evolution of the Sector Market Size Strengths, Weaknesses, Opportunities & Threats SWOT Analysis Domestic IT 3 Domestic IT Users Users Tax Incentives to the IT Sector 4 Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. 5 Net Foreign Exchange Earner vs. Non-NFE Non-NFE Future Work 6 Future Work
  8. 8. Indian Information Technology Sector and the Introduction Domestic User Industry: An Uneasy Partnership? Sachin, Rashmi, Lokesh Issue: Indian Companies in the Information Technology Services Sector do not play much in the Domestic Introduction Indian IT Sector Services Sector Evolution of the Sector Impact: Domestic IT user companies are unable to tap the Market Size SWOT Analysis expertise the IT Service companies possess, Domestic IT making them uncompetitive in the long run Users Contribution: We hypothesize that Tax Incentives to Export Tax Incentives to the IT Sector Oriented Software Units play a big role in making Net Foreign Exchange the domestic IT user community unattractive to Earner vs. the IT Services Companies. Non-NFE Future Work
  9. 9. Indian Information Technology Sector and the Outline Domestic User Industry: An Uneasy Partnership? 1 Introduction Sachin, Rashmi, Lokesh 2 Indian IT Services Sector Introduction Evolution of the Sector Indian IT Services Sector Market Size Evolution of the Sector Market Size Strengths, Weaknesses, Opportunities & Threats SWOT Analysis Domestic IT 3 Domestic IT Users Users Tax Incentives to the IT Sector 4 Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. 5 Net Foreign Exchange Earner vs. Non-NFE Non-NFE Future Work 6 Future Work
  10. 10. Indian Information Technology Sector and the Indian IT Sector - Phases Domestic User Industry: An Uneasy Partnership? Sachin, Rashmi, Lokesh Introduction Value Addition Indian IT IP Focused Development Services Sector Evolution of the Sector Market Size Consulting SWOT Analysis Domestic IT Users Projects Tax Incentives to the IT Sector Offshore Net Foreign Exchange Onsite Earner vs. Non-NFE Body Shopping Future Work Time
  11. 11. Indian Information Technology Sector and the Outline Domestic User Industry: An Uneasy Partnership? 1 Introduction Sachin, Rashmi, Lokesh 2 Indian IT Services Sector Introduction Evolution of the Sector Indian IT Services Sector Market Size Evolution of the Sector Market Size Strengths, Weaknesses, Opportunities & Threats SWOT Analysis Domestic IT 3 Domestic IT Users Users Tax Incentives to the IT Sector 4 Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. 5 Net Foreign Exchange Earner vs. Non-NFE Non-NFE Future Work 6 Future Work
  12. 12. Indian Information Technology Sector and the Indian IT-BPO Industry Domestic User Industry: An Uneasy Partnership? Sachin, Rashmi, Lokesh NASSCOM data (2009) Introduction • Indian IT-BPO industry FY2009 estimated revenues: Indian IT USD 71.7 bn Services Sector Evolution of the Sector • IT software and services industry: USD 60 bn Market Size SWOT Analysis • Employment: Direct: 2.23mn, Indirect 8mn Domestic IT Users • 1.2% of GDP (FY1998) – 5.8% of GDP (FY2009) Tax Incentives to the IT Sector • Share of Total Exports: < 4% (1998) – ≈ 16% (2008) Net Foreign http://www.nasscom.org/Nasscom/templates/ Exchange Earner vs. NormalPage.aspx?id=55816 Non-NFE Future Work
  13. 13. Indian Information Technology Sector and the Exports Domestic User Industry: An Uneasy Partnership? Sachin, NASSCOM data (2009) Rashmi, Lokesh • Revenues are estimated to gross USD 47.3 bn in FY2009, Introduction accounting for 66% of the total IT-BPO industry revenues. Indian IT Services Sector • US is the largest market with 60% share. Evolution of the Sector Market Size • European market driving incremental growth—UK (CAGR SWOT Analysis 41.4%), Continental Europe (CAGR 51.4%) Domestic IT Users (FY2004-FY2008) Tax Incentives to the IT Sector • Banking, Financial Services and Insurance segment (BFSI) Net Foreign remains the biggest sector with over 41% of total revenues Exchange Earner vs. http://www.nasscom.org/Nasscom/templates/ Non-NFE NormalPage.aspx?id=55816 Future Work
