Policy Archives - Page 3 of 3

21/11/201321/11/2013

Design and its New Role in Innovation – A Round Table led by Eskild Hansen (Nov 26th, New Delhi)

Eskild Hansen will lead a discussion with prominent design thinker in the NCR on ‘Design and its New Role in Innovation.’

Eskild Hansen is one of the most talented Danish Designers on the Scandinavian landscape. Just turned 40, he has already been in leaderships positions at Cisco and Coloplast among others after having worked with other leading global design firms. At CISCO Eskild was responsible for establishing their first European Design Centre in Copenhagen and during this period helped bring a breathe of fresh air to the previously ‘boring and bulky’ Wireless Routers. He even won a Red dot in 2011 for one of his designs. You can read more about his work at www.eskildhasen.com.

Eskild is also a part of the Danish government strategic think tank that is developing and strategizing the ‘Danish Design Society.’ Invest in Denmark, a part of the Ministry of Foreign Affairs is bringing him to India on their 2nd Design Tour between 25th and 30th of November, 2013 and are offering the members of iSpirit and opportunity to engage with Eskild on common areas of interest. A new development has been the opening of a Danish Innovation Centre in New Delhi and Bangalore (www.icdk.um.dk).

Eskild is also very excited and eager to work with Indian companies for his private design consulting company.

02/08/201302/08/2013

Economists revise GDP estimates with investment in intangibles

The US economy will officially become 3 per cent bigger in July as part of a shake-up that will see government statistics take into account 21st century components such as film royalties and spending on research and development. Billions of dollars of intangible assets will enter the gross domestic product of the world’s largest economy in a revision aimed at capturing the changing nature of US output. A brief look at the emerging scenario.

Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period of time. GDP can be determined in three ways, all of which should, in principle, give the same result. They are the product (or output) approach, the income approach, and the expenditure approach. The most direct of the three is the product approach, which sums the outputs of every class of enterprise to arrive at the total. The production approach is also called Net Product or Value added method. This method consists of three stages:

Estimating the Gross Value of domestic Output out of the many various economic activities
Determining the intermediate consumption, i.e., the cost of material, supplies and services used to produce final goods or services; and finally
Deducting intermediate consumption from Gross Value to obtain the Net Value of Domestic Output.

Both firm-level and national income accounting practice have historically treated expenditure on intangible inputs such as software and R&D as an intermediate expense and not as an investment that is part of GDP. Now, this exclusion of intangibles is increasingly questioned. Economists in USA pointed that business investment in intangibles is a vital aspect of business activity, and the investments shown below represent a large and growing portion of the overall economy.

Computerized information (mainly computer software)

The rapid expansion and application of technological knowledge in its many forms (research and development, capital-embodied technical change, human competency, and the associated firm-specific co-investments) are key features of recent U.S. economic growth. Accounting practice traditionally excludes the intangibles component of this knowledge capital and, according estimates exclude approximately $1 trillion from conventionally measured non-farm business sector output by the late 1990s and understates the business capital stock by $3.6 trillion.

Can we expect our GDP estimates to be revised likewise?

16/05/201316/05/2013

It’s time to open the gates wider

There is a growing nervousness among foreign investors putting their money in India. The Global Entrepreneurship and Development Index 2012 revealed that India, Asia’s third-largest economy, ranked 74th out of 79 countries, making it an unviable country to start a business. There is a growing nervousness among foreign investors putting their money in India.

Fewer than 150 start-ups are promoted by venture capital or angel investors annually in India compared to over 60,000 angel investments in the US. In 2011, Indian angels, constrained by regulations that make both investing and exits cumbersome, invested only about Rs.100 crore in around 50 deals compared with Rs.2,000 crore angels invested in Canada.

These figures don’t surprise Indian product software start-ups. India has produced few of the world’s leading software products, has 3,400 software product start-ups, and adds 400 every year. But it needs the right environment and incentives to build a world-leading industry.

For several decades, the Indian ownership laws and the investment and business environment have not allowed a conducive setting for the brightest of minds, many of whom have migrated to California. The new Indian entrepreneurs spend significant time on product development to build patentable products with a global market. However, as soon as the product gains traction, venture investors and professionals advise entrepreneurs to move the holding structure, if not the entire business, outside India. The main reasons are as follows:

Financing:

In today’s world talent and ideas are mobile. Singapore, Hong Kong, Chile and the UK are offering attractive financing (debt and equity) to Indian companies to relocate their business. They are also offering tax benefits. This is starting to result in real migration of promising companies out of India.

Maze of rules:

In India, we have foreign direct investment, VCI (venture capital investment), foreign institutional investors, Reserve Bank of India, fair valuations and draconian consequences for inadvertent slip-ups, while in most major economies there are no restrictions.

Taxation:

Capital gains (20%) as well as dividends (dividend distribution tax of 12.5%) even for foreign investors. In most major economies, foreign investors are not taxed on their capital gains and dividend income on their investments and owned businesses. India’s tax policy does not help a product business to attract the right kind of investors and acquirers, and is a hurdle for those interested in foreign acquisition in a stock deal as Indian paper is not an attractive currency. In the UK, for example, investors can write off any investment losses against income, and this significantly reduces their cost of failures.

