It Subsidy Proposal Withdrawn

The prime minister's information technology task force has withdrawn a proposal asking the government to provide a 20 per cent investment subsidy for all new investments over Rs 30 crores (approximately $7 million) in the IT product manufacturing sector. This was one of the recommendations in the task force's second background paper finalised late last week.

Sources said that although the proposal was still there in the background paper, it was rejected by members at a meeting on August 10.

They did not confirm that it was rejected because of the financial burden it would translate to on the governement. The proposal was one of the most important fiscal and financial incentives that the task force had proposed.

 

Task force members said that the recommendations in the second report would help create "conditions and investment climate on par with Taiwan, Philippines, Malaysia, Singapore and Hong Kong so that India's factor advantages can make Indian hardware or IT products industry the most competitive in Asia and Europe". The panel wants to recommend doing away with import duties on all IT products with immediate effect, thereby pulling up the deadline _ January 1, 2002 _ for zero-duty IT imports by three years. It also calls for rationalisation of tariffs through a correction in the customs and excise duty structure in electronics wherein the effective duty on inputs should not be more than that on finished goods.

The second background report _ the first one focused on software _ also suggests a blanket approval for overseas investment for acquisition of IT hardware companies for domestic electronic hardware exporters. Companies which have a three-year comulative export realisation more than $25 million (Rs 105 crore) will be allowed to use up to 50 per cent or $25 million, whichever is lower, for this purpose. Suggestions relating to lending to the hardware sector include a proposal to treat the IT hardware sector as priority sector by banks and the permission to allow employees stock options.

Also, the task force has proposed that working capital loans to IT companies be delinked from the mandatory reuirement of traditional collaterals and permission to venture capitalists to set off losses in one invested company and profit in another invested company for the purpose of income tax.