BANGALORE, INDIA: One more Union Budget is round the corner and the word 'sops' is frequently echoing from all the corners of the Indian IT industry.
However, while the industry lobbies are feverishly chalking out strategies to push the concerned authorities to make sure the sun does not set on the tax exemption front, a minority voice, which opposes the policy of giving 'just tax sops', seems to have gone unheard amidst the din and clamor for exemption.
IT lobbies like NASSCOM clearly want the government to extent the STPI benefits, but some like research firm Gartner opine that India’s IT industry has gone beyond the level where it needed ‘micro level’ sops in the form of tax breaks.
For Gartner, the need of the hour is some major macro statements and investments in the areas of infrastructure and education, the two factors that are major constraints for the industry in its journey to becoming an IT superpower.
“Specific steps have to be announced in terms of continued increases in infrastructure spend, both in the urban and semi-urban areas. There has to be an expanded focus on revamping primary and secondary education as well,” says Partha Iyengar, vice president, distinguished analyst and regional research director, India, Gartner.
So the question is why do we still cling on to just tax sops. Though the world looks at India as an IT powerhouse posing a major threat to the traditional super powers like the US, the stark reality is that the domestic organizations in this country are not much IT enabled. Our government policies did not much incentivize the companies serving domestic market, it seems.
Iyengar feels this is the right time for India government to announce policies which address the industry from a broader perspective.
“The mandate given to the current government is the best chance that India has to set the course firmly towards global IT relevance and dominance. If we do not achieve this in the next five years, India will spiral down towards IT obscurity - a scenario we call 'global irrelevance',” he cautions.
Moving beyond tax incentives seems to have been partly warranted by the very nature of STPI schemes as it helps the IT industry undertake software development and IT enabled services for 100 per cent export purposes. Addicted to the export incentives, nobody really cared about the technological advantage of India's domestic establishments, since they didn't get as much return from there as from the export side.
Meanwhile, the relevance of the STPI scheme among IT companies has reportedly started to decline. According to Financial Express, registration of new units under the scheme is dwindling with only 572 registrations in 2008-09 compared to 844 and 1,164 in 2007-08 and 2007-06, respectively.
Moreover, STPI scheme, launched in 2000-01, was envisaged in a way that any unit that has completed 10 years of operation under the scheme automatically becomes ineligible for the tax holiday. Owing to this, out of 6,539 operational STP units, 749 have become ineligible for tax benefits.
This means more than half of the industry’s export revenue generated from STP units will not be eligible for tax benefits even if the scheme gets further extension.
Maybe this is the reason why NASSCOM president Som Mittal recommends that this year's budget extend the scope of the scheme to small and medium companies too. "We want the STPI extension to happen particularly for SMEs and Tier II and III cities as its more viable for them,” Mittal says. However, he clearly demands that STPI get further extended.
Now, the choice is with the government - sop or no sop!