IT Taskforce
Basic Background Report

 

I. STRATEGIC POLICY FOR IT INDUSTRY

The 108 Recommendations of the IT Action Plan Part-I emphasize the Policy Framework required for creating an ambience for the accelerated flow of investment into the IT sector, with specific orientation towards the Software Industry. The Information Technology Action Plan Part-II furnish 84 Policy instruments for the Development, Manufacture and Export of IT Hardware. The Task Force advocated that the software industry and the hardware industry are two sides of the gold coin representing India emerging as a global IT super power. The success of one, whether it is export of software of $ 50 billion by the year 2008 or IT penetration drive for realizing IT for all by 2008, depends on the concomitant success of the other.

According to a World Bank funded study, India is already ranked as No.1 from US vendors for offshore software development. Strategic policy instruments are required to consolidate its leadership in overseas market, while parallelly creating an accelerated demand in the Indian domestic market. The competitive edge which global software companies around the world have obtained by aligning with Indian Software companies is increasing the pressure and expectations from India as a software destination. The strategic policies which should be implemented in the shortest possible time and in the best possible manner are the following:

1. Productivity of the Indian Software Industry should be continuously upgraded by de-licensing and de-regulating the import of software productivity tools.

2. The per capita productivity level of Israel should be surpassed by the target year 2003 and USA by 2008.

3. For keeping pace with the fast changing trends in the software technology, companies and user organisations will be encouraged to spend one-fourth of the total software Budget for the purchase of software productivity and quality tools and nascent software related to the latest software technology trends.

4. The Indian Software Services and Software products exported, which are known for their high quality, should be sustained by compulsory insistence of ISO-9000 and SEI level-5 Standards or equivalent, certified by one or more competent certification agency/agencies in India. The concerned Administrative Departments will ensure that a runaway salary situation does not far outstrip the corresponding average salary of other high-tech industries in order to maintain the accelerating tempo of the quality to cost ratio.

5. In their drive to increase the international credibility, the software companies shall be allowed to utilise a part of their export earnings for putting in place all necessary means for meeting strict delivery schedules and customer satisfaction.

6. With software export growth poised to reach annual doubling rates by the year 2001, Government will fund a number of study projects to understand the problems precipitated and solutions required under conditions of such high growth rate. The findings will be publicised through appropriate media to all the companies and organisations directly or indirectly serving the export market. The Government will endeavour through crash programme efforts to help the industry overcome all major bottleneck situations arising therefrom. In particular, the fast growth rate is making a large number of project managers to become entrepreneurs, thus creating a gap in demand and supply of project management skills. Special funds will be enabled for commensurately increasing the supply of project management skills.

7. With India having the largest pool of English speaking IT manpower in the world, the Government of India will encourage furtherance of this strategic advantage for increasing software export. At the same time, special incentives will be given for increasing the language advantage in exports by promoting sections of IT manpower to cultivate other languages like European languages, Russian, Japanese and Chinese. For internal spread of IT culture, the knowledge and experience gained in language computerisation will be adequately extended to all the Indian languages by the year 2003.

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8. One of the factors attributed to the software success of India is the mathematical and logic expertise in the background of more than 2000 years of mathematical culture. The Government will encourage migration of mathematical talents into mathematically oriented software development through adequate number of scholarships as well as subsidised retraining programmes. To create confidence among the recipient organisations in developed countries for Indian software export, the existing Copyright Law, which is one of the toughest in the world will be implemented in practice by providing specialised legal support to enforce the existing Laws. A committee of IT and legal specialists will be constituted to innovatively explore the ways and means for bringing software under a combination of Copyright and Patent protection.

9. As the trend of setting up of global research and development units by multinationals is a major opportunity for India, which has one of the largest scientific and technical manpower talent pool, the Government will extend all the facilities and supportive policies given to local R&D to such global R&D units also.

10. Offshore software development in India, through high speed satellite and fibre optic links, shall be de-licensed for enabling the creation of such linkages dedicated to software and related services export from India.

11. With about 160 out of Fortune 500 companies having out-sourced their software companies in India by 1998, Ministry of Commerce will work out a crash programme for awareness building for increasing this number to 300 by the year 2001 and 400 by 2003.

12. Following up on the successful migration of business lobbies at the Capital Hill, Ministry of External Affairs will create a Cell operating through specialised franchisees, for creating the best possible ambience for Indian software exporters to do business outside India. This would include the resolution conducive to Indian enterprises and Indian enterprises trading overseas to combat protective and non-tariff barriers created in the developed world, including Visa control. The country will launch major proactive diplomatic actions at ITA-2 of WTO.

