Economic Survey 2021-22: Key highlights for the Tech Industry

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Economic Survey 2021-22: Key highlights for the Tech Industry

Jayakumar Selvaraj

@Jayakumar

January 31, 2022

Public Policy

532

The Economic Survey 2021 - 22 was tabled in the Parliament today, by Finance Minister Smt. Nirmala Sitharaman.

The survey which provides a holistic view of India’s economic performance in the last year and some visibility on the year ahead, points out that India will grow at a healthy 9.2% in the current fiscal. The gross tax revenue between April to November 2021 has registered a growth of over 50 per cent in YoY terms, indicating a strong revival of the economy.

Going forward, high vaccine coverage, gains from supply side reforms (Production Linked Incentive scheme, other service Provider (OSP) reforms, drone rules, etc), and robust export growth are expected to support GDP growth in FY23, which is estimated to be between 8.0-8.5%. However, the survey points out that inflation has reappeared as a global issue, and therefore flags risks of imported inflation as a cause for concern. Specifically, it points out elevated global energy prices as a possible risk factor.

Some of the key messages from the economic survey relevant to the technology industry are laid out below.

IT-BPM industry

On the IT-BPM industry, the survey points out that in H1 FY22, the service sector exports grew by 21.6%, driving on the strong demand for software and IT services exports. In spite of the pandemic, the IT-BPM revenue reached $194 bn in 2020-21 and added 1.38 lakh employees in the period. It also acknowledges and takes note of the NASSCOM survey which indicated that Government reforms in telecom regulation (OSP reforms) reduced compliance burden, enhanced productivity, increased global competitiveness and lowered cost of doing business in India.

Start-ups

The startup sector has grown remarkably in the last six years – the number of new recognised startups increased from 733 in 2016-17 to 14,000+ in 2021-22. Today, with more than 61000 recognised startups, India is the third largest startup ecosystem in the world after USA and China and holds greater promise in the future. A record number of Indian startups – 44- achieved the unicorn (privately held company valued at $1bn) status in the year 2021, taking the overall tally to 88.

In order to incentivise start-ups, the eligibility for claiming tax holiday under Section 80-IAC of Income Tax Act, 1961 has been extended for start-ups incorporated till 31st March 2022 by the Finance Act 2021. The capital gains exemption for investment in start-ups has also been extended for one more year till 31st March 2022. These measures will provide further impetus to the spectacular growth of startups in India.

R&D

Number of patents filed in India has increased significantly from about 39400 in FY11 to 58502 in FY21, and the patents granted have increased from 7509 to 28391. Notably, the share of patents filed by Indians jumped from 20% to 40% in the same period. In spite of the increase in granting of patents, it is still a fraction of the number of patents granted in countries like China, and USA. India’s low expenditure on R&D (0.7% of GDP) and procedural delays in granting patents are key reasons for relatively low patents in India compared to counties like USA and China. Average pendency period for patents in India is 42 months, about twice of US and China, clearly indicating the need for addressing this issue.

Exports

Despite the pandemic, India’s service exports grew at 18.4% to reach $177bn during Apr-Dec 2021, surpassing the pre pandemic levels. The growth was driven primary driven by the IT industry, with Computer service exports continuing to the largest exported service in H1 FY22, constituting about 49% of the total services exports. Increasing demand for digital services, cloud services and infrastructure modernization owing to pandemic challenges were key drivers for this robust export growth.

Economic Survey 2020-21

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Jayakumar Selvaraj

Jayakumar