Software Technology Parks of India (STPI) R.I.P.
Twenty Years till date, the Software Technology Parks of India (STPI) scheme started June 5th, 1991 (Sun Sign: Gemini) was established by the Indian Government is finally no more. This budget season, early March, the Indian government finally sunsets the STPI plan which many believe played an important and crucial part in helping Indian firms be the outsourcers of the world. Back in 1991 when Apple was still a fruit, blackberry was also a fruit which few people around the world knew about, Microsoft was ‘The King’, there were no “I” centered gadgets like Ipod, Ipad, Itouch, the STPI scheme was established by the Indian Government to promote Software Export, Training and Development from India to rest of the world.
In those as some would argue ‘ the good old days’ when connectivity was expensive or not available, the idea was to provide reliable facilities to companies engaged in software export to be able to support report functions such as software development, maintenance and for firms to be able to execute projects in India at lower cost and leveraging the talent base in India. The STPI’s actual IT parks established around the country in places like NOIDA, Mohali, Bangalore, Pune to name a few were located with excellent infrastructure ( relatively speaking) so software exporters could use those facilities for data connectivity. In exchange for using these parks the software exporters had to guarantee a minimum export obligation for a whopping $250,000 dollars for five years or 3 times the cost of capital goods imported. (FACTS: India IT/ITES export for 2010 at $59 billion) The process to obtain an STPI license (yes it was still the license raj) was to be streamlined and a ‘single window clearance’ was established.
Over the next twenty years , the software export markets from India exploded and then niche firms turned into global offshoring giants, firms such as TCS, Infosys, HCL, Wipro which did not exist in their current form or shape twenty years back. STPI also helped firms which were niche players and smaller players to leverage the tax holiday to grow their exports.
The biggest hit with the export firms would be the increase in the effective tax rate as the STPI tax holiday comes to an end. For the last couple of years during the budget season, the IT industry continued to hope that the STPI tax holiday was extended and it did happen last year when the STPI scheme was extended by a year.
A number of larger firms over the last few years have also been taking advantage of the Special Economic Zones (SEZ) and moving their operations and delivery centers to these locations with the anticipation that the STPI will be sunset some time.
For a number of mid size firms this journey has been less effective as the cost of entry into SEZ is higher and capital intensive and some of the mid size and smaller firms are not able to take advantage of these zones.
The smaller and mid size firms will be the ones’ which will see their effective tax rates go higher due to the STPI sunset.
The industry has overall reacted with disappointment to the news abut STPI but it has to now look at ways to innovate and figure out ways to continue to grow despite the set back. The overall positive in the marketplace seems to be that the demand has come back for outsourcing and although not at the highs pre financial crisis ( and may never be that level), the overall sentiment in the market seems to be positive. With the fast pace of change in consumer and enterprise technologies, the talk about the cloud, acceptance of outsourcing as standard business practice and globalization, not just India centric growth should create new models for growth for the industry.
For someone looking to see where was 1991:
a) Internet made available for commercial use – number of users top 1 million
b) First Version of Linux released
c) Microsoft release MS DOS 5.0
d) The web browser is introduced.
e) Steve Jobs using Chalk Talk to introduce NEXT computers
No relate
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