13. All large IT projects taken by Indian companies in overseas market requiring more than 300 man-years of effort, will be eligible for all concessions under project exports.

14. In 1998, India's share in the global OEM professional services market was nearly 20 percent, but its share in global products and packages market was less than one percent. To enable tapping the vast global market in products and packages, which is the ultimate end of the value chain, the following policies will apply to leverage our software development/management skills in the international market, to encourage the trend-setting Indian companies and to pave the way for the new entrant's confidence in the Product Software business:

  • Indian product software: Giving a definite time lead for the Indian product software, where global standard products are existing/emerging from India. This could be for a period of 24 months, termed as Indian software products promotion period.

  • Leveraging the large Indian industries knowledge/experience: Encouraging the infrastructure industries like Petroleum, Power, Steel, Banking, Insurance, Hospitals and Mining to work with the various Indian product software companies and to create global reference sites. There could be a possible joint entity/venture type of arrangement with a leading Indian company in a given industry to work with the respective Indian product software vendor to experience globally in the given industry segment.

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  • STP/EHTP Benefits: Product Software companies should be provided with all the STP/EHTP/S-BIT Benefits. The product software companies necessarily need to do business in the domestic market besides selling the products globally. In this context all the concessions that are available today to the STP/ EHTP/S-BIT units could be extended to product software companies and allow them to sell the products in the domestic market also.

  • Income Tax: 100% of the royalty earned by selling product licenses abroad should be exempt from Income Tax (Sec.80, 0). The definition of 'Categories of Royalties' should also include Intellectual property rights, apart from Patents, Inventions, Designs or Trademarks. Also, the benefit under Section 80 HHE should be increased 75 percent from the prevailing 50 percent level on product software export revenue.

  • Working Capital: Banks shall extend working capital limits for Product Software companies and should be in multiples of net owned funds similar to the provisions applicable to NBFC and other such service companies at present.

  • Brand Building: It is very important to build brands internationally. The Government should provide soft loans/subsidies for Brand Building through India Brand Equity Fund of the Ministry of Commerce.

  • Price Preference: Indian Product Software companies should preferably be given a price advantage for a period of 24 months.

15.    With India making an entry in 1999 into the listings in major overseas Stock Exchanges, a stage is set for attracting requisite Foreign Direct Investments. Taking note of the advantages of such overseas listing, the Government of India will maximally simplify the procedures to enable any registered Software Company to get itself listed in overseas Stock Exchanges like NASDAQ, NYSE, etc. This will improve access to the largest pool of equity investors in the world with a market cap exceeding US $ 15 trillion which can lead to lower cost of capital and higher valuation. This will increase credibility of Indian Software Exporters with clients and investors abroad. It will give recognition and visibility, create an acquisition currency and help create security on stock options for employees in the foreign country. After the listing, the companies can avail without restriction, post-listing services like Internet-based Information services, daily summary of activity in the Stock, Market quality analytic, Short selling, foreign market data, etc., as well as make it easier to participate in analyst meetings, regional conferences, satellite broadcasts, Internet hot link, Board meetings, etc. In the country's drive to create Indian multinationals around the world, listing in overseas stock exchanges is considered an essential facility.

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16.    A major industry reorientation programme will be initiated through CII and NASSCOM with promotional Government funding to attain world leadership position in the following areas among others.

  • Y2K - Y2K problem, which is forecast to yield a bonanza for Indian software and services export in 1999, will be reoriented to tap the embedded chip Y2K problem which is expected to prolong upto 2005 as well as for giving IT based crisis fighting solutions in the wake of the unsolved Y2K problems around the world which are expected to prolong till 2002.

  • Euro solutions - less than 100 Indian software companies equipped to provide Euro tools and services by 1999, will be extended to 500 by 2002 for cornering a maximum share of the US $ 3 billion Euro opportunity.

  • ERP - The large work force assisting the industry towards Enterprise Resource Planning (ERP) implementation shall be quantitatively enhanced, consistent with the quality, on a crash programme basis, so that the steep exponential increase in ERP services around the world can be encashed in the form of service exports. To gain from the opportunity at the higher end of the value chain, any Indian company which has produced proven ERP package shall be encouraged by providing priority status in obtaining the brand equity fund of the Ministry of Commerce.