  14. 14. Indian Information Technology Sector and the Outline Domestic User Industry: An Uneasy Partnership? 1 Introduction Sachin, Rashmi, Lokesh 2 Indian IT Services Sector Introduction Evolution of the Sector Indian IT Services Sector Market Size Evolution of the Sector Market Size Strengths, Weaknesses, Opportunities & Threats SWOT Analysis Domestic IT 3 Domestic IT Users Users Tax Incentives to the IT Sector 4 Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. 5 Net Foreign Exchange Earner vs. Non-NFE Non-NFE Future Work 6 Future Work
  15. 15. Indian Information Technology Sector and the Indian IT Sector - SWOT Analysis Domestic User Industry: An Uneasy Partnership? Sachin, Rashmi, Lokesh Introduction Indian IT Services Sector Evolution of the Sector Market Size SWOT Analysis Domestic IT Users Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. Non-NFE Future Work
  16. 16. Indian Information Technology Sector and the Indian IT Sector - SWOT Analysis Domestic User Industry: An Uneasy Partnership? Strengths Sachin, Rashmi, Lokesh Introduction Indian IT Services Sector Evolution of the Sector Market Size SWOT Analysis Domestic IT Users Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. Non-NFE Future Work
  17. 17. Indian Information Technology Sector and the Indian IT Sector - SWOT Analysis Domestic User Industry: An Uneasy Partnership? Strengths Sachin, Rashmi, # Mature Industry — sub- Lokesh stantially high on the Value Chain Introduction Indian IT Services Sector Evolution of the Sector Market Size SWOT Analysis Domestic IT Users Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. Non-NFE Future Work
  18. 18. Indian Information Technology Sector and the Indian IT Sector - SWOT Analysis Domestic User Industry: An Uneasy Partnership? Strengths Sachin, Rashmi, # Mature Industry — sub- Lokesh stantially high on the Value Chain Introduction Indian IT Services Sector # Strong and Vibrant domestic IT Evolution of the Sector market Market Size SWOT Analysis Domestic IT Users Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. Non-NFE Future Work
  19. 19. Indian Information Technology Sector and the Indian IT Sector - SWOT Analysis Domestic User Industry: An Uneasy Partnership? Strengths Weaknesses Sachin, Rashmi, # Mature Industry — sub- Lokesh stantially high on the Value Chain Introduction Indian IT Services Sector # Strong and Vibrant domestic IT Evolution of the Sector market Market Size SWOT Analysis Domestic IT Users Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. Non-NFE Future Work
  20. 20. Indian Information Technology Sector and the Indian IT Sector - SWOT Analysis Domestic User Industry: An Uneasy Partnership? Strengths Weaknesses Sachin, # Mature Industry — sub- # Productivity is not keeping Rashmi, stantially high on the Value the desired pace Lokesh Chain Introduction Indian IT Services Sector # Strong and Vibrant domestic IT Evolution of the Sector market Market Size SWOT Analysis Domestic IT Users Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. Non-NFE Future Work
