100% Tax Deduction for Expenditure on Y2K Compliance  

The Finance Act 1999 has inserted a new section 36(1)(XI) in the Income Tax Act, 1961, for allowing 100 per cent deduction of any expenditure, whether capital or revenue, incurred in making a non-Y2K compliant computer system Y2K compliant. Finance Minister, Shri Yashwant Sinha, had announced the exemption in his budget proposals for 1999-2000.  

According to an official release, the benefit is available to the expenditure incurred during the period April 1, 1999 to March 31,2000.  

Y2K planning must have manual back up: RBI  

The RBI has asked banks -and financial-institutions to have a back up of stand alone PCs and/or manual processing to ensure business continuity in case there is a failure of back up computer system. This is because the technical structure of the back up system is exactly the same as the active system.  

Banks and FIs are advised to keep up to date printed hardcopies of all important books of accounts and customers' accounts starting from January 1, 1999 so that temporary switchover to manual procedures may be done with ease in the event of any disruption due to unforeseen problems at the turn of the century.  

U.P to set up Rs. 20 cr. IT venture capital fund  

The Uttar Pradesh government has decided to set up an information technology venture capital fund with a seed capital of Rs. 20 crore in a follow up action to the recently announced information technology policy of the state. The fund would invest in working capital needs of the units-51 per cent would go to SSI units and 49 per cent to medium scale ones.  

The seed capital of Rs. 20 crore will be provided by SIDBI, UPSIDC, UPFC and UP Electronic Corporation. Efforts are on to bring in some private sector software giants like NASSCOM, Infosys, HCL, NIIT.  

Software exports up 68% at Rs. 10,940 crore   

Software exports registered the highest ever growth of 68 per cent in rupee terms during 1998-99, touching Rs. 10,940 crore out of a total revenue of Rs. 15,890 crore. The balance Rs. 4,950 cr. accounted for domestic revenues which also rose by 40 percent. As many as 14 of the 26 state governments have announced their own IT policies, thereby strengthening the software industry considerably.  

At the present rate of growth, export of software and services will form 25 per cent of the country's total exports within another five years.   

E-commerce in India seen at Rs. 40,000 crore by 2003  

The scale of electronic commerce (e-commerce) in the country is expected to touch Rs. 40,000 crore by 2003, according to a report by Price Water House Coopers (PwC) Ltd.  

The PwC report for India, which was released on 29.6.1999, is based on a survey of 64 Indian companies and interviews with senior and chief executive officers. It covers a wide cross section of industries and service firms.  

There will be two broad trends in e-commerce companies those graduating to e-commerce and those which will use it as a new business opportunity. It is a powerful business with immense potential.  

Internet tariffs slashed by 15%  

The Mahanagar Telephone Nigam Ltd. Board has approved another 15 pen cent cut in internet prices and has introduced two new slabs of 30 and 50 hours.  

A new slab of 30 hours will cost Rs. 500 per month with a one-hour usage ceiling per day, with additional hourly usage at Rs. 10. With the reduction in internet rates, the 100 hours usage would now cost Rs. 2,150 as against Rs. 2,550 while the renewal charges would be Rs. 2,050. For 250 hours the new rate would be Rs. 4,700 with renewal at Rs. 4,400 and for 500 hours the new rate will be Rs. 7,250 with renewal at Rs. 6,800. The internet tariff will also have a 50 hour slab for Rs. 1500 with no registration fee.  

New bench marks for Mega power project  

The union cabinet has decided that all the inter-state thermal power projects over 1000 mw and hydel power projects over 500 mw would be recognised as mega projects and would qualify for various concessions and incentives announced by Finance Minister Shri Yashwant Sinha in his budget speech earlier. The projects which would now qualify for duty concessions were the following:-  

Maithon 1000 mw
Anta 1300 mw
Kawas 1300 mw
Gandhar 1300 mw
Auriya 1300 mw
Cuddalore 1300 mw
Narmada 1000 mw to be upgraded to 2000 mw
Indian, US Cos tie up for digital mapping  

A US-based provider of digital mapping services (Analytical surveys Inc) for the geographic information system (GIS) is forming a strategic alliance with the Hyderabad - based Infotech Enterprises as part of its plan to expand its presence within the global GIS market.  


India is uniquely placed to take advantage of the opportunities offered by international e-commerce Arvind Panagariya Professor of Economics, University of Maryland, USA.   

