New Delhi: A recent issue of The Economist puts the number of Internet users in China at 210 million, up 50% over last year. By the end of 2008 China is also expected to overtake US which means it will have the largest number of internet users in the world. The corresponding figure for India, depending on how you define internet access, is between 40 to 60 million users.
Most people in India are familiar with Yahoo, Google, Facebook, Orkut, ebaY etc but not many know of Chinese companies like Baidu, ctrip, netease, alibaba, sohu, tomonline, shanda and tencent which are all giants in this space.
Combined market cap of all Chinese internet companies has doubled every year since 2003 and stands close to $50 billion today. Contrast this with India where total value of all Indian Internet companies, listed either in India or abroad, is less than $2 billion.
Internet in India has transformed some sectors and brought in tremendous efficiencies which help small businesses and consumers the most. Whether its small exporters selling goods on ebay, people in small towns finding jobs through Naukri, those booking tickets through the railway website or parents finding grooms for their daughters through a matrimonial site, lives have changed post Internet.
Yet very few internet companies have been profitable in India. Most have been through several rounds of venture capital funding and several have shut down in recent years. Internet penetration also has grown at snail’s pace and inspite of IT professionals proliferating, there is a shortage of skilled manpower.
Internet is not about technology or media alone. It has to be viewed as a vital infrastructure like roads, airports etc which will power our economy in the years to come. It is a young people’s medium which fundamentally allows us to do business more efficiently. Given that 70% of our population is probably less than 30 years old, and if we execute well as a country, then just like the mobile business, we will have a chance to build world class companies in the years to come.
Against this scenario the Internet industry’s budget wishlist would include:
Service tax: Moratorium on service tax on online advertising and database access services to be for five years
This is a cost effective targeted medium to reach out to SME’s and individuals as also for accessing global markets. The revenue from search banner and classifieds services like jobs, matrimonials is not more than Rs700 crore (Rs92 crore in taxes) therefore not a large sum for the government to forego. There is no service tax on print advertising and most Internet companies are losing money.
Incentivize e-commerce: Waive sales tax on goods and services transacted through e-commerce
The internet user base from non-metro towns and smaller cities is more than 60%, yet few avail services. This move will incentivize larger usage of e-commerce services. It will accelerate internet/ broadband penetration and reduce duties levied on inputs and finished products in providing broadband services - equivalent to that of mobile phones.
Reducing central excise duty levied on these items and in line with duties on finished imported goods; incentivizing web hosting enterprises through exemption of taxes on profits; exempting ISPs from payment of service tax; making available to all corporations (public/ private/ self employed) Rs6000 p.a. for broadband access at home and to remove this from taxable income are suggestions that would help create better efficiencies in the industry.
Abolition of Fringe Benefit Tax: Stepping up investment in education and going in for a complete revamp of the education system with greater focus on vocational education will help produce people who have the necessary skill sets that corporate India can well do with.
Hitesh Oberoi is COO and director, Info Edge (India) Ltd.