2010 vis-à-vis the IT/ITES sector

The worldwide economic meltdown and the strengthening dollar pulled down the Indian IT sector last year. The sector, which had been a major contributor to India’s GDP, rebounded solidly from the global predicament by diversifying itself into diverse industry verticals and new geographies.

The worst hit by the meltdown was the business process outscoring or BPO industry. And with US President Barack Obama planning to slash outsourcing, the future does look tense. The government needs to address the problems of the BPO sector, which is a major contributor to India’s export earnings.

Extension of tax holidays or Sunset clause for IT companies were the most promising step taken in last year’s budget. Also, exemption of service duty on packaged software from 12% to nil provided a further fillip. The duty waiver will prevent double whammy tax for IT enabled services.

Nevertheless, closure of tax holidays extension from April 2010 would significantly impact the bottom line of IT companies. The need of the hour is an extension of tax holidays..