  21. 21. Indian Information Technology Sector and the Indian IT Sector - SWOT Analysis Domestic User Industry: An Uneasy Partnership? Strengths Weaknesses Sachin, # Mature Industry — sub- # Productivity is not keeping Rashmi, stantially high on the Value the desired pace Lokesh Chain Introduction # Skewed structure — small number of large firms Indian IT Services Sector # Strong and Vibrant domestic IT Evolution of the Sector market Market Size SWOT Analysis Domestic IT Users Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. Non-NFE Future Work
  22. 22. Indian Information Technology Sector and the Indian IT Sector - SWOT Analysis Domestic User Industry: An Uneasy Partnership? Strengths Weaknesses Sachin, # Mature Industry — sub- # Productivity is not keeping Rashmi, stantially high on the Value the desired pace Lokesh Chain Introduction # Skewed structure — small number of large firms Indian IT Services Sector # Strong and Vibrant domestic IT market Evolution of the Sector Market Size # Manpower supply constraints SWOT Analysis Domestic IT Users Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. Non-NFE Future Work
  23. 23. Indian Information Technology Sector and the Indian IT Sector - SWOT Analysis Domestic User Industry: An Uneasy Partnership? Strengths Weaknesses Sachin, # Mature Industry — sub- # Productivity is not keeping Rashmi, stantially high on the Value the desired pace Lokesh Chain Introduction # Skewed structure — small number of large firms Indian IT Services Sector # Strong and Vibrant domestic IT market Evolution of the Sector Market Size # Manpower supply constraints SWOT Analysis Domestic IT Users Opportunities Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. Non-NFE Future Work
  24. 24. Indian Information Technology Sector and the Indian IT Sector - SWOT Analysis Domestic User Industry: An Uneasy Partnership? Strengths Weaknesses Sachin, # Mature Industry — sub- # Productivity is not keeping Rashmi, stantially high on the Value the desired pace Lokesh Chain Introduction # Skewed structure — small number of large firms Indian IT Services Sector # Strong and Vibrant domestic IT market Evolution of the Sector Market Size # Manpower supply constraints SWOT Analysis Domestic IT Users Opportunities Tax Incentives to the IT Sector # Global vendors playing in the domestic market Net Foreign Exchange Earner vs. Non-NFE Future Work
  25. 25. Indian Information Technology Sector and the Indian IT Sector - SWOT Analysis Domestic User Industry: An Uneasy Partnership? Strengths Weaknesses Sachin, # Mature Industry — sub- # Productivity is not keeping Rashmi, stantially high on the Value the desired pace Lokesh Chain Introduction # Skewed structure — small number of large firms Indian IT Services Sector # Strong and Vibrant domestic IT market Evolution of the Sector Market Size # Manpower supply constraints SWOT Analysis Domestic IT Users Opportunities Tax Incentives to the IT Sector # Global vendors playing in the domestic market Net Foreign Exchange Earner vs. # Leapfrog opportunities. These Non-NFE require strategic direction and Future Work long-term thinking
  26. 26. Indian Information Technology Sector and the Indian IT Sector - SWOT Analysis Domestic User Industry: An Uneasy Partnership? Strengths Weaknesses Sachin, # Mature Industry — sub- # Productivity is not keeping Rashmi, stantially high on the Value the desired pace Lokesh Chain Introduction # Skewed structure — small number of large firms Indian IT Services Sector # Strong and Vibrant domestic IT market Evolution of the Sector Market Size # Manpower supply constraints SWOT Analysis Domestic IT Users Opportunities Tax Incentives to the IT Sector # Global vendors playing in the domestic market Net Foreign Exchange Earner vs. # Leapfrog opportunities. These Non-NFE require strategic direction and Future Work long-term thinking # Bottom of Pyramid Innovation
