The Hindu Business Line : Software sops

The Department of Electronics (DoE) Secretary, Nagarajan Vittal, Joint Secretary in the Ministry of Commerce, K. Roy Paul, and Economic Advisor, Pronab Sen, were the three individuals who changed the outlook of the DoE, writes Dinesh C. Sharma in The Long Revolution: The birth and growth of India’s IT industry ( www.harpercollins.co.in ). “With similar wavelength and energy,” says Sharma, “the trio ensured that the DoE shed its image of being a scientific department to become an industry- and business-oriented ministry.”

He recounts how, within a week in office, Vittal met representatives of MAIT (Manufacturers’ Association for Information Technology) and Nasscom (National Association of Software and Services Companies). “The industry wanted high-speed data communication links to facilitate software exports… Extending export concessions and tax holidays to the software sector was the other demand.”

A crucial meeting was held on August 20, 1990, when Vittal presented the industry’s demands at the Committee of Secretaries. On this, Vittal was to report later, thus: “The Finance Secretary (Bimal Jalan) asked me, ‘If we give all these concessions, can you promise $500 million exports by next year?’ I said this much was not possible, but we could try for $300 million. As a compromise, a target of $400 million was agreed. In principle, everything, including income-tax concession, was agreed to at this meeting in 1990.”

Within a week, the Government formally announced all the concessions that the industry was seeking for a long time, adds Sharma. “Perhaps, the most significant was tax holiday on profits earned through software exports. This was notified in the annual budget presented by the next Government in 1991.”

He observes that with the concession package and the target of $400 million exports, Vittal virtually put the software industry on notice. “Many in the industry considered the target unrealistic. Nasscom told Vittal it would not be possible to scale up from $100 million to $400 million in a year, even if all the concessions were given.”

While appreciative of the industry for being straight about the practicality of the target, rather than readily nodding in order to get the concessions, Vittal, however, extracted a commitment from the industry leaders — that they would not contradict him in public!

What was Vittal’s logic? Here is the answer, in the form of a quote in the book: “If not $400 million, the industry would at least achieve $200 million, and then keep trying for higher exports the year after that. Meanwhile, the Government might change, I may be posted out of DoE. But so long as you have significant growth and I set you on the path of growth, in my mind I have done the right thing.”

Fast-forward to March 2000, a month which saw 4,300 units registered with STPI (Software Technology Park of India), a majority with the sole aim of ‘taking advantage of the income-tax exemption for ten years for all units registered with STPI before March 31, 2000.’ The time window got widened, when the Government decided to push the deadline to March 2010.

Sharma highlights a seamy side of tax sops as follows: “In December 2003, the Parliamentary Standing Committee on Information Technology was told that, out of the 7,765 units registered till then, as many as 3,000 were not operational.”

Engaging account.

D. MURALI

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