The Union budget marks a watershed in the life of the Indian information technology services industry, akin to a family’s coming of age rites of passage! The end of support to a growing youngster is implicit in two measures that signal the end of special treatment. One is the sunset of the software technology parks of India (STPI) and sections 10A/10B via which tax sops were given to the IT-BPO sector in its growing years. The other is the general measure that extends the minimum alternate tax (MAT) to units in special economic zones (SEZ). When the impending sunset of STPIs and the tax concessions that when with the scheme appeared on the horizon, large IT-BPO operations made a beeline for SEZs in order to continue to receive tax benefits. Simultaneously, the industry association NASSCOM appealed for the continuation of the STPI scheme at least till the introduction of the new direct tax code, so as to enable small and medium firms, which could not migrate to SEZs to continue to enjoy the tax benefits. Now the entire industry — small, medium and large units — will have to live with the virtual end of tax concessions.
At such moments it is impossible not to feel nostalgic. The STPI was one of the finest and most innovative measures ever undertaken by the government of India to cut through, in one stroke, all the red tape that had bedeviled Indian business. It was a symbol of the new economic policies that came in the early nineties and enables the government to share some of the credit for India’s success in IT services. But there is a sunset to all living things and the mood that must now take over is the excitement that comes with being treated as a grown up, and asked to share the burden of not just running the household, but playing a role in promoting future prosperity. The budget speech lists a whole set of projects and measures that will go a long way in not just e-enabling government but also providing the IT backbone for new regulatory initiatives. These range from the by now well known UID mission to providing an adequate IT backbone to the tax administration to linking 1,500 centres of higher learning in a fibre optic network as part of the National Knowledge Network.
Properly executed, these projects should impart a quantum jump to the efficiency of the whole economic structure and bring in their wake significant productivity gains. This will enable India to journey the new century on a firm footing, leaving behind the bureaucratic shortcomings symbolised by the mountains of files and endless paperwork that went with government offices. Along with giving a boost to the economy as a whole, the projects will also create a substantial domestic demand for the IT industry itself so that it no longer has to be heavily dependent on export demand. Thus, from helping IT services grow, we are now into the mode of IT services helping the Indian economy to grow.