Paradigm shift needed to boost Indian tech industry

The Union Budget 2023 will be the last full-budget of the incumbent Union Government. Amid macroeconomic uncertainty and recession fears, this year's budget is critical for sustaining the country's growth curve beyond 2023. Historically, the technology sector, especially IT services companies, has been less influenced by budgetary pronouncements. This is because most of their revenues come from geographies outside India- the US and Europe in particular. However, things have been changing gradually in recent years. India is emerging as a significant market as it inches its way to becoming the world' fifth largest economy. With rapid digitalization, and adaptability in mind, every sector and most enterprises are rapidly transforming themselves into digital entities. In turn, many companies are reorienting their strategies to cash in on the emerging demand. Secondly, India itself is leveraging its self-built digital stack for public service delivery.

Ünder 'Digital India' mission, the country has developed a digital stack comprising Unified Payments Interface (UPI), Aadhaar, CoWin, ONDC and Digital Rupee, among others. This is leading the technology penetration in India. More penetration means higher technology spending by both the government and private sector, thereby creating opportunities for the country's IT firms. Another significant development that is making yjr Indian market more lucrative is the emergence of a vibrant tech-led startup ecosystem. Despite the ongoing funding winter and layoffs, the startup ecosystem has emerged as a formidable force, employing a significant chunk of engineers. These factors are creating new avenues for technology firms. According to a forecast by global research firm Gartner, India's IT spending is projected to grow by 2.6 per cent year on year in 2023 to $112.4 billion from $109.6 billion in 2022.

As India grows as a technology market, it is natural that the budgetary pronouncements have significant impact on spending decisions. Therefore, this year's budget plays a critical role in giving a direction to those decision-making factors. In this perspective, industry body Nasscom has urged the government to reduce the Minimum Alternate Tax (MAT) on eligible startups from the present 15 per cent to nine per cent. "This will facilitate growth of small businesses and help them in meeting working capital requirements in the initial years of operation," Nasscom explains in a representation. Similarly, the industry body has urged the government to notify safe harbour (SHR) margins for IT companies with a turnover of up to Rs 1,000 crore from the present Rs 200 crore. It has also sought timelines for closure of advance pricing agreements (APAs). Budgetary pronouncements on these issues will reduce the compliance burden along with improving the ease of doing business.

On this count, Indian technology industry will keenly watch Wednesday's budgetary announcements, particularly with regard to reducing the tax rate on corporations, spending on 'Digital India' and incentives for startups, which will prove beneficial for Indian IT firms. Focus will also be on announcements related to emerging technology areas like semiconductor and electric vehicle among others. Interestingly, the role of budgets in Indian technology industry is witnessing a paradigm shift in recent years.