The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has proposed extension of  tax incentives under Software Technology Park of India (STPI) for IT industry, ITeS and data processing units that are outside Special Economic Zones until 2012.

The Chamber has argued that on account of current meltdown, such units outside SEZs have become virtually non-competitive due to this anomaly which needs to be corrected. The Chamber has, therefore, proposed to Ministry of Finance to issue a notification, extending benefits of STPI to suggested units.

It may be mentioned here that the STPI benefits as per which the IT industry avails 25% of tax incentives are coming to an end in March 2010 and the ASSOCHAM expects its extension for another 3 years.

ITeS, BPO, KPO, call centres and data processing units have been providing employment to nearly 10 lakh workforce throughout the country. Their interest will be hurt if the government withdraws the benefits under STPI by March 2010.

The contribution of ITeS industry to Indian exports is measured at about 20% which employs nearly 80% of IT workforce need to be given further tax incentives under STPI as this sector is reeling under severe pressure of meltdown.

While the top 100 firms would be contributing about 80% of total IT industries output of $ 40 billion by the end of current fiscal, considering both IT and ITeS service sector, the balance about 4,500 largely SME concerns contribute 20% of the said output but employ almost 65% of total employment.

The withdrawal of tax incentives will not affect the billion dollar turnover of top 100 firms, it will on the other hand de-stabilise and throw out of gear the fragile SME sector, leading to their very survival issue and certainly would be stemming the further sustainable growth of IT industry of India in the coming years ahead.

Now that the globally Indian IT companies are coming face to face with severe competition from central European countries like Brazil, Mexico and the other smaller Asiatic nations.

The Chamber has pointed out that it is high time that Govt. of India recognizes the fact that IT industry of India has a highly non homogenous structure and therefore, extension of STPI benefits to this industry are essential.

It is because of these above identified reasons that ITeS companies have started moving towards II and III tier cities of Lucknow, Kochi, Varanasi, Mohali, Jamshedpur, Allahabad, Chandigarh, Deharadun, Mysore and the like so that these keep getting outsourcing assignments from their respective clients that would lead them to cut their operational costs by about 15%. The shift is being noticed from BPO hubs in cities like Gurgaon, Bangalore, Hyderabad, Delhi, Noida, Chennai, Kolkata etc.

The ASSOCHAM has also advocated need for creation of Rs.100 crore worth of Venture Capital Fund through public-private partnership to provide easy financing facilities for knowledge industries and at the same time take on emerging threats for grabbing larger domestic ITEs market size from competing countries.

The  Chamber    has   also   highlighted   the   need   for   financial  assistance to  ITEs  sector, arguing that the government should provide easy finance with low interest rates & long duration to their promoters by joint initiatives with public-private partnership.

It should also provide land and other basic amenities at subsidised rate to BPO, KPO and BTO industry with no location restrictions as also facilitate training and development.

Source: ASSOCHAM

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