India’s software technology parks played midwife to the country’s IT boom, but face the threat of becoming irrelevant if the government does not continue with an important scheme that gives incentives to firms that set up operations in such parks. “We were the ones who hand-held companies such as Infosys Technologies and Wipro when they were small,” said E.K. Bharat Bhushan, director general of Software Technology Parks of India (STPI).
STPI provides support services such as telecom infrastructure and bonded warehousing facilities for software units. However, with bandwidth available for the asking and most states setting up single- window clearance facilities to help attract IT companies, STPI’s role as a facilitator has diminished.
The government also seems set on removing, from April 2009, tax concessions currently provided to units of software firms based in software parks. Small software firms, which form nearly 70% of the 8,800 units registered with STPI, are likely to be hit by this move.
This has led to a decline in registrations with STPI. Companies are now looking at setting up software SEZs (special economic zones). In an interview with Mint, Bhushan gamely defended the relevance of STPI, an autonomous state-owned body. Edited excepts:
Has STPI lost its relevance considering it was set up to give boost to small IT firms and many of them have emerged as big players?
I certainly think it is relevant very much even now. The software industry and STPI grew together since it (the latter) was started 15 years ago. Then, we were a novel thing; we were offering all solutions under one roof, whether it was facilitation...data communication, exim policy benefits—everything was routed through STPI.
We were the only providers of broadband. Now others have come in. The small companies, which were with us then, are all now big boys now.
We have 48 virtual parks, and 40 are in tier II and tier III cities, and the bulk of the membership is (from) small and medium enterprises (SMEs). So we still have an important role to play.
There is still lack of clarity on the sunset clause on STPI tax benefits. Will the government continue with this?
The sunset clause ends on 1 April 2009, and the confusion is there because benefits in special economic zones continue till 2015. How can you have two types of diet on the same dining table? That is the basic problem. We have taken it up strongly (with the government).
We have (software lobby group) Nasscom on our side. Nasscom has strongly recommended (that) it (the clause) should be extended at least until the SEZ benefits continue. The Planning Commission has also studied this. We have got independent opinion from Ernst & Young, who have produced a report on (this issue). Although I cannot disclose at what stage this is at, I can tell you that the IT ministry has strongly recommended (our case for extension of tax benefits under STPI scheme) and hopefully the cabinet will take a favourable decision.
Isn’t there a fall in registrations at STPI because of this? Fewer companies want to set up base in a software park.
Yes, (because of this) uncertainty, there is a slackening in registrations. I wouldn’t say there is a crisis. Although offhand I don’t have the exact numbers (of decline in registration).
What happens if the government does not change its stance on the sunset clause?
I think it will be very unfortunate (if it happens). Under the SEZ Act, everybody has to be a start-up.
Will this mean that some IT companies may shut shop in a software park under STPI and go and start at an SEZ?
That appears to be the only choice if they want to continue to avail the income-tax rebate, which I think is unfortunate. The bulk of my members are SMEs; they will not be able to compete with the big boys who have already cornered most of the SEZ areas.
From the point of view of the SEZ developers, it may be a very good thing, but from the point of STPI, it would be very unfortunate.
Will it affect the growth of the software industry?
I am afraid that is my view. I personally think it will lead to (a lot of) confusion, and because of this, lot of people will be put through difficulties. The big boys may be able to (manage), but what about the small and medium IT companies?
Do you still see a role for STPI in today’s environment?
Take broadband; there are three major players—Reliance, VSNL and Bharti. It is a strange situation, because we buy from them and retail it even as they too sell directly to our customers. The advantage, if you buy from STPI, is that unlike them (these companies), we are able to provide redundancy.
We have last mile connectivity, especially in the tier II and tier III cities, where even the big players are not there. Apart from this, we are also fulfilling a social commitment. Otherwise, everybody is rushing to the big cities, whereas our emphasis is to ensure growth in tier II and tier III cities also.
But the majority of the software exports are from the top six cities.
While we are a business (oriented) organization, our thrust is towards social commitment. If everybody had thought the same (way), Bangalore would not have developed. We have tried to reach out by cutting down on our margins; we have cut broadband prices by 40% in the last six months. We know how to adapt to the changing situation.