Report on IT Policy

8/8/2019 Report on IT Policy

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Information Technology Policy

By: Davneet, Madhurya, Pritam, Lokesh

IT PolicyYear 07-08

Electronics & IT Production (Financial Year) (Rs. crore)

Item 2002-03

2003-04

2004-05

2005-06

2006-07

2007-08*

Consumer Electronics 13800 15200 16800 18000 20000 22500

Industrial Electronics 5550 6100 8300 8800 10400 11950

Computers 4250 6800 8800 10800 12800 16400

Communication. & BroadcastEqpt.

4800 5350 4800 7000 9500 14350

Strategic Electronics 2500 2750 3000 3200 4500 6100

Components 6600 7600 8800 8800 8800 9500

Sub-Total 37500 43800 50500 56600 66000 80800

Software for Exports 46100 58240 80180 104100 141000 163000 Domestic Software 13400 16250 21740 29600 37000 47300

Total 97000 118290 152420 190300 244000 291100 * - Estimated

Overview

The Indian Information Technology sector has shown remarkable resilience in the year 2007.Continuing on its established track record, the overall Indian IT-BPO revenue aggregate isexpected to grow by over 33 per cent and reach US$ 64 billion by the end of the current fiscalyear 2007-08 as compared to US$ 48.1 billion in fiscal year 2006-07. Industry performance wasmarked by sustained double-digit revenue growth, steady expansion into newer service-linesand increased geographic penetration, and an unprecedented rise in investments byMultinational Corporations (MNCs) - in spite of lingering concerns about gaps in talent andinfrastructure impacting India's cost competitiveness.


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The Indian software and services exports including ITES-BPO is estimated at US$ 40.3 billionin 2007- 08, as compared to US$ 31.4 billion in 2006-07, an increase of 28.3 per cent. The ITservices exports is estimated to be US$ 23.1 billion in 2007- 08 as compared to US$ 18.0 billionin 2006-07, showing a growth of 28.7 per cent in 2007-08. Export revenues from ITES-BPO areestimated to grow from US$ 8.4 billion in 2006-07 to US$ 10.9 billion in 2007-08, a year-on-year

growth of over 29.8 per cent.Pol icy Measures

The Department of Information Technology has taken various policy initiatives to accelerategrowth of production in hardware and software industry. The Indian software and servicesindustry has given India a formidable position in the global market. It is now the turn ofhardware industry to achieve its potential and gain higher global share.

Maj o r Pol icy Initiatives

There is a big opportunity for production of electronics hardware in the country. TheGovernment has identified growth of Electronics and IT Hardware manufacturing sector as athrust area. The National Manufacturing Competitiveness Council (NMCC) has been set up bythe Government to provide a continuing forum for policy dialogue to energize and sustain thegrowth of manufacturing industries in India, including IT Hardware.

To tap the full potential for growth of the hardware industry, the Government has takencertain major initiatives. They are as under: Department of Information Technology hadprepared "A Discussion Paper on the Conceptual Policy Framework to Promote Growth ofElectronics/IT Hardware Manufacturing Industry" in consultation with the stakeholders. Themain objectives of this discussion paper for the Electronics/IT Hardware ManufacturingSector are to make the industry globally competitive, to attract more Foreign Direct Investment(FDI) into the industry, to bring down the prices of the end products (by bringing down theproduction cost and increasing volumes to take advantage of economies of scale), to increasethe demand, to compensate for disabilities until the basic infrastructure constraints that thenation faces are removed, and to move towards total taxation level of 12 - 15 per cent over aperiod of 3 years.