  27. 27. Indian Information Technology Sector and the Indian IT Sector - SWOT Analysis Domestic User Industry: An Uneasy Partnership? Strengths Weaknesses Sachin, # Mature Industry — sub- # Productivity is not keeping Rashmi, stantially high on the Value the desired pace Lokesh Chain Introduction # Skewed structure — small number of large firms Indian IT Services Sector # Strong and Vibrant domestic IT market Evolution of the Sector Market Size # Manpower supply constraints SWOT Analysis Domestic IT Users Threats Opportunities Tax Incentives to the IT Sector # Global vendors playing in the domestic market Net Foreign Exchange Earner vs. # Leapfrog opportunities. These Non-NFE require strategic direction and Future Work long-term thinking # Bottom of Pyramid Innovation
  28. 28. Indian Information Technology Sector and the Indian IT Sector - SWOT Analysis Domestic User Industry: An Uneasy Partnership? Strengths Weaknesses Sachin, # Mature Industry — sub- # Productivity is not keeping Rashmi, stantially high on the Value the desired pace Lokesh Chain Introduction # Skewed structure — small number of large firms Indian IT Services Sector # Strong and Vibrant domestic IT market Evolution of the Sector Market Size # Manpower supply constraints SWOT Analysis Domestic IT Users Threats Opportunities Tax Incentives to the IT Sector # Rising factor costs resulting in # Global vendors playing in lowering advantages on the the domestic market Net Foreign Exchange Earner vs. cost-arbitrage alone # Leapfrog opportunities. These Non-NFE require strategic direction and Future Work long-term thinking # Bottom of Pyramid Innovation
  29. 29. Indian Information Technology Sector and the Indian IT Sector - SWOT Analysis Domestic User Industry: An Uneasy Partnership? Strengths Weaknesses Sachin, # Mature Industry — sub- # Productivity is not keeping Rashmi, stantially high on the Value the desired pace Lokesh Chain Introduction # Skewed structure — small number of large firms Indian IT Services Sector # Strong and Vibrant domestic IT market Evolution of the Sector Market Size # Manpower supply constraints SWOT Analysis Domestic IT Users Threats Opportunities Tax Incentives to the IT Sector # Rising factor costs resulting in # Global vendors playing in lowering advantages on the the domestic market Net Foreign Exchange Earner vs. cost-arbitrage alone # Leapfrog opportunities. These Non-NFE require strategic direction and # Emerging Competition: long-term thinking Future Work LatAm, East Europe, China # Bottom of Pyramid Innovation
  30. 30. Indian Information Technology Sector and the Domestic Market Potential Domestic User Industry: An Uneasy NASSCOM data (2009) Partnership? Sachin, • Presents a significant opportunity as IT spending in India is Rashmi, Lokesh growing at a pace faster than any other country in the Asia Pacific region. Introduction Indian IT • Domestic IT-BPO revenues expected to grow ≈ 20% to Services Sector Evolution of the Sector reach INR 1,113 bn (> INR 1 lakh crores) in FY2009 Market Size SWOT Analysis • Hardware spend (the largest segment) growth moderated Domestic IT • Domestic IT services are expected to grow by 20% in Users FY2009, driven by Tax Incentives to the IT Sector • increased acceptance of IT as a growth enabler, and Net Foreign • a competitive tool for Indian corporations looking to Exchange Earner vs. compete in an increasingly globalised environment. Non-NFE • 35 mn strong SMB segment expected to drive future growth Future Work http://www.nasscom.org/Nasscom/templates/ NormalPage.aspx?id=55816
