Contributing to India's Development?

The always readable Andy Mukherjee from Bloomberg has an interesting note on how India's new and flourishing economy needs to contribute to the build-up and development of India as a society. Andy's account of the tax break to software companies is of coure important in and of it self but moreso I think it is important to note that what India is going through now with its blistering growth rates which some indeed have voiced overheating concerns over is not a free ticket to sustainable economic development. It is, on the other hand, a grand window of opportunity for India to lock-in the path towards a developed powerhouse of an economy. Especially concerning India's poor infrastructure common lifting is the key.

(quote Andy M, bold parts are my emphasis)

Twice a day, software engineers working at the technology hub on the outskirts of Bangalore undertake a journey that keeps getting longer.

The boom in outsourcing, which has led to a stunning expansion of the software industry, has also exacerbated the commuters' woes. During peak periods, it now takes two or three hours to travel just 12 miles (19 kilometers) to the city center. An expressway link has been urgently required for the past five years. And yet, it's only now that work has begun on constructing one.

The software industry, like all of India's new economy, is coping with shortages of everything from roads and power to airport capacity and skilled workers. That's true, in different degrees, in all of the country's big cities.


The top four Indian software companies pay 11 percent to 15 percent of their pretax earnings as levies, mostly to foreign governments. They are immune to their home country's corporate- tax rate, which stands at about 34 percent.

That's because they enjoy a tax holiday in India on profits of units located in designated export zones. According to the new rule, as long as the exporting unit has a book profit, it can't escape its liability entirely. It must pay 11 percent to the government. The software industry sees the move as a promise reneged: The tax holiday was supposed to last until 2009.

I welcome and recommend you to read the rest of Andy's note this week. Through the concrete discourse on software companies' tax breaks, I think it gives a good account of some of the general dilemmas facing the Indian government.

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