In order to examine the proposals/ suggestions contained in the above Discussion Paper andthe existing Government policies/ procedures and recommend suitable amendments/measures/ incentives so as to make India a Hub for Electronics/IT Hardware manufacturing,a Task Force to promote growth of Electronics/IT hardware manufacturing industry was setup. The Task Force constituted a small group to look into all relevant aspects of the matter andgive its recommendations regarding appropriate fiscal as well as other benefits for theElectronics/IT Hardware Industry for consideration of the Task Force. The Task Force


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considered the report of the Group. The recommendations pertained to Infrastructuredevelopment, Incentives for R&D (Support to encourage filing of international patents,Promotion of technology and innovation focused start ups, Multiplier grants for industrysponsored research programs with premier Academic and Government R&D institutions),Environmental considerations (Management of EWaste, EMC / EMI & safety standards),

Tariff issues & fiscal incentives, Special incentives to encourage investments for setting upsemiconductor fabrication & other high tech Electronics/IT products, Demand creationmeasures, Promotional measures, Role of State Governments and Skill development. Based onthe recommendations of the Task Force, action has been initiated by the concerned Ministries/Departments to implement the same.

The Special Incentive Package Scheme (SIPS) to encourage Investments for setting upSemiconductor Fabrication and other micro and nano technology manufacturing industries inIndia, has been announced by the Government in March, 2007. An Appraisal Committee hasbeen constituted by the Department of Information Technology. A set of guidelines has alsobeen issued on 14th September, 2007. The SIPS Notification as well as Guidelines for theAppraisal Committee are available on the website of DIT (www.mit.gov.in).

It is expected that the Electronics Industry will utilize the incentive package available underSIPS to plan investments for setting up manufacturing facilities in the country for high-techproducts. The salient features of the existing tariff Scheme/ policy applicable to Electronicsand IT Industry are as under.

Customs

Peak rate of basic customs duty is 10%. India is a signatory to the Information Technology Agreement (ITA-1) of the World Trade

Organization and w.e.f. 1st March 2005, the basic customs duty on all the specified 217tariff lines has been eliminated.

All goods required in the manufacture of ITA- 1 items have been exempted from customsduty subject to Actual user condition.

Information Technology (IT) Software is exempted from customs duty.

Customs duty on specified raw materials and inputs used for manufacture of electroniccomponents or optical fibers / cables is 0%.

Customs duty on specified capital goods used for manufacture of electronic goods is 0%. Customs duty on MP3 / MP4 / MPEG4 players is 5%. Set top box and their major parts are exempted from basic customs duty. Basic customs duty on project imports is 5%.


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Central Excise

The general rate of excise duty (CENVAT) is 14%. Excise duty on computers is 12%. Microprocessors, Hard Disc Drives, Floppy Disc Drives, CD ROM Drives, DVD Drives/

DVD Writers, Flash Memory and Combo- Drives are exempted from excise duty. Parts, components and accessories of mobile handsets including cellular phones are

exempted from excise duty. Excise duty on MP3 / MP4 / MPEG4 players is 8%. Wireless data modem cards are exempted from excise duty.

Central Sales Tax

Central Sales Tax (CST) has been reduced from 3% to 2%.

Other Pol icy Measures

Supplies of Information Technology Agreement (ITA-1) items and notified zero dutytelecom/electronic items in the Domestic Tariff Area (DTA) by Electronics HardwareTechnology Park (EHTP)/ Export Oriented Unit (EOU)/ Special Economic Zone (SEZ) unitsare counted for the purpose of fulfillment of positive Net Foreign Exchange Earnings (NFE).

Special Economic Zones (SEZs) are being set up to enable hassle free manufacturing andtrading for export purposes. Sales from Domestic Tariff Area (DTA) to SEZs are being treatedas physical export. This entitles domestic suppliers to Drawback/ Duty Entitlement Pass Book(DEPB) benefits, CST exemption and Service Tax exemption. 100% Income Tax exemption onexport profits is available to Special Economic Zone (SEZ) Units for 5 years, 50% for next 5years and 50% of ploughed back profits for 5 years thereafter.


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Year 08-09

Overview

The year 2008 was marked by unprecedented global economic crisis. The Global economyslipped into severe recession in 2008 inflicted by a massive financial crisis and acute loss ofconfidence. This has cast its shadow on the Indian economy, which is estimated to grow at 6.7per cent in 2008-09 as compared to 9.0 per cent in the fi scal year 2007-08.

