The Case for and against Government Sops

As Lord Meghnad Desai  said in one of the television debates,
governments around the world are not exactly known for taking rational
decisions. Expecting them to take rational decisions year after year, and basing
your business plans on that, is not the hallmark of a mature industry.

Yet, today the Indian BPO industry is so overwhelmed by the issue of
government support that in most industry forums, the debates start and end with
this issue only. Well, some kind of expectation from the government is not at
all unfair. But hearing such passionate arguments that link India’s future as
a BPO destination almost entirely to tax breaks, one sometimes becomes doubtful
of India’s capability. If this is what Indian industry captains feel, then
what right do we have to tell the rest of the world that when it comes to BPO,
we are the best in everything–cost, quality and scale. Isn’t it a little
ironic that we are banking so much on government sops for growth? Government
decisions are not always consistent. Without going into the merits of the case,
one can cite the example of Media Lab Asia. Policies may change drastically even
with a change of ministers, let alone governments. What if the government
changes its policies regarding IT/BPO industries tomorrow? Can we conclude that
India will suddenly become uncompetitive? Work will go elsewhere? Then, aren’t
we going gaga over a virtual strength rather than a real one?

Yes, some government support definitely helps a new industry. Tax breaks in
the initial years certainly do help. A baby needs some nurturing. But as we have
seen with all sops like reservation policies and subsidies, no one wants to
forego something that they have enjoyed for years. In other words, babies want
lollypops even after growing up.

My point, however, is not about merits of tax breaks, even though that seems
to be the hottest topic in town. My comment is about the expectations from the
government. There are some jobs that are very clearly the governments–that is
protecting the interest of local industry in multilateral trade forums, to
ensure that the businesses do not face troubles in getting clearances and
permissions, to see that the best infrastructure is available to them, and help
the industry in marketing India.

But probably the list should not include giving tax breaks forever, training
the people on behalf of the companies, building transport infrastructure to
places where the need for that public infrastructure is not there. It does not
include waiving off of all duties on everything and so on.

Today, India is shining. The government has done its bit for the industry.
However, as many forward-looking CEOs now admit privately, the industry is
probably expecting too much from the government. That is not a good sign. They
say the biggest thing the government has done is that it has not interfered with
them and that is the only thing that they want to continue. Getting the
government involved too much in the business–like training the manpower–many
fear is a double-edged sword.

Today, the government may do it. What if tomorrow it wants you to commit that
you will absorb a certain percentage of that? Will the companies be ready to
give that kind of commitment? The moment you involve the government, you have to
be prepared for walking the tight rope. Businesses issues should be best tackled
by the businesses themselves.

There are already arguments put forward by the anti-sops voices that by
giving the BPO and IT companies tax breaks, the Indian taxpayer is subsidizing
the US consumer who would get his product and services at a cheaper cost. That
is a political issue and beyond the scope of my discussion. My point is that
when Shining India’s shine becomes a little dim, these hard questions would be
asked and everyone would have some opinion to offer on the issue, taking the
debate to the front page of newspapers. That is not desirable.

The lesser the government is involved in the business, the better it is for
business. India’s strength is real and though government sops may help in the
short run, they are certainly not needed in the long run and may even be
detrimental in the long run. These breaks will go, one day or the other. The
business, all of us want, should sustain its growth for as long as we can see.
That would be possible by becoming competitive and not by taking government
sops.

Shyamanuja Das