Draft Report of the High Level Group on Services Sector

Chapter 2: IT and IT enabled (BPO) Services

Trade in Information Technology and Information Technology enabled services (IT and BPO services) has been the main driver of growth in India’s trade in services in recent years. Exports have shown phenomenal growth from US $ 2.7 billion to over US $ 40 billion during this period. India’s exports of IT and BPO services fall in three broad categories, IT services, BPO, and Software products and Product Engineering Services. India have become a leader in both the IT and BPO offshore segments accounting for an estimated 64 per cent of offshore IT spends and 41 per cent of offshore BPO spends in 2007.

India cannot aspire to become a knowledge society with a Gross Enrolment Ratio (GER) of 11 per cent against the world average of 23.2 per cent. It has become imperative to consider ways of expanding the system for higher education. And one of the ways for doing this would be to eliminate the constraint of educational institutions being run only by not-for-profit organisations. The concern for social equity can be met by mandating full or part scholarship seats for meritorious students who do not have the means to pay the fees. The Group recommend that to begin with only technical education be opened up to for-profit enterprises. The private sector institutions should of course be subject to regulation, but only on matters related to curriculum and standards of staffing and physical infrastructure, not for fees and salaries.
Improvement of urban infrastructure is very important for ensuring the competitiveness of IT and BPO industry. Apart from development of urban basic infrastructure under Jawaharlal Nehru Urban Renewal Mission (JNURM), what would be equally important is the creation of additional commercial space for renting and a commensurate increase in residential accommodation, educational, healthcare, retail and recreation facilities. For this, it would be necessary for State Governments to facilitate the creation of new satellite townships. Some State Governments are already doing this by acquiring land and undertaking basic development for private developers to take up construction in allotted land. However, to augment the supply of residential and office space, additional townships could be developed by the private sector if the State Governments undertake to provide trunk level services.
The Group is of the view that a separate data protection law in conformity with EU Directives on data protection and EU Safe Harbour Decision is required. Without such a law the cost of Indian suppliers is raised because of the need to invest in additional processes and additionally they are exposed to the uncertainties of arbitration under contractual agreements.
The income tax exemptions for export profits of units in IT and BPO will end on 31^st March 2009. The introduction of the income tax benefit under the SEZ Act has queered the pitch and if the concession is not extended for STPIs a non-level playing field would be created after March 31, 2009, between STPI units, which will not get income tax benefits and units within the SEZs, which will get such benefits. It is imperative for the Government to address this issue at the earliest.
A larger domestic base will undoubtedly enhance the competitiveness of Indian IT and BPO industry. While the demand from the private sector is growing, the Government can also contribute considerably by allocating resources to implement the NeGP.
The authentication of certificates of birth and educational qualification for the purposes of application for visa and work permits in European countries is time taking and imposes additional costs on the personnel and the IT and BPO companies. What is needed now is to put in place procedures for enabling speedy certification on behalf of the Government of India of documents produced by the IT and BPO personnel who intend to apply for visa and work permit in European countries.