Open economy:

India does not treat foreign investors on par with local investors, unlike the US, the UK, Europe, Singapore and Hong Kong, which have no restriction on ownership and company structures, and for the most part, regulatory filings (except some strategic and security related issues).

India needs to build an attractive regime to retain the software products business and its intellectual property, which is highly mobile. Incentives and special regimes for businesses that create IP and file for patents will give the industry a big boost. Among the solutions are the liberalized ownership rules with exemptions from regulatory filings and specific regimes (FDI/VCI/FII, etc.), specific exemptions from capital gains and dividend taxes for investors and tax exemption on foreign income of Indian software product companies. Why not go even further and build a fully liberalized virtual special economic zone for ownership and operation of software product companies, with India signing an iron-clad double-taxation avoidance agreement the virtual SEZ.

India needs to proactively grab opportunities, or risk driving the whole industry abroad. We have the potential to create multi-billion dollar global product companies every year, and the benefits could run into trillions of dollars over a decade or two.

This article first appeared in the LiveMint

18/02/201312/06/2014

An iSPIRT’ed Budget

One of the pillars of iSPIRT’s mission statement is a focus on converting the needs of the product ecosystem to policy direction.

One of the first undertakings of the iSPIRT community will be to formulate suggestions on how to improve Finance and Investment related policies to yield better results for this industry. And what better time to do this than in the run-up to the Budget presentation on 28 th February?

We plan to host and facilitate open and transparent online discussion around the key topics where current policies should be revisited. The discussions will be seeded with the release of a series of Blue Papers –short discussion documents identifying the key pain points, what is at stake, and how we should proceed as country.

Over the coming four days, we will release a new Blue Paper each day on the following topics:

We encourage everyone to help us collaboratively build on these initial viewpoint documents. We will close the discussions as we approach Budget Day, and after the release of the Budget will then create a set of assimilated viewpoints stemming from the Blue Papers, the discussions that have transpired online, and reflecting on the actual Budget.

These viewpoints will then be shared back with the Government as inputs reflecting the views of hundreds, or hopefully thousands, of product entrepreneurs and ecosystem participants.

Keep checking back here over the coming days, and we hope to hear your voice, too!

12/02/201311/02/2013

Sustaining India’s IT Exports Growth: Why Products are the Way?

Going by its 12th five year plan projections, the Indian government expects that the IT/ITES exports from the country would reach $130 billion by FY 2016-17, up from $69 billion in FY 2011-12. That is a CAGR of 13.6%.

How realistic is it?
The Planning Commission’s (it has got those figures from IT ministry which in turn would have consulted with the industry before suggesting it) projection is obviously based on the past trends. Between 2002-07, IT exports from India grew by a CAGR of 32.6%. In the next five years, between 2007-12, the IT exports registered a CAGR of 17.2%. Purely going by those number, a 13.6% growth does not seem too unrealistic for the period 2012-17.

But that does not give the real picture. While the government has its own five-year plan periods, and all its numbers are synchronized to those blocks of periods, the industries do not necessarily work that way, least of it, an exports industry.

Indian IT services exports industry had its distinctive growth periods. The period between 2003-04 to 2007-08, was the high growth period when, on an average, the exports grew 30% year on year, growing by a whopping 37.2% in 2004-05. Of course, the industry was much smaller.

The new phase began in 2008-09. From that year onwards, the industry has grown between 5-19%. In short, the growth of FY 2007-08, which belonged to another era, skews the figure for the five year period that the government has taken—2007-08 to 2011-12. A better idea, hence, would be to compare with the CAGR of the four year period 2008-09, which was 14.2%.

On a much bigger scale, is is possible to replicate that kind of growth, with business as usual. The current year growth is not likely to be more than 10-11%, considering that the top companies have grown by 9% in the first nine months. If the first year of the block shows a growth of 10%, it will be panglossian to believe that the exports will grow by 13.6% in the five year period.

That is, if we go on doing business as usual. The 12^th Plan document also does not mention any new initiatives in this area that would make one hopeful, unlike in case of semiconductor and electronic design segments, where a lot of new initiatives are listed.

So, how do we sustain the growth? It is difficult to believe that changing a tax structure here or duty structure there for IT/ITES exports would help the industry grow. We need to look at comppletely new areas/new dynamics to make the industry growth accelerate.

I believe engineering services and software products are two such areas which have potential to drive the next phase of growth for Indian IT. Here are the reasons why I bet on these two

Both these areas are not really completely new areas for Indian IT. There are some leve of action already and the world has noticed the ability of Indians in both these areas
The opportunity and scope available to expand is immense. Hence, the growth will be sustainable for some time
There are passionate people and organizations trying to furher the cause of both these segments.

With a little help from government in terms of incentives and promotion, these two segments, I believe, can drive the growth for the industry in the medium term.

This year’s budget could be a great beginning. The government could well begin by announcing some concrete incentives for encouraging creation of software products from India. Here are some of the ideas that are worth exploring (in the area of software products).

Creating direct tax incentives for companies engaged in creating software products
Incentivizing government department, agencies and private companies in India to buy made-in-India products through a mix of fiscal and non-fiscal incentives
Creating product-only SEZs
Instituting awards and honors for software products made in India
Encouraging software companies to create products for solving e-governnce problems in the country
Creating a comprehensive policy statement to encourage creation of Intellectual Property in computing/information sciences in India