The Indian tech services industry continues to witness strong growth, and according to a NASSCOM report, FY22 revenue from the sector is set to rise to $227 billion, with a year-on-year growth rate of 15 percent and employ over 5 million people. has got employment. Digital services revenue contributed more than 30 percent of total revenue, indicating strong momentum from digital transformation opportunities.
According to NASSCOM, the revenue from the Indian tech sector is expected to reach $350 billion by 2025 and India Now has the third largest start-up ecosystem globally. We are also seeing a steady growth of SAAS (software as a service) companies outside India, huge growth in GCCs, focus on deep-tech, and many emerging tech companies including AI, robotics, space-tech. , and Fintech, etc.
However, global macro trends around inflation and an impending recession are expected to pose challenges for the sector, and we are already seeing pressure on earnings and a fall in valuations of listed Indian tech stocks.
The initiatives taken by the government in last year’s budget played a significant role in shaping and strengthening the tech sector in India. Based on a survey conducted by Grant Thornton India for the tech sector, the key expectations from the budget are:
Top focus areas for the budget (percentage of respondents):
1. Digital infrastructure and skill development (40%);
2. Data privacy (31%);
3. Focus on new age technologies (19%); And
4. Encourage tech-enabled manufacturing (10%).
While the demand for technical talent is at an all-time high, especially in areas such as artificial intelligence (AI), data science, blockchain, cyber security, robotics and cloud, etc., India will continue to dominate the global technical services market. A vast pool of technology and engineering talent, as well as high-quality business on global customers and the impact of digital transformation are expected to drive the growth of this sector in global markets.
There is a need for increased spending towards digital skill development and upskilling in the IT sector at various levels including schools and universities. Along with Tier-1 cities, Tier-2 and Tier-3 cities should become the next talent hubs by improving their digital infrastructure and internet penetration. This, in turn, will enhance access to the existing digital and technical talent pool spread across the country.
The recent move by the UGC (Joint Grants Commission) to allow foreign universities to operate directly in India is a very welcome step in this direction to enhance the quality of talent including tech and digital talent in the country. Suitable enabling regulations can be expected to implement this policy in the days to come.
With the rise of cyber threats, increased cyber security preparedness and related investments have become imperative. The rise in digital transformation, hybrid working, growing use of Internet of Things (IoT) and 5G rollout has increased cybercrime across the world. Also, the rise in cyber security breaches across various organizations has created a need to implement policies that encourage investments in creating a cyber security infrastructure and creating a secure digital space for citizens. Budget 2023 is expected to focus more on cyber risks and security as well as on data risks and storage.
For India to continue its tech dominance in this decade, it is essential to focus on innovation and deep-tech and build more tech product companies. The investment is expected to enable setting up of state-of-the-art Incubation and Innovation Hubs, jointly run by industry experts and academia, to nurture new ideas and innovation in new-age technologies, which will transform budding ideas into sustainable businesses. and a larger social impact through the use of technology.
taxation and ease of doing business
According to the Grant Thornton India Pre-Budget Industry Expectations Survey, the key areas related to tax benefits and the relevant percentage of respondents that the budget may cover are:
* Simplify capital gains tax (52%)
* Clarify the withholding tax regime (17%)
* Harmonize APA and Safe Harbor rules (8%)
* More effective tax dispute management (23%)
Rationalization of capital gains tax and alignment for listed and unlisted equity shares will provide strong impetus to tech investors. Further, simplification of the current withholding tax regime, clarification on international tax regimes such as Advance Pricing Agreements (APAs) and Safe Harbor Rules, along with a more effective tax dispute management system, will enhance ease of doing business thanks to technology. region.
tech startup
The survey indicates the key areas of focus needed to promote tech start-ups and the corresponding percentages of respondents:
* Single-window clearance (61%)
* Equalization of long-term capital gains tax rates (13%)
* Capital gains tax exemption for start-ups (11%)
* Notify foreign direct listing regulations (15%)
From a tax perspective, exemptions such as single-window clearance and regulatory incentives for claiming tax can strengthen the start-up ecosystem. Further, expanding eligibility for 100% tax holiday, increasing the holiday from 3 years to 5 years in a block of 10 years from inception; providing parity in long-term capital gains (LTCG) tax rates for both listed and unlisted markets; and providing exemption from capital gains tax for reinvestment of proceeds from the sale of shares of one start-up in another start-up would be additional areas that the budget could address for tech start-ups.
Creating a more open environment around opportunities to raise funds from within the country and from foreign investors is also an important expectation. Measures to create a tax-neutral cross-border acquisition regime for Indian companies and allow greater flexibility for listing overseas are some that remain unfulfilled, and one hopes this budget will provide relief in these areas.
India is well poised to continue to lead in technology globally, and the upcoming budget should have a visionary path and execution plan to become a vibrant Digital India as well as a safe and secure Digital India.
(The author is Partner (Growth) and Leader (TMT) at Grant Thornton Bharat LLP. Views expressed are personal)
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