In spite of this uncertain global outlook, the Indian Information Technology- Business ProcessOutsourcing (IT-BPO) industry was able to achieve sustainable growth in the fi scal year 2008-09. The revenue aggregate of IT-BPO industry is expected to grow by over 12 per cent andreach US $ 71.7 billion in 2008-09 as compared to US $ 64 billion in 2007-08. Industryperformance was marked by sustained double-digit revenue growth, steady expansion intonewer servicelines and increased geographic penetration.


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The Indian software and services exports including ITES-BPO exports is estimated at US $ 47billion in 2008- 09, as compared to US $ 40.4 billion in 2007-08, an increase of 16.3 per cent. TheIT services exports is estimated to be US $ 26.9 billion in 2008- 09 as compared to US $ 23.1billion in 2007-08, showing a growth of 16.5 per cent in 2008-09. ITES-BPO exports is estimatedto grow from US $ 10.9 billion in 2007-08 to US $ 12.8 billion in 2008-09, a year-on-year (Y-o-Y)

growth of over 17.4 per cent.Maj o r Pol icy Initiatives

India has huge potential to develop and manufacture Electronics hardware for the globalmarkets and gain higher global share besides meeting the countrys requirements in theconverging areas of information, communication and entertainment. Government of India hasidentified growth of Electronics hardware manufacturing sector as a thrust area. The NationalManufacturing Competitiveness Council (NMCC) was set up by the Government to provide acontinuing forum for policy dialogue to energize and sustain the growth of manufacturingindustries, including IT Hardware, in India.

The Department of Information Technology (DIT) has been making continuous efforts targetedat making India an attractive Electronics hardware manufacturing destination. To tap the fullpotential for growth of the Electronics hardware industry, the Government has taken thefollowing major initiatives:

(i) Infrastructure Support:

Inadequate infrastructure has been identified as one of the inhibiting factors for the growth of

Electronics hardware manufacturing in India. In order to address this issue Governmentdecided to set up Information Technology investment Regions (ITIRs). A policy resolution tothis effort has been published in the Gazette of India dated 29.5.2008. The regions would be acombination of IT/ITES and Electronics Hardware Manufacturing (EHM) units; publicutilities, residential areas, social infrastructure and administrative services. Such regions couldinclude new integrated townships, SEZs, industrial parks etc. The State Governments wouldensure that all physical infrastructure and utilities within its jurisdiction (power, water, roads,transportation, sewerage and effluent treatment facilities) are provided. The CentralGovernment will facilitate development of National Highways, Airport and Rail links to the

ITIRs.

(ii) Incentives for Research & Development (R&D):

Electronics & IT is R&D intensive. In order to promote R&D, DIT has put in place thefollowing Schemes:

Support International Patent Protection in Electronics & IT (SIP-EIT): In order toencourage filing of international patents, a Scheme Support International Patent


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Protection in Electronics & IT (SIP-EIT) has been put in place by DIT. Under this scheme,SMEs and Technology Start-up units will be reimbursed costs incurred in fi linginternational patent applications in Electronics & ICT domain for their indigenousinventions to the extent of 50% of the actual cost incurred by the applicant on fi lingInternational Patent, subject to a maximum of Rs.15 lakhs per application.

Promote technology and innovation focused start ups: In order to promote technologyand innovation focused start-ups, DIT has initiated a Scheme for Technology Incubationand Development of Entrepreneurs (TIDE) in the area of Electronics, ICT and Management.The scheme aims to assist Institutions of Higher learning, such as IITs, IIMs, NITs and IIITs,etc. to strengthen their Technology Incubation Centres and thus enable youngentrepreneurs to initiate technology start up companies for commercial exploitation oftechnologies developed by them. The objective of the scheme is to promote productoriented research and development and bridge the gap between R&D andcommercialization. The scheme shall provide financial support for nurturing techno-entrepreneurs as well as for strengthening the technology incubation activity at theinstitutions.

M ultiplier Grants Scheme: In order to support industry sponsored research programswith Indian Universities, DIT has initiated a Multiplier Grants Scheme. Under this scheme,the Government would provide grants up to the maximum of twice the amount investedby the industry / industry consortium / association towards the innovation at academic /R&D institution.

