Hyderabad, Feb 14 : The Business Process Outsourcing (BPO) sector is seeking an extension in tax holiday from Finance Minister P. Chidambaram in the annual General Budget, scheduled to be announced on February 29.
The BPO industry in a univocal voice has urged Chidambaram to continue with concessions and sops given to this industry.
Trade experts say that creaky infrastructure due to lack of funds in smaller towns and rapidly rising wages are a few major challenges faced by the sector which could aggravate if the tax holiday and the concessions are taken away.
"For us, the continuation of the STPI tax holiday is very important because we cannot afford to go and sit in a Special Economic Zones (SEZ)," said J.A.Chowdhary, Hyderabad Software Exporters Association.
The small and medium scale entrepreneurs, who have invested heavily in these sectors, over the past few years, keeping in mind the benefits from the tax holiday, may lose heavily if the tax holiday is not extended.
The industry lobbyists trying to get the scheme extended, say that the government feels that the Indian IT and BPO sector is fairly large now and can stand on its own.
According to the government, the regulations can now be done away with.
However, the industry feels that in the event of the tax holiday being scrapped off post 2009, the cost advantage that the Indian companies have over the other global counterparts, would no longer be there.
"The industry will have severe problems from other growing countries especially in the IT field like China because the Chinese Government has been investing billions of dollars in terms of improving their English skills," said Murali Krishna, an IT company employee.
The Indian IT sector employs 700,000 people and is expected to provide direct employment to about two million by 2012.
Despite a possible recession in the key United States market, the revenue expectations from the Indian back-office outsourcing units is pegged to be around 50 billion dollars by 2012.
Apart from the international markets like the US and the untapped markets of Britain, Europe and Asia Pacific, the domestic market also offers huge potential for BPO companies like banks, retail, insurance, telecom sectors and government departments.
About four-fifths of the world's 500 largest companies already farm out some work to India, and outsourcing to Asia's third-largest economy can typically generate cost savings of between 35 and 50 percent.
The study said India would also have to gear up to face increased competition from emerging back-office services destinations like China, the Philippines and Vietnam.
The Indian Information Technology and the BPO sector, as of now, is keeping its fingers crossed as regards the Software Technology Parks of India (STPI) scheme beyond 2009 as the finance ministry is not sending out any positive indications.