While the National Association of Software and Services Companies (NASSCOM) is lobbying for extension of Software Technology Parks of India (STPI) scheme for one more year, IT companies in Gujarat are preparing themselves for the worst case scenario. In spite of being a wait-and-watch mode, smaller units are mulling to stay away from moving into IT special economic zones (SEZs) in the state.
"We are unsure if the scheme will be extended or discontinued this year, though it is being extended on an yearly basis since last couple of years. However, given the current international business scenario for IT and ITeS companies in Gujarat, it is unlikely that the smaller ones will be moving to SEZs," says Hitendra Barot, executive director of Creative Infocity Ltd., a STPI registered unit itself.
In Gujarat, there are over 215 IT and ITeS units registered under the STPI scheme. According to industry players like Barot, with the margins lowering in IT exports since sometime, it would be unfeasible for small STPI registered IT companies, with a annual turnover of anywhere between Rs 50 lakhs to Rs 1 crore, to move into an SEZ.
For instance, if the scheme ends this year, IT companies registered under STPI in Gujarat will have to pay together an additional Rs 40-50 crore tax on book profits.
"This would still be more feasible for IT and ITeS units than spending several more to shift their units to SEZs," says Barot. What's more, currently there are only two IT SEZs operational in Gujarat. "There is still sometime before the state could see enough SEZs operational. Apparently, there were over 10 such IT SEZs being approved for Gujarat. So not only shifting bases to SEZ will prove costlier, but also there is a lack of such opportunities in Gujarat," says Nirav Shah, director of Jayatma Informatics Private Limited and former president of Gujarat Electronics and Software Industries Association (GESIA).
Add to that, IT exports by STPI units in Gujarat have taken a beating in last few months. According to Ajay Sharma, director of STPI - Gujarat, 2009-10 IT exports by STPI units were to the tune of Rs 1,063 crore, down from Rs 1,270 crore an year previous to that. "It would not make business sense for small and medium IT units to move into SEZs even after an year. The international IT exports market has not been encouraging, resulting in lower margins. The additional cost in shifting to SEZ would be detrimental for their businesses," opines Sharma.