(iii) Tariff issues and fiscal incentives:

Inverted duty structure in the Electronics hardware manufacturing is not conducive to thegrowth of the industry. Government has been making consistent efforts to address thisanomaly in duty structure impacting Electronics hardware industry. It has also made efforts togive a boost to the domestic demand by reducing the mean rate of excise duty (CENVAT)from 14% to 10% w.e.f. December 7, 2008 and to 8% w.e.f. February 24, 2009.

(iv) Special Incentives for Fabs and other High Tech IT Products:

The Special Incentive Package Scheme (SIPS) to encourage investments for setting up

Semiconductor Fabrication and other micro and nano technology manufacture industries inIndia, has been announced by the Government on 21.3.2007. A set of Guidelines was issued on14.9.2007. The SIPS Notification as well as the Guidelines are available on DITs website. TheScheme has received a very encouraging response. Seventeen proposals amounting to a totalinvestment of the order of Rs. 157,000 crore over a period of 10 years in the area ofsemiconductor fab, TFT-LCD panel and solar photovoltaic have been received under theScheme.


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(v) Special attention and priorities to Electronics / IT Hardware M anufacturing:

In the Foreign Trade Policy (FTP), updated as on 11th April, 2008, Electronics and ITHardware Manufacturing Industries has been included as a thrust sector in Chapter-1Brelating to Special Focus Initiatives.

(vi) Skill Development:

DIT in consultation with the NMCC completed the study on Mapping the manpower skills inthe IT hardware and electronics manufacturing industry through Manufacturers Associationfor Information Technology (MAIT). The salient features of the existing tariff structure / policyapplicable to Electronics Hardware Industry are brought out below:

Customs

Peak rate of basic customs duty is 10%.

India is a signatory to the Information Technology Agreement (ITA-1) of the World TradeOrganization. Therefore, the basic customs duty on all the specifi ed 217 tariff lines is 0%.

All goods required in the manufacture of ITA-1 items have been exempted from customsduty subject to Actual user condition.

Customs duty on specifi ed raw materials and inputs used for manufacture of electroniccomponents and optical fi bres / cables is 0%.

Customs duty on specifi ed capital goods used for manufacture of electronic goods is 0%.

Customs duty on MP3/ MP4 / MPEG4 players is 5%. Set top boxes (STBs) and their major parts are exempted from basic customs duty.

Central Excise

The mean rate of excise duty (CENVAT) is 8%. Microprocessors, Hard Disc Drives, Floppy Disc Drives, CD ROM Drives, DVD

Drives/DVD Writers, Flash Memory and Combo-Drives are exempted from excise duty. Parts, components and accessories of mobile handsets including cellular phones are

exempted from excise duty.

Central Sales Tax

Central Sales Tax (CST) has been reduced from 3% to 2% w.e.f 1st June 2008.


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Approvals for all foreign direct investment upto 100% in the electronics hardwaremanufacturing sector are under the automatic route. Export Promotion Capital Goods Scheme(EPCG) allows import of capital goods on payment of 3% customs duty. The export obligationunder EPCG Scheme can also be fulfi lled by the supply of Information TechnologyAgreement (ITA-1) items to the DTA provided the realization is in free foreign exchange.

Supplies of Information Technology Agreement (ITA-1) items and notifi ed zero dutytelecom/electronic items in the Domestic Tariff Area (DTA) by Electronics HardwareTechnology Park (EHTP)/Export Oriented Unit (EOU)/ Special Economic Zone (SEZ) unitsare counted for the purpose of fulfi llment of positive Net Foreign Exchange Earnings (NFE).

Special Economic Zones (SEZs) are being set up to enable hassle free manufacturing andtrading for export purposes. Sales from Domestic Tariff Area (DTA) to SEZs are being treated

as physical export. This entitles domestic suppliers to Drawback/ Duty Entitlement Pass Book(DEPB) benefi ts, CST exemption and Service Tax exemption. 100% Income Tax exemption onexport profi ts is available to Special Economic Zone (SEZ) Units for 5 years, 50% for next 5years and 50% of ploughed back profi ts for 5 years thereafter.