  31. 31. Indian Information Technology Sector and the Domestic Market – Harsh Reality Domestic User Industry: “IT firms looking for more domestic share” An Uneasy Partnership? Mint, (11th May, 2009) Sachin, http://www.livemint.com/2009/05/10235219/IT-firms-looking-for-more-dome.html Rashmi, Lokesh Introduction Indian IT Services Sector Evolution of the Sector Market Size SWOT Analysis Domestic IT Users Tax Incentives to the IT Sector Next: Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. Non-NFE Future Work Figure: Focusing on India (Source: http://www.livemint.com/2009/05/10235219/
  32. 32. Indian Information Technology Sector and the Domestic User Industry: An Uneasy Partnership? Sachin, Rashmi, Lokesh Introduction Indian IT Services Sector Evolution of the Sector Market Size SWOT Analysis Domestic IT Users Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. Non-NFE Future Work
  33. 33. Indian Information Technology Sector and the Domestic User Industry: An Uneasy Partnership? Sachin, Rashmi, Lokesh Introduction Indian IT Services Sector Evolution of the Sector Market Size SWOT Analysis Domestic IT Users Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. Non-NFE Future Work
  34. 34. Indian Information Technology Sector and the Domestic User Industry: An Uneasy Partnership? Sachin, Rashmi, Lokesh Introduction Indian IT Services Sector Evolution of the Sector Market Size SWOT Analysis Domestic IT Users Tax Incentives to the IT Sector Net Foreign Exchange e: Focusing on Indi Earner vs. Non-NFE Future Work
  35. 35. Indian Information Technology Sector and the Domestic User Industry: An Uneasy Partnership? Sachin, Rashmi, Lokesh Introduction Indian IT Services Sector Evolution of the Sector Market Size SWOT Analysis Domestic IT Users Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. Non-NFE Future Work
  36. 36. Indian Information Technology Sector and the Tax Incentives to the IT Sector Domestic User Industry: An Uneasy Partnership? Sachin, Rashmi, Lokesh Software Technology parks of India (STPI) is a scheme for Net Foreign Exchange Earners (NFEs). Some of the tax exemptions Introduction available under this scheme are: Indian IT Services Sector • 100% Income Tax Holiday as per section 10A of the IT Act. Evolution of the Sector Market Size SWOT Analysis • 100% Customs duty exemption on imports Domestic IT • 100% Excise Duty Exemptions Users Tax Incentives • Non-payment of Service Tax to the IT Sector • Non-payment of Value Added Tax Net Foreign Exchange Earner vs. • Central Sales Tax reimbursement on indigenous purchases. Non-NFE Future Work
  37. 37. Indian Information Technology Sector and the NFE vs. NNFE Example – Domestic User Industry: An Uneasy Assumptions Partnership? Example of an NFE and NNFE who wish to do similar Sachin, Rashmi, development. Lokesh Assumption NFE NNFE Introduction Client Foreign Domestic Indian IT Services Sector Team Size 20 20 Evolution of the Sector Market Size Billing Rate USD 3,500 USD 3,500 SWOT Analysis Overheads USD 100 USD 100 Domestic IT Users Bulge Mix (years of 1(7+), 2(5+), 6(3+), 1(7+), 2(5+), 6(3+), Tax Incentives experience) 7(1+), 4(0+) 7(1+), 4(0+) to the IT Sector Customs/Excise 0% ≈ 8% Net Foreign Exchange Duties Earner vs. Non-NFE VAT 0% 4% Future Work Corporate Income 0% ≈ 30% Tax Service Tax 0% ≈ 10%
  38. 38. Indian Information Technology Sector and the NFE vs. NNFE Example – Domestic User Industry: An Uneasy Income/Expenditure Partnership? Sachin, Assumptions Rashmi, Lokesh Introduction Indian IT Services Sector Evolution of the Sector Market Size Entity Number Rate (USD) Total (USD) SWOT Analysis Computers 20 500 10,000 Domestic IT Users Employees 20 1,000 20,000 Tax Incentives Billing Rate 20 3,500 70,000 to the IT Sector Overheads 20 100 2,000 Net Foreign Exchange Earner vs. Non-NFE Future Work
