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Extension of STPI scheme merits attention: Nasscom

Shanthi Kannan

The IT industry has been the largest job generator

CHENNAI: "If India is to continue being the prime destination for IT and if it needs to retain its market share in the outsourcing business, continuation of the Software Technology Parks of India (STPI) scheme is a must," says Kiran Karnik, President of the National Association of Software and Service Companies (Nasscom). Demanding an extension of the STPI scheme beyond 2009, when the taxation structure is due to expire, Mr. Karnik said the scheme had laid out a long-term fiscal incentives road map for the IT industry.

The industry has justified the confidence placed in it by the Centre by becoming the largest foreign exchange earner and highest employment generator. This was made possible only by the tax benefits under the STPI and Sections 10A and 10B of the Income-tax Act, he said.

Elaborating his views on current issues related to IT sought by The Hindu, Mr. Karnik said the continuation of the STPI scheme would ensure that the industry grew robustly and created employment and wealth. With the current global scenario, countries that sought to compete with India in the IT sector were also offering large fiscal and other incentives to their companies.

He said it was also important to note that the Special Economic Zone (SEZ) scheme in any case allowed IT companies the same benefit. The challenge that the IT industry was facing with the SEZ scheme was that this scheme would offer skewed benefits, where the larger companies might be able to avail themselves of the exemptions whereas it would be very difficult for a small or medium sized company to do so because its needs were not met by the SEZ scheme.

Land requirement

The Nasscom President said a large land requirement did not make sense for IT companies, as this industry was not land-based and it was all about people. If at all there needs to be a parameter, it should be on built-up area. (for example, if a company opts for a 20-storey building rather than a single storey spread out building, under current regulations it would not qualify as an SEZ). A country with a large population like India should consider and optimise land use, not insisting on a certain minimum area.

The second issue was that an SEZ scheme's primary objective was to encourage employment and investment for which the companies need to be located closer to cities. But ironically, the SEZs were located out of the city limits, as land was cheaper. This would lead to increase in other costs, such as transportation and social overheads. It was important to note that traditionally SEZ's were associated with the manufacturing sector, where pollution was a major cause for concern; as a result it was located outside the city limits, he added.

Since small and medium companies would be unable to buy such large land areas, they would need to lease a part of an SEZ in order to avail benefits. Since real estate builders and developers were aware of the benefits an IT company could get by being present in an SEZ, they charge disproportionally for the space. The advantage of the SEZ in monetary value would thus go to the developer, and not the small companies, who were actually at the mercy of developers.

An STP, on the contrary, was not constrained to a geographically defined area. A unit could be set up at any location and registration with STP was all that was required to avail themselves of the benefits. This had enabled the IT industry to grow in multiple locations.

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