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INFORMATION TECHNOLOGY
AND INFORMATION TECHNOLOGY ENABLED SERVICES (ITES)
In India, information technology and electronics
are still the fastest growing segment, both in
terms of production and exports. With complete
delicensing of the electronics industry with the
exception of aerospace and defence electronics,
and alongwith the liberalization in foreign investment
and export-import policies of the entire economy,
this sector is not only attracting significant
attention as an enormous market but also as a
potential production base by international companies.
High offshore component of delivery and superior
execution in multi-location delivery continue
to be key differentiators. Broad-based industry
structure; IT led by large Indian firms, BPO by
a mix of Indian and MNC third-party providers
and captives, reflects the depth of the supply-base.
While the larger players continue to lead growth,
gradually increasing their share in the industry
aggregate; several high-performing Small and Medium
Enterprises (SMEs) also stand out.
With a large pool of skilled
manpower-chartered accountants, doctors, MBAs,
lawyers, research analysts-India would be able
to add value to the global KPO business and its
high-end processes like valuation research, investment
research, patent filing, legal and insurance claims
processing, online teaching, media content supply,
among others. Skilled manpower and multi lingual
capabilities combined with the advantages of lower
costs can help the country to emerge as a frontrunner
in KPO, globally. Increasing adoption of technology
in the domestic industries is already beginning
to reflect in their enhanced performance and competitiveness.
As a proportion of national
GDP, the sector revenues have grown from 1.2 per
cent in FY1998 to an estimated 5.8 per cent in
FY2009. Net value-added by this sector, to the
economy, is estimated at 3.5-4.1 per cent for
FY2009.
ITES-BPO Sector
The
Indian IT-BPO sector has built a strong reputation
for its high standards of service quality and
information security - which has been acknowledged
globally and has helped enhance buyer confidence.
The industry continues its drive to set global
benchmarks in quality and information security
through a combination of provider and industry-level
initiatives and at strengthening the overall frameworks,
creating greater awareness and facilitating wider
adoption of standards and best practices. The
Data Security Council of India (DSCI) was launched
in 2007 to institutionalize efforts to further
enhance the information security environment in
India.
Indian
IT-BPO grew by 12 per cent in FY 2009 to reach
US$ 71.7 billion in aggregate revenue. Software
and services exports (includes exports of IT services,
BPO, Engineering Services and R&D and Software
products) reached US$ 47 billion, contributing
nearly 66 per cent to the overall IT-BPO revenue
aggregate. IT-BPO exports (including hardware
exports) reached US$ 47.3 billion in FY 2009 as
against US$ 40.9 billion in FY 2008, a growth
of 16 per cent.
Domestic Market
- In FY 2009, domestic market (including hardware)
grew at nearly 19 per cent in INR terms to reach
US$ 24.3 billion; domestic software and services
market reached US$ 12.5 billion.
- Technology adoption in the domestic market
also reported steady gains in FY 2009. This
segment is expected to reach US$ 24.3 billion
in FY 2009, reporting healthy growth across
all key segments.
- Domestic IT services spends are estimated
to grow 20 per cent to touch US$ 8.3 billion
and are showing strong signs of increasing sophistication
as building enterprise IT infrastructures and
applications, networking and communication become
key priorities for India Inc.
- Software and BPO spending growth in the domestic
market is being supported by increasing adoption.
While the software product segment registered
a growth of 15 per cent (US$ 2.3 billion), domestic
BPO segment recorded the fastest growth of about
40 per cent to reach US$ 1.9 billion.
- Hardware segment reached US$ 11.8 billion
in FY 2009, a growth of 17 per cent over FY
2008.
Employment
Direct employment in Indian IT-BPO sector crossed
the 2.2 million mark, an increase of about 226,000
professionals over FY 2008; indirect job creation
is estimated at about 8 million. IT services (incl.
engineering services, R&D, Software products)
exports, BPO exports and Domestic IT industry
provides direct employment to 947,000, 790,000
and 500,000 professionals respectively.
Computer Industry
During the year 2008, total PC sales with desktop
computer and notebooks taken together, were 14
lakh units. The sales of desktops stood at 1 million
units while notebooks recorded a consumption of
0.35 million units.
