Budget 2023: What Is KPO Industry Expecting From Budget 2023?

Wishlist  

• Zero GST on input services like rent etc for a 100% EOU to tide away Cashflow issues and have to apply for refunds  

• Tax Holiday to cut down on operational costs and invest in infrastructure expansion and state-of-art technology including IOT, AI and ML, Blockchain security, cloud adoption for bolstering cyber security 

It is that time of the year when everyone across the services sector will be glued to their screens, with a hawk's eye and all ears as to what the Union budget 2023-24 will have in store for them. As the budget gets rolled out this year, it will be a point of culmination of aspirations and hopes for every sector that drives the economy of our country. One such sector is the KPO industry which has risen to reach the 5.7 billion USD mark in record time. India has become the prime hub for KPO’s and a one stop shop from small organizations to the big corps to outsource their financial , legal processes , market research, design and product development. The list is endless through. The tremendous volume and expanse of work handled by KPO’s in turn boosts exports, raises national income and increases tax revenues.  

Despite KPO’s playing such a paramount role in supporting solutions across diverse industry segments and in fostering the growth of other industries, they find themselves knee deep in a sea of challenges. Talent crunch, increased attrition rates, lack of upskilling among professionals , lack of a robust IT infrastructure are some of the many roadblocks in the way of the ascent of this sector. 

India is home to one of the largest pool of resources proficient in various sectors ranging from IT, medical, engineering and the list is endless. KPO sector professionals are specialized with specific domain knowledge like problem solving, analytical thinking and data handling, this explains the fact for Tier I cities to house the maximum KPO’s in India due to the ease of sourcing the best talent in such cities. Unfortunately, stringent labor laws have urged KPO’s to shift to Tier II and III cities which leads them to compromise with quality of talent. Head honcho’s of KPO’s in India are looking forward to the government relaxing these labor laws in favor of their growth. 

The 8 metropolitan cities in India categorized as tier I cities are choking with corporates mushrooming by the dozen every other day. This has caused a surge in real estate prices. If KPO’s need to keep up with their winning streak they will need infrastructure expansion. KPO’s are on the lookout for a tax holiday from the upcoming budget, this relief on taxation will help them cut down on their operational costs. The outsourcing industry is already facing stiff competition from South east Asian countries due to low cost of labor ,if things don’t turn around soon for India , we may find that the 70% holding of the KPO industry may start spiraling downwards. 

The outsourcing industry is also hopeful that the prospective budget would have provisions for tax incentives on CAPEX and OPEX for expansion and the integration of state of the art technology like Internet of things (IOT), Artificial Intelligence and Machine learning. Use of such high end technology is a burgeoning need in a sector that deals with large quantum of data and a tax waiver can surely help KPO’s fortify their existing operations.  

The outsourcing industry had suffered a huge jolt in the face of GST being levied on them as they were being categorized as intermediary services for services outsourced to foreign entities, fortunately the Government cleared the air and the 18% GST was waived off. The KPO industry is yearning for more from the government, but they find themselves in a catch 22 situation. As an Export oriented unit (EOU), they have to abide by the GST law that states that supplies / services from an EOU will not be exempted from GST and vice versa. Despite KPO’s benefitting from various incentives under the 100% EOU scheme they are desirous that the union budget would exempt them from input service credit which in turn would ease the pain points like cash inflow issues. Apart from the EOU scheme, the SEIS (Service Exports from India scheme) , a scheme to promote export of services offers plethora of benefits and incentives. Under the SEIS scheme, exporters of services are eligible for incentives on the net foreign exchange in the form of duty credit scrips. KPO’s surely have pinned their hopes on this cash cow! But the delays in issuing the scrips have been unnerving. All fingers point to the lapse of an automated system in granting the scrip. Despite claims for incentives being made 12 months before the end of the fiscal year, companies still find themselves unrewarded. To make matters worse the government has decided to scrap the incentives provided under the scheme and official sources claim that the next FTP will not include the scheme in its next mandate. The outsourcing sector has its fingers crossed, they hope their pleas for reinstating the scheme and payment of the backlog dues will be heard by the authorities who hold office. 

Data is the new currency and a breach in data could mean a company’s trajectory to nose dive. KPO’s are the cornerstone and foundation of high volumes of trusted data in the business circle, this could mean that they carry the mantle of safeguarding confidential data. Cyber threats are on the rise and infringement of data has become frequent for companies which say that cybercriminal activity is an organizational threat. This would mean that KPO’s will need to ramp up their data compliance and security operations to be able to mitigate such disasters. This sector is reckoning that there will be a substantial cybersecurity allocation and it will be prioritized as part of the agenda of the budget 2023-24.If Digital India is the way ahead as per the PM’s vision then investing resources in high end technologies like Blockchain security ,AI and cloud adoption will render the sector immune to cyber-crimes. 

KPO is a sunrise sector in the Indian economy which is expected to hit a target of 50 billion USD by 2025.This sector has the potential to grow exponentially while creating more employment opportunities which in turn will boost the economy. Cashing in on the KPO industry would be smart move by the government. The outsourcing industry has its hopes pinned on the budget mandate and is upbeat about the turnout in their favor. 

By Vikas Chadha, MD-GI Outsourcing