After the economic reforms of 1991-92, liberalization of external trade, relaxation of controls on both inward and outward investments, elimination of duties on imports of information technology products and the fiscal measures and foreign exchange taken by the Government of India and the individual State Governments specifically for IT and ITES have been major responsible factors for the sector to flourish in India and be able to achieve a dominating position in offshore services in the world. Export Oriented Units (EOU), Software Technology Parks (STP), and Special Economic Zones (SEZ) are the major fiscal incentives provided by the Government of India.
For the promotion of Software exports from the country, the Software Technology Parks of India (STPI) was established by the Ministry of Communication and Information Technology, Government of India as an autonomous statutory body to encourage, promote and boost software exports from India. Statutory services, data communications services, incubation facilities, training and value added services are rendered by the STPI. The Headquarter of STPI is located in New Delhi. STPIs have been setup across the country and have presence in 53 locations. Over 4000 units are registered under STP Scheme.
The STP scheme allows software companies to set up operations with a special focus on SMEs and start up units to foster the growth of software industry, since it is a 100% export oriented scheme. Units undertaking to export their entire production of goods and services may be set up under the Electronic Hardware Technology Park (EHTP) Scheme. Such units may be engaged in manufacture and services. “The unique feature of the STP scheme is the provisioning of single-point contact services for member units, enabling them to conduct exports operations at a pace commensurate with international practices.”
Benefits under STP Scheme:
- Exemption on Customs Duty in full on imports.
- Exemption on Central Excise Duty in full on indigenous procurement.
- Central Sales Tax Reimbursement on indigenous purchase.
- Free importation of all relevant equipment / goods including second hand equipment (except prohibited items).
- Importation of Equipment on loan basis/lease.
- Permission of 100% FDI.
- Permission of sales in the DTA up to 50% of the FOB value of exports.
- Permission to use of computer imported for training (subject to certain conditions).
But there are some issues that are needed to addressed. Nasscom, the apex body for IT and ITES industry, expects some of the issues such as clarity on transfer pricing and benefits to STPI to be addressed in the upcoming Union Budget for better growth of the sector. The Budget will address this and a few other essential elements like a correction in the prevailing high interest rates of 20-30 per cent for safe harbour margins. Furthermore, the foreign trade policies should include benefits of Services Exports from India Scheme (SEIS) for Software Technology Parks of India (STPI) units. Currently, without such benefits, STPI units are at a disadvantage as compared with their SEZ counterparts for the same services.