Not by P. Sainath: Everybody loves a good IT sop

ASHWINI A. writes from Bangalore: With the Union Budget less than a week away, all kinds of lobbies and special interest groups are trying to swing a better deal for themselves before P. Chidambaram stands up to deliver his mandatory couplets from the Thirukkural to a captive parliamentary and television audience.

With Olympian athleticism, FICCI, CII and ASSOCHAM are simultaneously bending backwards and falling at the feet of the Union finance minister. The business channels have despatched idle OB vans dressed as budget caravans to catch the aam admi‘s pulse. And the newspapers are full of wishlists.

Like Chidambaram cares!

Call it the February Fever, but it is on.

Suddenly, the Captain Haddocks of INS India, who are otherwise quoting chapter and worse (pun intended) from the Milton Friedman school of economics, and hectoring us against subsidies, waivers, support prices, regulation, and votebank politics are talking a strange new language.

The sharpest suits in North Block this season belong to the Information Technology (IT) geeks.

With the 10-year tax holiday for the IT sector scheduled to come to an end next year, the industry’s representative body NASSCOM is working the phones, schmoozing the babus, churning out status papers, and gradually pumping up the volume seeking an extension of the tax breaks beyond the sunset period.

Yesterday, it fell upon Infosys board member T.V. Mohandas Pai to do some late-over slogging. Deccan Herald quotes Pai as making these salient points:

# The STPI (Software Technology Parks of India) scheme which gives the tax breaks has benefitted the country like no other since Independence.

# If the STPI scheme is not extended beyond 2009, it could lead to India losing out to competitors like Philippines, China, Eastern Europe, Mexico and other countries, which all provide tax holidays.

# The IT industry has created two million jobs. The current annual estimation is that it creates 430,000 jobs for the “educated middle-class”.

And, as if issuing a veiled “Extend the tax holiday again, or else” threat, Pai says that the “educated middle-class” who are employed by the IT industry constitute a “very large lobby” and “a vocal class”. In other words, they could get very angry if the STPI scheme is not extended.

In other words, Chidu mama, they could vote against you and your party.

It can be argued that this is how big money talks; that this is how lobbying for a cause—using words and weapons to get your point across and get what you want—is done. But there is a brazenness about Paispeak, and fans of Pai, not quite a sultan of subtlety in the best of times, should concede he exceeds himself here.

How, for instance, can we miss the unmissable irony of those who have enriched themselves several times over arguing for special treatment in the name of the “educated middle-class” while decrying the special treatment for the hundreds of millions of their countrymen who require the props more than they do?

And, then, there is the not-so-subtle wordplay. Yes, Philippines and Mexico provide a five-year tax holiday while China has a three-year tax holiday. But do any of them provide a 10-year holiday as India has? Pai doesn’t tell us. Do any of those countries give a 10-year holiday after a five-year holiday. Pai is better off not telling us.

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As Anand Mahindra pointed out in his fine speech recently, the IT industry has helped India find a niche in the world like nothing else before. It has given our youth jobs and hopes, and it has contributed to our nation’s growth in more ways than we can acknowledge. But surely, the time has come to put their money where their mouth is?

The demand for the extension of the tax holiday shows that either the IT industry wants the cash registers to keep ringing for all time to come, come hell or high water. Or, horror, horror, it shows how their visionaries did not foresee that the end of the 10-year period would come after, well, 10 years.

Here’s the funny part.

The IT czars do not spare a single opportunity to attack governments, politicians and administrators; they do not spare a single forum to scream how bad their governance is, how poor their planning, how short their vision.

Yet, the same IT czars are beating their chests, begging for tax tops, and using the “educated middle class” as a human shield—all because their net margins, already battered by the rising value of the rupee, will come down by 15-17 per cent if the tax breaks are removed. Why should that be of any concern to the nation and the exchequer? And if it should be, for how long?

Sure, as other countries get competitive, India will feel the heat. But isn’t this what “market forces” were supposed to do?

Sure, smaller IT companies require tax breaks to get on their feet. But should the SWITCH (Satyam, Wipro, Infosys, TCS, Cognizant, HCL) companies be spared the axe of the taxman?

Is the IT industry justified in asking for a continuation of tax sops when other sectors have had no benefits or largesse like the IT Industry enjoyed for as long? Should the government even consider such a demand from companies that are flush with millions of dollars from taxes saved when the US dollar hovered around Rs 46 and other benefits they gleefully enjoyed for 10 years?

Ironically, while Pai wants the holiday extended, N.R. Narayana Murthy, the chief mentor of Infosys, has come down heavily on companies asking for tax exemptions, when they did not really need one. He told CNBC last December: “After all, it is silly for the industry to say that we will be viable only at Rs 40 per dollar.”

Has NASSCOM missed taking this advice from one of its tallest leaders? Why is Pai lobbying for this when he fully knows what his boss’ opinion is? Are Murthy and Pai playing good-cop, bad-cop? Or are IT companies using the middle class to insure themselves against the rising rupee and the weakening US economy?

Should IT companies be extended the tax breaks? I think they must be asked to go take a break!