Key Markets
The US (60 per cent) and the UK (19 per cent)
remained the largest IT-BPO export markets in
FY 2008, the industry footprint is steadily expanding
to other geographies - with exports to continental
Europe in particular growing at a CAGR of more
than 51 per cent over 2004-2008.
Exports
- IT-BPO Sector contributing 66 per cent to
the overall revenue aggregate, exports remained
the mainstay of the Indian IT-BPO growth story.
- IT services (excluding BPO, product development
and engineering services), contributed 57 per
cent to total exports to reach US$ 26.9 billion.
- BPO services exports, up by 18 per cent, was
the fastest growing segment across software
and services exports driven by scale as well
as scope.
- Software and services exports accounting for
over 99 per cent of the total exports, reached
US$ 47 billion and directly employed over 1.7
million professionals in FY 2009.
- Software product development and engineering
services-Complementing the strong growth in
IT services and BPO exports was the continued
growth across software product development and
engineering services, which also reflected India's
increasing role in global technology IP creation.
Export revenues from these relatively high-value-added
services such as engineering and R&D, offshore
product development and made-in-India software
products grew at 15 per cent, and clocked US$
7.3 billion in FY2009.
- Broad-based growth across all the segments
of IT services, BPO, Software products and engineering
services, is reinforcing India's leadership
as the key sourcing location for a wide range
of technology related services with increasing
traction in RIM & application management
and widening service portfolios.
Recent Initiatives in Information
Technology Sector
National e-Governance Plan (NeGP): The
Government of India accords high priority to improve
the quality of the citizens by providing basic
services at their doorstep and has formulated
a NeGP covering 27 mission mode projects and eight
support components to be implemented at central,
state and local Government levels, at an estimated
cost of US$ 4.71 billion.
Department of Information Technology has issued
guidelines for Capacity Building and Institutional
Framework for e-governance under NeGP.To view
guidelines
Click here
State Wide Area Networks (SWANs): The
Government has approved a scheme for establishing
SWANs across the country in 29 states/ 6 UTs with
a total outlay of US$ 682.27 million over a period
of five years. During 2008, SWAN has been implemented
in 5 states / UTs.
Department of Information Technology has issued
guidelines for Technical and Financial Support
for establishment of State Data Centre (SDC).To
view guidelines Click
here
State Data Centres (SDCs): SDCs have been
identified as one of the important elements of
the core infrastructure for supporting e-Governance
initiatives under NeGP. It is proposed to create
data repositories/data centres in various states/UTs
so that common secured data storage could be maintained
to serve host of e-Governance applications. The
scheme for establishment of SDC in 29 states and
6 UTs has been approved by the Government in 2008.
Department of Information Technology has issued
guidelines for Technical and Financial Support
for establishment of State Data Centre (SDC).To
view guidelines Click
here
Common Service Centres (CSCs): The objective
of CSCs is to develop a platform that can enable
Government, private and social sector organizations
to align their social and commercial goals for
the benefit of the rural population in the remote
corners of the country through a combination of
IT-based as well as non-IT-based services. CSC
requests for proposals (RFPs) have been issued
for 25 states /UTs. Of these, 23 states / UTs
have completed the service centre agency (SCA)
selection process covering 1,02,827 CSCs.
Department of Information Technology has issued
guidelines for Technical and Financial Support
for establishment of State Data Centre (SDC).To
view guidelines Click
here
National Knowledge Network: National Knowledge
Commission has recommended setting up of high-speed
digital broadband network with adequate capabilities
and access speed to encourage sharing of resources
and collaborative research. The primary objective
of the proposed integrated National Knowledge
Network is to provide gigabit broadband connectivity
to all institutions of higher learning and research
in the country. An allocation of Rs. 100 crore
was made in the year 2008-09 for implementing
the scheme.
