STPI
STUNTED
With STPI no longer visible, there is a question mark that looms large over the future of the IT industry
SHILPA SHANBHAG shilpas@cybermedia.co.in
A
ccording to Nasscom, worldwide IT spending will beneďŹ t from the accelerated recovery in emerging markets, which is expected to generate more than half of all new IT spending worldwide in 2011. In 2011, growth is expected to reect new demand for IT goods and services, which is not a pent-up demand from prior years. The year 2011 is expected to see a major surge in the use of private and public cloud and mobile computing on a variety of devices and through a range of new apps. Hardware is expected to grow the fastest at about 7%, led by the refresh cycle in the government sector. Shipments of app-capable, non-PC mobile devices (smartphones, media tablets) are expected to outnumber PC shipments. Nasscom expects the IT services to grow by about 3.5% in 2011 and 4.5% in 2012.
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DATAQUEST | A CyberMedia Publication
OBJECTIVES OF THE STP SCHEME To establish and manage infrastructure resources such as data communication facilities, core computer facilities, built-up space and other common amenities To provide ‘single window’ statutory services such as project 2 approvals, import certification software valuation and certification of exports, for software exporters To promote development and export of software services through 3 technology assessments, market analyses, market segmentation and marketing support To train professionals, and to encourage design and development 4 in the field of software technology and software engineering
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The IT segment is poised to grow in the global perspective and in turn more STPs will be in demand to facilitate and sustain the growth. There is a huge potential for growth of STPs in India as the IT industry has a major role to play in this high growth oriented economy with its broadened definition. In order to ensure that IT firms enjoy a reasonable margin, IT firms require hand holding by the government and supplemented by policies. The relation between the STPs and IT industry is symbiotic. But the bone of contention is not about growth but the sustenance of this growth which are marred by challenges like lack of skilled manpower, lack of product quality, boost by government incentives, etc. The supply fails to meet the demand of skillset thus making IT human resource expensive and retention an even bigger devil.
About STPs Government’s institutional initiatives like the establishment of Software Technology Parks of India (STPI) did play the role of catalyst in the growth of the IT segment since the first ones were established in 1991. The series of incentives provided and the ease with which business can DATAQUEST | A CyberMedia Publication
be conducted determine the success of STPs, which grew at an average of about 36% over the last 2 decades. The major attraction of STPs for IT companies has been the tax incentives on exports, 100% foreign equity investment and single window clearance. Considering today’s scenario, STPs should enable reaching out distributed workforce through cloud technologies for increasing the Indian IT industries’ share in the global marketplace. Physical spaces and infrastructure are no longer as relevant as they were 20 years ago. Many large MNCs like Accenture expand an increasingly virtual presence across the globe. Many small organizations are increasingly tapping disruptive growth through virtual presence. “STPs need to become relevant to contemporary needs. STPs could evolve into an online single window to starting, managing, and delivering IT services across the globe,” says Dr Anupam Saraph, leadership, innovation, and strategy mentor. “Growth would not be possible without the right partnership between the government and the industry. STP scheme in 1991 was a positive step in the right direction,” says Sujata Dev, co-chairperson (envisit www.dqindia.com
“To remain relevant to increasing the global market share of the IT industry STP needs to become both virtual and export agnostic” Dr Anupam Saraph, leadership, innovation and strategy mentor
“India’s advantage as an IT superpower will marginalize due to the recent scrapping of STPI” Sujata Dev, co-chairperson (entertainment committee) Assocham and joint managing director, Third Generation Mobile
tertainment committee), Assocham and joint managing director, Third Generation Mobile.
Under the Scanner In days when physical spaces were the critical factor, public ownership enabled land acquisition far more easily. Today if the idea is to enable the expansion of the Indian industry in the global market, the government needs to create smooth mechanisms to enable commencement, management, and delivery of IT services that comply with the laws of the land. In today’s environment dominated by virtual organizations, the odds may favor the government’s use of private services to deliver such functions. Traditional STPs will become June 30, 2011 | 67
STPI
increasingly unattractive, perhaps even unviable to newcomers in the sector. If the STPs were to reinvent themselves to be relevant for contemporary needs and context, their traditional mode of physical expansion is unnecessary. High prices certainly make the physical STPs unattractive and even unviable. The way ahead is through virtual STPs. With the exponential growth of the IT industry, the public sector STPs are not sufficient to meet the demand and the private sector has filled this gap to an extent. The preference or selection of a park by an IT company largely depends on the location of the park, the sector it belongs to, and the industry it addresses to. It has been observed that software companies addressing a particular industry tend to grow in clusters as it eases the burden on logistics. Availability of trained manpower is a major factor in the selection process. However the quality of service 68 | June 30, 2011
provided and the maintenance of infrastructure by the STP is also important. With Mumbai and Pune filled to the brim with STPs, cities in east and south India offer a huge potential. With the land prices escalating in the metros, there is a potential for STPs in secondary cities and satellite towns where land is reasonably priced. IT is the backbone of national growth. India has earned due respect for itself in the global market as IT service provider and software developer. Its time for India to take advantage of this position and hence STPs will play an important role to help the IT industry to sustain its export growth.
