IT Industry

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Software Technology Park (STP) Scheme

STP scheme is a 100% Export Oriented Scheme for the development and export of computer software using data communication links or in the form of physical media including export of professional services. STP can be a virtual software development unit or can be infrastructural complex set-up for providing necessary support for the STP units. The features are as under:

• Approvals are given under single window clearance scheme.
• Projects involving imported capital goods up to US$ 10 millions with Indian Investment are cleared by local STP Authorities.
• 100% Foreign equity is permitted
• All the imports in the STP units are completely duty free.
• Re-export of capital goods is permitted.
• The export obligation on the STP units getting registered after April 1, 1999 and existing units applying for expansion of their projects has been modified. Instead of Export obligation, Net Foreign Exchange Earnings as a percentage of exports (NFEP) and minimum export performance (EP) would be calculated. The NFEP and EP has been explained in Para 2.5 (c). For units who have got registered before April 1, 1999 the export obligation would be calculated as follows: -

Export obligation = 1.5 times CIF value of the hardware imported including software + 1.5 times the annual wage bill.

The obligation on the hardware part will be fulfilled over a period of four years." The calculation of export obligation has been further explained in Para 2.5 (b).

• Domestic purchases by STP units are eligible for the benefit of deemed exports to the equipment suppliers.
• Use of computer system for commercial training purposes is permissible subject to the condition that no computer terminals are installed outside the STP premises. Such units should also meet their export obligation.
• The sales in the Domestic Tariff Area (DTA) shall be permissible up to 100% of the export in value terms as a post export benefit.
• STP units are exempted from corporate income tax for a block of 10 years in the first 10 years of operation.
• The items like computers and computer peripherals can be donated to recognize non-commercial educational institutions, registered charitable hospitals, public libraries, public funded research and development establishments, organisations of Govt. of India or Govt. of a State or Union Territory without payment of any duties after two years of their import. This is applicable for both imported and indigenously procured above items
• Depreciation on capital goods up to 90% over a period of five years and also the accelerated rate of 7% per quarter during the first two years subject to an overall limit of 70% in the first three years.

The Compound Annual Growth Rate (C.A.G.R.) of the Indian Software Industry during the last ten years has been 42.35%, with software export industry constituting almost 54.31%. To provide a conducive environment as well as to give boost to the software exports, the Department of Electronics (DoE), Government of India which was subsequently merged with the Department of Information Technology has launched Software Technology Park (STP) scheme. Presently, around 450 software units have been given approval by the government to operate under this scheme.

India’s irresistible and sustainable value proposition

By outsourcing IT-enabled services, overseas companies can not only achieve significant improvements in cost, quality and time but also create platforms for building new businesses. Overall, these benefits are due to the advantages offered by skill-surplus economies. India has currently the best value proposition of all IT-enabled services hubs.

India’s value proposition is already leading IT-enabled services hubs such as Ireland and Singapore to back-end their operations in India, since skilled labour is becoming an increasingly scarce resource in these countries. Seizing the opportunity, several companies in the financial service sector, for example, have saved at least 50-60 percent of their process costs. Additionally, the process redesign that comes with out location provides additional cost savings.

1 denotes low; 2 denotes average; 3 denotes high

A comparison amongst some countries in Asia Pacific based on these factors highlights the following (ratings are on a scale of 1 to 3, with 1 being the lowest and 3 the highest).

IT-enabled service centres in India are able to deliver superior quality because of specialisation and scale benefits. India already has a large and rapidly growing number of IT-enabled services providers collectively covering a wide range of services with different levels of complexity and value added. Yet another compelling rationale for IT-enabled services is that it allows companies to capitalize on time zone differences and to provide services round-the-clock, every day of the week (24x7 service). For example, doctors in the US can have transcribed records of their notes at the start of the next day by sending them to medical transcription services in India who will start work at the end of their working day in the US .
Finally, companies can discover new business opportunities in the skills they learn from operating IT-enabled services. GE Capital, one of the largest IT-enabled services operators in the financial services arena, is now planning to extend it services beyond GE group companies to external customers. It is planning to expand its IT-enabled services operation in India to over 10,000 employees. Additionally, there are already a large number of smaller Indian companies that provide services in many areas of the business system.

The sustainability of the value proposition makes it irresistible. India will continue to offer a large talent pool and favourable economics for some time to come. These advantages are buttressed by the significant number of IT-enabled services set-ups in the country that they can learn from.
The proliferation of IT-enabled Services and its continuing demand-led growth may well emerge to be a strong opportunity for India ,both in terms of generating employment and export.

As evident, IT-enabled Services is a major boon for India as it provides tremendous potential to provide employment opportunities and attract foreign investments. Amongst others, the benefits include:

• Generation of new direct or indirect investment
• Earning of foreign exchange leading to higher earnings of local staff
• More revenues to telecom carriers
• Introduction of new technology
• Transfer of skills to India
• Increase in competitiveness
• Improved parity of income levels in and far flung areas and remote states