The Union Communications and IT Minister Arun Shourie on Wednesday invited the Japanese companies to relocate their hardware facilities to India and sought withdrawal of the 20 per cent withholding taxes for software exports.

There is a huge opportunity for the Japanese companies to look at relocating the hardware manufacturing facilities to India, a CII release said in New Delhi, quoting Shourie in a televised address at the India IT seminar organised by the CII and JETRO, in Tokyo.

Pledging full support of the government, he said the recent Union budget had many incentives for the companies, considering such relocations.

To realise the potential of the Indian IT industry in Japan, both the governments will have to work together in removing the impediments in growth, he said.

The imposition of 20 per cent withholding tax by Japan on software exports from India, presumably as a result of interpretation by Japan of such exports as service exports, is one such area needing attention, Shourie said.

"This tax has been hurting not only the Indian exporters but the Japanese importers as well. While it adversely affects competition for the Indian software exports, it also hurts the Japanese imports by way of increased costs," he said.

There had been suggestions towards resolving the issue, including the interpretation of the tax rules in line with the global practice and treating software exports as products rather than services exports, he said.

If this issue is resolved, it would boost the prospects of expansion of the existing co-operation in this vital field.

Shourie also said that India continued to be a compelling investment destination.

Leading companies have either set up shop in India or beefed up their existing infrastructure; outsourcing of the IT requirements by leading global companies to Indian majors also picked up in 2002-03, he added.

Highlighting the progresses made in the telecom sector in India, he said the sector crossed $9 billion in 2002.

Meanwhile, S Ramaadorai, chairman of CII National Committee for IT and CEO of TCS, said there was a huge potential of cooperation between Japan and India in embedded software, quality assurance, engineering services, technology and architechture, software development and maintenance, systems review and ITeS.