  39. 39. Indian Information Technology Sector and the NFE vs. NNFE Example – Returns Domestic User Industry: An Uneasy Partnership? Gross Margin = Billing − (Employee Cost + Overheads) Sachin, Rashmi, Lokesh Introduction Cost NFE NNFE Indian IT Services Sector Capital Equipment USD 10,000 USD 11,200 (Cus- Evolution of the Sector Market Size SWOT Analysis toms + VAT) Domestic IT Users Gross Mar- gin USD 48,000 USD 48,000 Tax Incentives to the IT Sector Margin after Net Foreign Exchange Service Tax USD 48,000 USD 41,000 Earner vs. Non-NFE Net Mar- Future Work gin after USD 48,000 USD 28,700 Income Tax
  40. 40. Indian Information Technology Sector and the NFE vs. NNFE Example – Returns Domestic User Industry: An Uneasy Partnership? Gross Margin = Billing − (Employee Cost + Overheads) Sachin, Rashmi, Lokesh Introduction Cost NFE NNFE Indian IT Services Sector Capital Equipment USD 10,000 USD 11,200 (Cus- Evolution of the Sector Market Size SWOT Analysis toms + VAT) Domestic IT Users Gross Mar- gin USD 48,000 USD 48,000 Tax Incentives to the IT Sector Margin after Net Foreign Exchange Service Tax USD 48,000 USD 41,000 Earner vs. Non-NFE Net Mar- Future Work gin after USD 48,000 USD 28,700 Income Tax
  41. 41. Indian Information Technology Sector and the NFE vs. NNFE Example – Returns Domestic User Industry: An Uneasy Partnership? Gross Margin = Billing − (Employee Cost + Overheads) Sachin, Rashmi, Lokesh Introduction Cost NFE NNFE Indian IT Services Sector Capital Equipment USD 10,000 USD 11,200 (Cus- Evolution of the Sector Market Size SWOT Analysis toms + VAT) Domestic IT Users Gross Mar- gin USD 48,000 USD 48,000 Tax Incentives to the IT Sector Margin after Net Foreign Exchange Service Tax USD 48,000 USD 41,000 Earner vs. Non-NFE Net Mar- Future Work gin after USD 48,000 USD 28,700 Income Tax
  42. 42. Indian Information Technology Sector and the NFE vs. NNFE Example – Returns Domestic User Industry: An Uneasy Partnership? Gross Margin = Billing − (Employee Cost + Overheads) Sachin, Rashmi, Lokesh Introduction Cost NFE NNFE Indian IT Services Sector Capital Equipment USD 10,000 USD 11,200 (Cus- Evolution of the Sector Market Size SWOT Analysis toms + VAT) Domestic IT Users Gross Mar- gin USD 48,000 USD 48,000 Tax Incentives to the IT Sector Margin after Net Foreign Exchange Service Tax USD 48,000 USD 41,000 Earner vs. Non-NFE Net Mar- Future Work gin after USD 48,000 USD 28,700 Income Tax
  43. 43. Indian Information Technology Sector and the NFE vs. NNFE Example – Returns Domestic User Industry: An Uneasy Partnership? Gross Margin = Billing − (Employee Cost + Overheads) Sachin, Rashmi, Lokesh Introduction Cost NFE NNFE Indian IT Services Sector Capital Equipment USD 10,000 USD 11,200 (Cus- Evolution of the Sector Market Size SWOT Analysis toms + VAT) Domestic IT Users Gross Mar- gin USD 48,000 USD 48,000 Tax Incentives to the IT Sector Margin after Net Foreign Exchange Service Tax USD 48,000 USD 41,000 Earner vs. Non-NFE Net Mar- Future Work gin after USD 48,000 USD 28,700 Income Tax
  44. 44. Indian Information Technology Sector and the NFE vs. NNFE Example – Returns Domestic User Industry: An Uneasy Partnership? Gross Margin = Billing − (Employee Cost + Overheads) Sachin, Rashmi, Lokesh Introduction Cost NFE NNFE Indian IT Services Sector Capital Equipment USD 10,000 USD 11,200 (Cus- Evolution of the Sector Market Size SWOT Analysis toms + VAT) Domestic IT Users Gross Mar- gin USD 48,000 USD 48,000 Tax Incentives to the IT Sector Margin after Net Foreign Exchange Service Tax USD 48,000 USD 41,000 Earner vs. Non-NFE Net Mar- Future Work gin after USD 48,000 USD 28,700 Income Tax