  • IT-enabled Services - The next major driver of technology led services is IT-enabled services as they help to:

- Lower the cost of Information Access,

- Increase service orientation of world class organisations,

- Automate customer support,

- Improve communication infrastructure for transparent routing of trans-border transactions,

- Counter cultural and linguistic barriers

- Outsource non core competency services

Commercial opportunity of the IT enabled services are estimated by NASSCOM at US $ 75 billion growing at a rate of 20 percent annually. The more important such services include:

- Call centres

- Medical transcription

- Back Office operation

- Insurance claim processing

- Legal databases

- Content Development and Services

- Logistics Management

The Indian advantage is because of:

- a nearly 12 hour zone difference with USA and other major markets

- a large pool of English speaking computer literate graduate manpower

- Lowest cost of Indian work force

- Relatively stable legal and economic environment

- Political will of the Government of India in promoting IT

- The pre-eminent position of India in World Markets with a strong brand equity image.

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A NASSCOM Survey has forecast the following opportunities for IT-enabled services from India

                             1998

2008 (Projections)

IT-enabled services

Employed

Rs. Crore

Can be employed

Rs. Crore

Back Office operations/ Reve-nue accounting/data entry conversion

9,700

420

2,60,000

19,000

Remote maintenance and support

1,600

65

1,80,000

13,500

Medical Transcription/In-surance claim processing

3,800

140

1,60,000

11,000

Call Centres

1,400

40

1,00,000

6,000

Database services

1,000

45

1,00,000

6,500

Content development

5,500

270

3,00,000

25,00

 

23,000

980

11,00,000

81,000

Government of India, through its Gazette Notification dated 25 July 1998, has recognised IT Enabled Services as a key opportunity area for India and has urged industry and Government to work together in order to form suitable strategies to capture this market. Towards this end, the Government has amended Tax Laws which is highly beneficial to IT enabled services industry. Recognising IT enabled services as a thrust area, NASSCOM has suggested the following policy instruments:

17. Support and evangelizing by Government of India for proliferation of IT Enabled Services industry on a nationwide scale. This is made possible because communication means render distances redundant. This work has already started with Government of India announcing inclusion of these services under the purview of Section 80 HHE of Income Tax Act for Income Tax exemption.

18. Establish a string of "IT Enabled Services Habitat Parks" in various cities and provide quality infrastructure for hi-tech as well as other user companies. Such facilities may be used by start-ups or companies that do not have large scale of operations. These Habitat Parks would offer a turnkey solution for various infrastructure facilities such as office space, communications, single window approvals, assessment, etc.

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19. Establish a Government and industry funded consortium that would scout for suitable business opportunities globally, and subcontract such projects to 'Grameen Data Processing Centres' that would be run and managed as profit centres by various municipal/village level authorities, in order to give quality employment.

20. Establish a dedicated high speed backbone connecting all major clusters of IT Enabled Services Habitat Parks or centres and provide for a dedicated international telecom gateway that funnels the traffic of these services.

21. Dedicate a corpus/venture capital fund with and initial funding of about US$ 100 million towards founding start-ups and entrepreneurial efforts for latering to IT Enabled Services Market.

22. Government of India should immediately establish Indian Institute of Global Services. The mandate of this institute would be providing market intelligence on domestic and global services industry to disseminate information such as new trends, market conditions, key indicators, new opportunity areas, etc. As an extended scope, the institute could also conduct research and suggest best practices, positioning of India as a global hub for IT Enabled Services, helping start-ups with marketing plans and contact databases, etc. Further, it may also design and facilitate courses for graduating and developing professionals for this sector. The certificate to be awarded may be recognised as an industry-wide acceptable qualification. The institute should be non-profit in nature and should preferably provide services through online means.

23. Introduce courses on IT Enabled Services as a vocational course under various schemes of Government of India.

24. A large industry consortium may be formed by active collaboration of Government of India, NRIs, leading Indian industrial houses, software companies and venture capitalists to address the huge opportunity offered by IT Enabled Services. Resource infusion from each of the stake holders, besides financial resources, may include mentoring for initial take off stage, establishing a global network to evangelise India advantage and rope in corporations/clients; co-development of quality infrastructure in India; regular advice to authorities on issues to be addressed; strategic and operational assistance; initial managerial deployment, etc. This consortium may also do a continuing job of building India's global brand equity in this area.

25.    Position India in context of paradigm shift to 'Hub to globally competitive value services' as against talent provider. This would be a key to sustaining India's advantage and protecting future earnings.

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