The reported move of the government to extend the tax exemptions under the Software Technology Parks of India (STPI) scheme by another 10 years, ostensibly to provide some relief from the appreciating rupee, is a retrograde step. It will only open up a Pandora?s Box of demands from other sectors that are suffering as much or more from the current currency uptrend. The ?infant sector? argument that was once used to support software simply does not hold any longer. This much is obvious. With software exports touching almost $30 billion, the sector should be embarrassed of any further pampering. In any case, software leads a charmed life, exempt from almost all other taxes and services, unlike most other commodities and services that are taxed by both the Centre and states. It is outrageous to give income tax exemptions to an industry that boasts of profit margins twice those of the corporate sector as a whole, and is flush with enough funds to finance large-scale expansions and still have money left over to pay dividends that are the envy of shareholders in other sectors.
The argument that a continued tax holiday will help smaller software outfits emerge and prosper holds no merit either. The sector is dominated by big firms, and it is to them that the benefits accrue. In fact, it is the non-fiscal incentives of the STPI scheme that serve the interests of smaller software exporters far better: infrastructure like satellite gateways for international connectivity, the incubation cover provided by ready-to-use built-up space, and other back up facilities. This is not to say that the government has no role in sustaining the software industry?s success. The inadequate supply of skilled engineers is a huge problem, and the state-run education sector has a big challenge on its hands. Also, better urban infrastructure could be a big help. Cheaper power, needless to add, would certainly sharpen the industry?s export competitiveness. And only the government can do something about the weak air-transport links between India?s software centres and their client locations abroad. All this would go a long way towards a stronger software sector. In contrast, the sort of pampering that is done with the stroke of a pen is meaningless. Even patronising. A strengthening rupee should not be a pretext to prolong a policy that has outlived its use.