Competitive Edge With China overshadowing the manufacturing marketplace, India needs to increase its start-up businesses by atleast a 1,000 fold. India is ranked lower down the ladder in relation to visit www.dqindia.com
ease and speed of creating, managing, and delivering services through new start-ups. In the US, for example, a company becomes operational as a start-up in a time span of less than a day while in India it spans from a few weeks to several months. “Disruptive innovation that drives IT growth is mainly the forte of startup firms, often acquired by large companies before they go-to-market. Indians have excelled at this in the US, why not in India? Why is Pranav Mistry’s ‘sixth sense’ technology not part of Indian mobile phones as yet?” says Dr Saraph. Meanwhile Dev feels, “India’s advantage as an IT superpower will marginalize due to the recent scrapping of STPI. China which is lagging behind India with 33% as against India’s 58% in this sector, will stand to gain. The inertia of growth may take the Indian IT sector up the growth curve but soon it will slide down. There is a fair chance that DATAQUEST | A CyberMedia Publication
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MIT’s Magazine on Innovation
STPI IN 1992, GOVERNMENT OF INDIA HAD INVESTED JUST RS 2.75 CRORE IN STPI, WHICH GREW INTO A RS 300,000 CRORE INDUSTRY, WITH ZERO INFUSION OF FURTHER FUNDS FROM THE GOVERNMENT. IT’S FOR THE GOVERNMENT TO PONDER WHETHER THEY CAN AFFORD TO SLAUGHTER THE HEN THAT LAYS GOLDEN EGGS SAYS DEV
China with all their incentives will overtake India in the BPO and IT sector in a few years, unless Government of India reviews its stand. IT is to India what manufacturing is to China. Our very lifeline of national growth is being cut off by removing the incentives that were promised on long-term basis.”
STP versus SEZ The government offers several advantages including single window clearance, benefits, concessions, subsidies and exemptions to units in SEZs. These advantages need to be equitable and create a level playing advantage to all units, irrespective of their physical location as long as they accomplish the objectives of SEZ. “Virtual SEZs can create such level playing fields and accomplish the SEZ objectives better than a physical SEZ. By promoting such virtual SEZs, the government will ensure that India is able to multiply success stories across India,” says Dr Saraph. This year’s budget did not extend the advantages gained over the past decade through the STPI scheme to units registered under the same. The amendment now made—withdrawing exemption from MAT and DDT—will surely have adverse impact. Units that expected to increase margins through tax benefits and various other cost advantages of the STPI, will be at a disadvantage. This will alter their break-even and 70 | June 30, 2011
profitability. This is likely to affect those who require imports or are engaged in manufacturing much more than those engaged in services. “In fact the phenomenal growth that the SMEs attained will abruptly get retarded. Indian IT industry achieved 58% of the world share. Somehow India will lose out on the advantages as the STP scheme is practically scrapped,” says Dev. But of late there has been a trend noticed that large companies are setting up their own SEZs. STPI received step treatment owing to a plethora of reasons, prime being the pressure of the SEZ lobby. Large companies with an impactful voice in the government circles encouraged SEZs and did not credit the STPI scheme. Even the absence of a figure like Dewang Mehta to ensure effective lobbying for the cause of SMEs. Apart from that even the declaration by IT industry stalwarts that the segment should pay normal taxes and STPI should be scrapped, somewhere acted as a catalyst. But will this prove disadvantageous for India, as nations like Philippines have overtaken it in the BPO sector. Even east European countries with a 6.5% market share will consolidate. The scenario now is that minus incentives many small IT companies will be forced to shut shop, reflecting in losses for the nation. Growth in the Indian market is expected to remain steady but will visit www.dqindia.com
soon lose its strength giving way to its neighboring nations. Currently India has a market share of 58% while China holds 33% share. But by next year, China is expected to increase its market share to 40%. By 2014, it is expected to emerge as the world’s IT superpower. “There is an apparent conflict of interest between the SME operators as STPs and the larger companies who are SEZ developers. The potential risk is of larger corporates taking advantage of SEZ scheme turning into land grabbers. The vibrant IT industry that STPI had created for SMEs is unexpectedly being scrapped. The question is why a successful scheme that generated revenue and employment is being abandoned? In 1992, Government of India had invested just `2.75 crore in STPI, which grew into a `300,000 crore industry, with zero infusion of further funds from the government. Its for the government to ponder whether they can afford to slaughter the hen that lays golden eggs,” says Dev. The government offers several advantages including single window clearance, benefits, concessions, subsidies and exemptions to units in SEZs. These advantages need to be equitable and create a level playing advantage to all units, irrespective of their physical location as long as they accomplish the objectives of SEZ. n DATAQUEST | A CyberMedia Publication