  45. 45. Indian Information Technology Sector and the NFE vs. NNFE Example – Returns Domestic User Industry: An Uneasy Partnership? Gross Margin = Billing − (Employee Cost + Overheads) Sachin, Rashmi, Lokesh Introduction Cost NFE NNFE Indian IT Services Sector Capital Equipment USD 10,000 USD 11,200 (Cus- Evolution of the Sector Market Size SWOT Analysis toms + VAT) Domestic IT Users Gross Mar- gin USD 48,000 USD 48,000 Tax Incentives to the IT Sector Margin after Net Foreign Exchange Service Tax USD 48,000 USD 41,000 Earner vs. Non-NFE Net Mar- Future Work gin after USD 48,000 USD 28,700 Income Tax
  46. 46. Indian Information Technology Sector and the NFE vs. NNFE Example – Returns Domestic User Industry: An Uneasy Partnership? Gross Margin = Billing − (Employee Cost + Overheads) Sachin, Rashmi, Lokesh Introduction Cost NFE NNFE Indian IT Services Sector Capital Equipment USD 10,000 USD 11,200 (Cus- Evolution of the Sector Market Size SWOT Analysis toms + VAT) Domestic IT Users Gross Mar- gin USD 48,000 USD 48,000 Tax Incentives to the IT Sector Margin after Net Foreign Exchange Service Tax USD 48,000 USD 41,000 Earner vs. Non-NFE Net Mar- Future Work gin after USD 48,000 USD 28,700 Income Tax
  47. 47. Indian Information Technology Sector and the NFE vs. NNFE Example – Returns Domestic User Industry: An Uneasy Partnership? Gross Margin = Billing − (Employee Cost + Overheads) Sachin, Rashmi, Lokesh Introduction Cost NFE NNFE Indian IT Services Sector Capital Equipment USD 10,000 USD 11,200 (Cus- Evolution of the Sector Market Size SWOT Analysis toms + VAT) Domestic IT Users Gross Mar- gin USD 48,000 USD 48,000 Tax Incentives to the IT Sector Margin after Net Foreign Exchange Service Tax USD 48,000 USD 41,000 Earner vs. Non-NFE Net Mar- Future Work gin after USD 48,000 USD 28,700 Income Tax
  48. 48. Indian Information Technology Sector and the NFE vs. NNFE Example – Returns Domestic User Industry: An Uneasy Comparison Partnership? Sachin, Rashmi, NNFE Returns are Lokesh ReturnsNNFE − ReturnsNFE Introduction ∆ Returns = × 100 ReturnsNFE Indian IT Services Sector Evolution of the Sector Market Size SWOT Analysis Domestic IT Users ≈ Tax Incentives to the IT Sector Net Foreign Exchange Earner vs. Non-NFE Future Work −40% of NFE returns for similar work and client profiles.
  49. 49. Indian Information Technology Sector and the Future Work Domestic User Industry: An Uneasy Partnership? This hypothesis based on empirical evidence and authors’ Sachin, Rashmi, experiences would need to be substantiated by more primary Lokesh and secondary data. Some of this data could be: Introduction • Revenues generated by the IT services companies in the Indian IT Services Sector domestic market Evolution of the Sector Market Size • Comparison of SWOT Analysis • Employee salaries, experience levels and profiles between Domestic IT Users • Billing Rates between Tax Incentives • Taxes paid on incomes earned in to the IT Sector Net Foreign the export and domestic markets Exchange Earner vs. • Customer profiles — how many and of what profile foreign Non-NFE SMBs do the IT services companies serve versus domestis Future Work SMBs
  50. 50. Indian Information Technology Sector and the Thank You Domestic User Industry: An Uneasy Partnership? Questions? Sachin, Rashmi, Lokesh Introduction Indian IT Services Sector Evolution of the Sector Market Size Also see the blog post: SWOT Analysis “Indian Domestic IT—inspite of the government” Domestic IT Users http://sachingarg.org/blog/2009/04/ Tax Incentives indian-domestic-it-inspite-of-the-government/ to the IT Sector Net Foreign Exchange Earner vs. Non-NFE Future Work ibaintlconf2009@NavankurIT.in

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