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Is STPI (Software Technology Parks of India) losing its power to attract export-oriented IT-BPO firms?
Dwindling number of units registered with STPI in the last few years and increasing number of requests for ‘de-bonding' from units indicate a diminishing interest on this organisation that once acted as fulcrum of IT growth in the country.
Hostile headwinds in the US and Europe, the two strong export markets for Indian IT services and Government's decision to phase out the ‘sunrise clause' sops such as tax holiday seem to be the main reasons for this.
Tax benefits
As of March 2011, the Government scrapped the tax benefits that the companies under STPI got from the Income-Tax Act Section 10A, which meant that STPI-registered companies would have to pay tax. Large IT companies found it convenient to have their own SEZ and save taxes.
Numbers speak for themselves. There is a drastic reduction in STPI units. The number fell to 6,554 in 2010-11 from 7,007 in 2009-10 and 8,455 the year before.
About 40-50 firms in the Hyderabad STPI have applied for cancellation of their licences or “de-bonding”. Once de-bonded, the firms are free to conduct business as they liked and need not follow STPI norms such as export orientation and restriction on movement of goods in and out of the units.
Between April and September 2009, a total of 39 new companies were registered with STPI Bangalore. This number came down to 25 for April to September 2010, and was further reduced to 15 in April to September 2011.
Though STPI officials argue that de-bonding is quite common, the number has doubled this year in Andhra Pradesh alone, showing some unusual trend.
“Why should they continue in the STPI ambit? There is absolutely no incentive to continue in STPIs. Companies have begun to feel more comfortable to buy IT equipment from Indian dealers. Customs duties have either come down or lost relevance,” Mr J A Chowdary, who was the first STPI Director in Hyderabad and saw hundreds of export-oriented units sprouting in the South, commented.
“Tax holiday too is gone. Besides, it is very cumbersome to move things in and out of STPI units. This all is additional work for them and there is no strong reason to stay back. They will be free to do business whichever way they want to,” he said.
China continues
The Chinese had instituted similar incentives for manufacturing in 1978. Thirty years later, in spite of conquering the manufacturing sector, China continues with its tax incentives, where as India seem to have do away with this experiment.
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