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Year 09-10

Overview

The year 2009 was marked by extraordinary policy response to unprecedented globaleconomic crisis. With the help of the policy support, the Global economy is now emergingfrom the crisis and GDP growth rates are starting to improve. The Indian economy after

slowing down in 2008-09 is estimated to grow at 7.2 per cent in 2009-10 as compared to 6.7 percent in 2008-09.

The revenue aggregate of IT-BPO industry is expected to grow by over 5 per cent and reach US$ 73.1 billion in 2009-10 as compared to US $ 69.4 billion in 2008-09.


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The Indian software and services exports including ITeS-BPO exports is estimated at US $ 49.7billion in 2009-10, as compared to US $ 47.1 billion in 2008-09, an increase of 5.5 per cent. TheIT services exports is estimated to be US $ 27.3 billion in 2009-10 as compared to US $ 25.8billion in 2008-09, showing a growth of 5.8 per cent. ITeS-BPO exports is estimated to growfrom US $ 11.7 billion in 2008-09 to US $ 12.4 billion in 2009-10, a year-on-year (Y-o-Y) growth

of 6 per cent.Maj o r Pol icy Initiatives

The Information, Communication Technology and Electronics (ICTE) is the worlds largest andfastest growing Industry. With its impact in raising productivity, increasing efficiency indelivery of services and improving lifestyle, it is considered as a key enabler in developmentand is globally being accepted as a Meta-resource. The competitiveness of various industriesis increasingly being determined by their ability to integrate ICTE in their business processes.

Indian electronics hardware production increased from Rs. 50,500 crore in 2004-05 to Rs. 97,260crore in 2008-09, with a cumulative annual growth rate of 17.3%. The production of electronicshardware in the country is estimated to grow from Rs. 97,260 crore in 2008-09 to Rs. 109,940crore in 2009-10, registering a growth of 13%. The slower rate of growth of production during2009-10 is attributed to the global economic slowdown.

The demand for electronics hardware is being fuelled by the relatively high growth rate of theIndian economy, aspirations of the younger generation and the large middle class in Indiawith increasing disposable incomes. Thus, there is a big opportunity for stepping upproduction of electronics hardware in the country. India has the potential to develop andmanufacture electronics hardware for the global markets and gain higher global share besidesmeeting the countrys future requirement in the converging areas of information,communication and entertainment.

The Government has identified growth of electronics hardware manufacturing sector as athrust area and has taken a number of steps on an on-going basis for promotion of thisindustry in the country. The major initiatives taken by the Government are:

Special Incentive Package Scheme (SIPS)

In order to create a conducive environment for the high technology, capital intensivesemiconductor Industry and other high tech electronic items, attract global investments as wellas bridge the viability gap due to lack of adequate infrastructure and ecosystem, a SpecialIncentive Package Scheme (SIPS) was announced by the Government on 21.3.2007. A set ofGuidelines was issued on 14.9.2007. The Scheme is available upto 31.3.2010.

The Scheme has received a very encouraging response. In-Principle letters have been issued tothirteen (13) Solar Photovoltaic (SPV) applicants, who met the basic technical qualification


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criteria laid down in the notification for SIPS and taken specified preliminary steps towardsproject implementation. Five applicants have indicated having achieved Financial Closure ofmore than Rs.1000 crore.

Task Force to suggest measures to stimulate the growth of IT, ITES and Electronics HardwareManufacturing Industry in the country In view of the enormous opportunities ahead and needto sustain the growth of this sector in the wake of prevailing global economic downturn, the

Department constituted a Task Force in August 2009, to make recommendations coveringstrategies to augment the growth of the IT software and IT enabled services sector in thecontext of global developments; the steps needed to accelerate domestic demand forelectronics hardware products, IT & IT enabled services and boost domestic manufacturing inElectronics hardware sector. The Task Force has submitted its Report on 11th December, 2009.The recommendations contained in the Report cover Electronics Systems Design &Manufacturing (ESDM); Software & Services; and Strategic Electronics, the crucial sub-sectors

of the ICTE value chain.

