Mat Likely To Strain Software Firms

Software exports grew at a compounded annual growth rate of 54 per cent in the past four years.

Ashank Desai, president, National Association of Software and Service Companies (Nasscom), said most software exporters had so far enjoyed tax concessions under Section 80 HHE of Income Tax Act.

MAT, Desai said, would deprive Indian software companies of the competitive edge they had so far enjoyed.

"Export orders will be lost to companies from other countries like Philippines where software programmes are written at more competitive rates," he said.

Sources say the difference in service prices is between 12 per cent and 15 per cent between Indian and overseas competitors.

According to Desai, the imposition of MAT on certain categories of software houses could not have come at a more inappropriate time. He fears the rewritten Year 2000 solutions' software may be lost to Indian industry.

Sources say the size of this market segment is about $1 billion globally.

Software companies are now facing difficulty in procuring bank loans. Most export firms -- except a few like TCS, HCL, Wipro and Tata Unisys -- are beset by lack of working capital for expansion.

"Banks are often reluctant to lend to software companies owing to lack of tangible assets and owing to a lack of understanding of the industry," says Desai.

This has resulted in companies being forced to turn to internal accruals.

Though the domestic software market grew at a compounded annual growth of 51 per cent in the past four years, low computer penetration levels -- one per 1,000 -- makes it difficult for companies to develop products for the domestic market as a substitute for exports.

The domestic market accounted for Rs 1,700 crore, while exports constituted Rs 2,700 crore in 1995-96.

"A few majors within the industry are making concerted attempts to cash in on the boom in the domestic telecom sector," Desai said.