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