As per the Report of the Task Force, the demand for electronics hardware in the country isprojected to increase from the present US $ 45 billion in 2009 to US $ 125 billion by 2014 andUS $ 400 billion by 2020. The electronics hardware production is projected to grow from aboutUS $ 20 billion in 2009 to US $ 100 billion by 2014 and US $ 400 billion by 2020, with exportsgrowing from about US $ 4.4 billion in 2009 to US $ 15 billion by 2014 and US $ 80 billion by2020.

The Task Force has suggested several measures for rapid growth of the industry and hasdefined a roadmap for the industry in the medium and longterm. The overall goal is to arriveat a shared Government-Industry Vision of what the sector should aspire to achieve in nextfew years, particularly in terms of investment, contribution to GDP and employment. TheDepartment is in the process of taking up the recommendations for appropriateimplementation on a fast track basis, so that the IT and Electronics Industry in India achievesthe targets as envisioned by the Task Force.


An outward looking and liberal trade policy is one of the main features of Indias economicreforms. Approvals for all foreign direct investment upto 100% in the electronics hardware-manufacturing sector are under the automatic route.

The general Export Promotion Capital Goods (EPCG) Scheme allows import of capital goodsfor pre-production, production and post-production (including CKD/SKD thereof as well ascomputer software systems) at 3% customs duty, subject to an export obligation equivalent to


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8 times of duty saved on capital goods imported under EPCG scheme, to be fulfilled in 8 yearsreckoned from authorization issue-date.

However, the Zero duty Export Promotion Capital Goods (EPCG) Scheme is available toexporters of electronic products. It allows import of capital goods for pre-production,production and post-production (including CKD/SKD thereof as well as computer softwaresystems) at 0 % customs duty, subject to an export obligation equivalent to 6 times of dutysaved on capital goods imported under EPCG scheme, to be fulfilled in 6 years reckoned fromauthorization issue-date.

The export obligation under EPCG Scheme can also be fulfilled by the supply of InformationTechnology Agreement (ITA-1) items to Domestic Tariff Area (DTA) provided the realizationis in free foreign exchange.

Supplies of Information Technology Agreement (ITA-1) items and notified zero dutytelecom/electronic items in the DTA by Electronics Hardware Technology Park (EHTP)/Export Oriented Unit (EOU)/ Special Economic Zone (SEZ) units are counted for the purposeof fulfillment of positive Net Foreign Exchange Earnings (NFE).

Special Economic Zones (SEZs) are being set up to enable hassle free manufacturing andtrading for export purposes. Sales from Domestic Tariff Area to SEZs are being treated asphysical export. This entitles domestic suppliers to Drawback/ Duty Entitlement Pass Book(DEPB) benefits, CST exemption and Service Tax exemption. 100% Income Tax exemption onexport profits is available to Special Economic Zone (SEZ) Units for 5 years, 50% for next 5years and 50% of ploughed back profits for 5 years thereafter.

The salient features of the existing tariff structure/policy applicable to electronics hardwareIndustry are brought out below:

Customs

Peak rate of basic customs duty is 10%. India is a signatory to the Information Technology Agreement (ITA-1) of the World Trade

Organization. Therefore, the basic customs duty on all the specified 217 tariff lines is 0%.

All goods required in the manufacture of ITA-1 items have been exempted from customsduty subject to actual user condition.

Customs duty on specified raw materials and inputs used for manufacture of electroniccomponents and optical fibres / cables is 0%.

Customs duty on specified capital goods used for manufacture of electronic goods is 0%. Basic customs duty on set-top boxes is 5%.


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Basic customs duty on LCD panels for manufacture of LCD televisions is 5%. Parts, components and accessories of mobile handsets including cellular phones are

exempted from customs duty.

Central Excise

The mean rate of excise duty (CENVAT) is 10%. Microprocessors, Hard Disc Drives, Floppy Disc Drives, CD ROM Drives, DVD

Drives/DVD Writers, Flash Memory and Combo-Drives are exempted from excise duty. Parts, components and accessories of mobile handsets including cellular phones are

exempted from excise duty.


