Risks around skill shortage need to be addressed

We all know that the world of today is very different from the world of 2007, but, sometimes, when it comes to the way our country thinks, it seems nothing has changed! The world is on a much lower growth trajectory and that applies as much to India as it does to the US and EU. It is also far more uncertain and volatile, and risk perceptions are very different.

As a country, we have had a real opportunity in these times to keep the growth momentum high, the policy environment consistent and the investment environment welcoming. We have lost that opportunity with all the ‘corruption negativity’, the back and forth on policies and, of course, more recently, the freezing of decision making. But, I am an optimist, so I think it can be changed. It will change and it begins with the Budget.

Our industry, the technology and back office services industry, has shown a spectacular growth to reach the historic milestone of $101 billion in annual revenue, while directly employing 2.2 million people over the last decade. This growth should not be taken for granted. Several avoidable risks around skill shortage and lack of a national innovation framework in services need to be addressed.

Specific to the 2012 Budget, I have three recommendations:

Budgetary support for skill building: There is a need to build ‘training centres of excellence’ for the services industry (similar to ITIs) in partnership with academic institutes and corporate houses, for skill development and employment generation. This could be supported by Budgetary provisions or industry efforts could be encouraged with tax relief for investment in skill building. For example, China allows a deduction of staff education charges up to 8 per cent of total payroll.

Fiscal incentives for encouraging innovation in services: R&D tax reliefs are currently available only to manufacturers of products including software. There is very limited relief for the services sector, which constitutes 55 per cent of GDP. Investments in innovation and related activities are critical for maintaining the competitive edge of the industry.

Direct & indirect tax reforms: Overall, implementing GST and DTC would simplify taxes, increase revenue, drive economic growth and improve compliance.

N V ‘Tiger’ Tyagarajan
President & CEO, Genpact