Internet is undisputedly the most important mode of commerce invented in the last two decades. The same way that advances in shipping brought down the cost of international trade in goods during 1960s and 1970s, Internet has brought down the cost of international trade in services. Thanks to this mode of "transportation", many previously non-tradeable services are now internationally traded.  

For many services, Internet has eliminated the need for physical presence of the provider. If a City Bank official in New York  encounters a programming problem late in the day, she does not have to wait for a consultant to come to the office to solve it. Instead, using Internet, she can instantly ship the problem to a firm in Bangalore. Taking advantage of the time difference between the two cities, the firm can ship back the solution before the official returns to work the next morning.  

The reach of Internet is not limited to services, however. Today in the US, many goods are ordered and paid for on Internet, with actual delivery taking place by traditional modes. More interestingly, Internet is even delivering some of the goods. It digitises (that is, converted into strings of 0 and 1) books, music CDs, films and  computer programmes and delivers them in no time to distant customers.  

This ability of Internet to deliver goods poses new challenges for tax authorities as well as the World Trade Organisation (WTO).  

When a CD is imported in physical form, it is subject to a custom duty. But what if the music on the same CD crosses the border in digitised form without anyone able to observe it ? WTO is currently wrestling with the dilemma whether it should classify the "digits" transported on Internet as goods or services. The issue is substantive since trade in goods is subject to the discipline of the General Agreement on Tariffs and Trade (GATT) while that in services is governed by the General Agreement on Trade in Services (GATS).  

Because of its large pool of skilled labour, India is uniquely placed to take advantage of the opportunities offered by international  e-commerce. I had long held the that we had greatly over invested in "higher education." On the one hand many of the talented individuals left the country and one the other we were faced with a large  pool of educated workers whom the economy could not readily absorb.  

The advent of computer technology in general and Internet in particular now undermines this view. Today, India has world's second largest pool of English speaking scientific manpower. Aided by the power of Internet, this pool has become the source of exports worth as much as $ 4 billion annually. Starting with simple data entry services, we now supply sophisticated back office services, we now supply sophisticated back office services including electronic publishing, website design and management, medical records management, hotel and airline reservations, mailing list management, technical online support indexing and abstracting services, and technical transcription.  

Given the large differences in the wages of skilled workers between developed and developing countries, the potential gain from increased movement of natural persons between them is large. To take advantage of this fact, India has long sought a relaxation of restriction on the entry of temporary workers in developed countries. The beauty of Internet is that, for many services, it opens up developed country markets for skilled labour without requiring movement of natural of persons.  

Of course, this does not mean that Internet has eliminated the need for the movement of natural persons. For one thing, the wages received by skilled workers in Bangalore are no where near those paid in New York for the same work. Moreover, the growth of e-commerce itself may depend on the flexibility in the movement of natural persons. Confidentiality or security considerations may require consultants to move to the site where the services has to be provided.  

The most striking recent example relates to Y2K contracts. The ability of Indian firms to secure these contracts was hampered by the nonavailability of visas to visit the US. Installation and maintenance of software may also require physical presence of the supplier.  

To maximise the benefits from e-commerce, several policy measures may be recommended. First, despite much improvement in the past decade, our telecommunication services remain inadequate and expensive. Within Internet sector, free entry of service -providers is essential. The monopoly of the Videsh Sanchar Nigam Limited (VSNL) on Internet service provider for a long time held back the growth of this important sector.  

Second, unreliable supply of power has been a serious constraint on the growth of e-commerce. Unanticipated interruptions of power can have a catastrophic effect on the productivity of software industry. Frustrated by supply interruption, many firms in Bangalore have  switched to generating their own power.  

Third, if e-commerce is to flourish eventually, we will need to  develop electronic means of payment both internally and externally. This is a complex problem. Internally, the use of credit card is still limited. Externally, even though e-commerce in goods and services is covered by the current-account convertibility to which we adhere, freedom of payments by the electronic medium can open the door to capital outflows. But, at some stage, we will have to cross that bridge and it is worthwhile to start thinking how.  

Finally and most importantly, we need to ensure that access to communication networks in other countries remains free and developed countries progressively liberalise the imports of services that we are able to supply electronically. Access to communication networks of other countries, is essentially guaranteed under GATS and the Agreement on Basic Telecommunications signed in February 1997. But access to markets in services that we can supply electronically is still limited. In the forthcoming WTO negotiations on services, due to begin on January 1,2000, India must seek greater access to markets in these services. (Reproduced from Economic Times, 28.7.99).