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F uture of IT in New Year (2011)

THE New Year is expected to ring in glad tidings for Indian IT companies with clientsincreasing their IT spending and willing to pay more for services. Top Indian IT providers areset to show revenue growth of 20% and more for the fiscal year ending March 2011, primarilydriven by higher spending on IT from US clients.

In the three months to September 2010, IT spending of US firms grew 12% and the trend isexpected to continue in the quarters ahead with firms chasing their hardware buys with moresoftware and services purchases. US corporates will enter their next year budgeting exercisesin January and demand outlook for Indian IT services is optimistic for FY12. We are factoringover 27% US dollar revenue growth for top IT players, said Atul Soni, analyst with MacquarieEquities Research.

In 2011, we could see a higher budgetary allocations for software and services. Although

protectionism may be a thorny issue in the near term, longer term we believe that theoffshoring trend will remain strong, said Rumit Dugar of Religare Capital Markets. UScorporate profits grew 28% year-on-year in the July-September 2010 quarter, bouncing back to2007 levels.

In FY11, higher demand is estimated to drive a 30% growth in sales for top IT exporter, TataConsultancy Services (TCS) and a 19% growth in sales for Wipro, according to consensusestimates from analysts. Infosys Technologies is estimated to show a sales growth of around25%, while HCL Technologies, which is growing from a smaller base, is estimated to show a31% sales growth for FY11. HCLs focus has been to grow revenues even if at a slightly lowermargins.

TCS is estimated to close FY11 at $ 8.2 billion and well on its way to join the $10 billion club innext two years. TCS growth story is the sustainable improvement in operating margins(earnings before interest and tax), at 27%, says Kunal Sangoi, analyst at Edelweiss Securities.We continue to maintain our 22% dollar growth assumption for FY12. Further, decliningattrition could help increase margins. TCS employs about 174,000 people and is operating at arecord high utilisation of 78% as of Q2 FY11. We note that TCS has given out 35,000 campusoffers for FY12. As fresher recruitment picks up in January-March, 2011, utilisation could trenddown, says Vihang Naik of MF Global. He expects TCS utilisation to peak in December 2010and fall thereafter. TCS sales for last twelve months stand at $7.7 billion.

Infosys is expected to post sales of $6 billion in FY11, while continuing to enjoy the highestmargins in the industry at 34.6%. Infosys deal pipeline is strong and it sees no impact of anuncertain and cautious macro outlook reflected in its business, says brokerage firm MotilalOswal in a report.


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We believe 2011 will remain a positive year for Indian IT, says Yogesh Agarwal, analystwith HSBC Securities and Capital Market. The macro environment, protectionism in the USand austerity measures in Europe are the biggest threats to sustainable demand for firms likeInfosys, says Kuldeep Koul, analyst with Motilal Oswal. For the quarter to December 31,2010, all IT companies are expected to see about 3% lower volume growth, due to fewer

working days in December.In FY12, the Indian IT companies will pay more in taxes but be able to sustain margins aspricing starts to improve. The higher tax rate, due to phasing out of tax sops, will have a 3%-4% margin impact. Tax rates for all Indian IT companies are expected to rise by 2%-4%. ForTCS, the tax rate is expected go up from 19% to 21%, and for Wipro from 17% to 21%.Indias third largest IT company Wipro is expected to post sales of $5.2 billion in FY11, anincrease of about 19% from last year. Operating profit margins for Wipro are expected to lagbehind peers at 22% in FY11. The company is expected to post a net profit growth of about16% for the full year.

HCL Technologies will continue to see a margin depletion, say analysts. Margins havedeclined by almost 600 bps in the last five quarters, primarily due to investment of profits backin the business. Investment in sales and marketing at a time when the competition is as fiercehas yielded them good results in the past and is expected to deliver a similar trend in thecoming quarters, says Shashi Bhushan of brokerage firm Prabhudas Liladhar. The companyBPO business is expected to post losses for FY11 but sales are expected to rise to $3.5 billion.

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