Electronics Hardware Manufacturing: Electronics
hardware manufacturing continues to be a thrust
area for the Government. The special incentive
package scheme (SIPS) to encourage investments
for setting up semiconductor fabrication and other
micro and nano technology manufacture industries
in India. The scheme has received very positive
response from prospective investors. Sixteen proposals
involving an investment of the order of Rs.1,
55,000 crores, over a period of 10 years covering
setting up of semiconductor fab, LCD panel manufacturing
and solar photovoltaics including polysilicon,
have been received under the scheme.
Software Technology Parks of India (STPI):
Software Technology Parks of India (STPI), is
a society set up by the Department of Communication
& Information Technology (DIT) in 1991, with
the objective of encouraging, promoting and boosting
the software exports from India. STPI maintains
internal engineering resources to provide consulting,
training and implementation services. Services
cover network design, system integration, installation,
operations and maintenance of application networks
and facilities in varied areas. The scheme integrates
the concept of 100 per cent export oriented units
(EOUs), export processing zones (EPZs) of Government
of India and the concept of science parks/technology
parks, as operating elsewhere in the world. A
distinctive feature of STP/EHTP scheme is that
it provides single-point contact services for
member units.
Community Information Centres (CIC): Government
has initiated the setting up the CICs in the hilly
and far-flung rural areas of the country with
an objective to bring the benefits of ICT to the
people for socio-economic development of these
regions and to alleviate the digital divide between
urban and non-urban areas.
Open Technology Centre (OTC): Government
has initiated the setting up of an Open Technology
Centre through NIC, aimed at giving effective
direction to the country on Open Technology in
the areas of open source solutions, open standard,
open processes, open hardware specifications and
open course-ware.
Other Initiatives
Nanotechnology: DIT started nanotechnology
development programme during the 10th plan with
an objective to create infrastructure for research
in nanoelectronics and nanometrology at the national
level and also to fund small & medium level
research projects in specific areas such as nanomaterials,
nanodevices, carbon nano tubes (CNT), nanosystem
etc.
High-Performance/ Advanced Computing:
o High Performance Computing: In the
strategic area of High Performance Computing
(HPC), Centre for Development of Advanced Computing
(C-DAC) has developed in-house expertise for
design and development of parallel processing
technology based HPC systems, application development
environments, system software tools and utilities,
as well as development and porting of applications.
C-DAC's PARAM series of HPC systems have 60
installations worldwide.
o Grid Computing: Grid Technologies provide
dependable, pervasive, secure and inexpensive
access to high-end geographically distributed
computational resources. C-DAC has set up a
nationwide grid of HPC systems named 'Garuda',
which enables collaborative R&D among HPC
user community in various sectors of science
and engineering.
Technology Incubation and Development of Entrepreneurs
(TIDE): DIT has launched this scheme in the
area of electronics & ICT to strengthen the
technology incubation centres at the institutions
of higher learning. The scheme aims to nurture
technology incubation and thus enable local development
of electronics and ICT products and packages in
the long run. The scheme provides financial support
for nurturing the techno-entrepreneurs as well
as for strengthening the technology incubation
activity at the institutions.
Multiplier Grant Scheme: DIT has initiated
this scheme to encourage collaborative R&D
between industry and academics/R&D institutions
for development of products and packages. The
scheme aims to strengthen industry/ institute-linkages,
encourage and accelerate development of indigenous
products/ packages and bridge the gap between
R&D and commercialization.
Free/Open Source Software (FOSS): A national
resource centre for free and open source software
(NRCFOSS) has been set up with an objective to
contribute to the growth of free/open source software
in India to research and development, human resource
development, networking and entrepreneurship development
as well as to serve as the reference point for
all FOSS related activities in the country.
Creating Digital Opportunity: To enable
wide proliferation of ICT in Indian languages,
DIT has taken a major initiative to make available
software tools & fonts in various Indian languages
freely to the general public.
Foreign Direct Investment
Policy for Information Technology
FDI upto 100 per cent is permitted for e-commerce
activities subject to the condition that such
companies would divest 26 per cent of their equity
in favour of the Indian public in five years,
if these companies are listed in other parts of
the world. Such companies would engage only in
business to business (B2B) e-commerce and not
in retail trading, inter alia, implying that existing
restrictions on FDI in domestic trading would
be applicable to e- commerce as well.
Opportunities in Information
Technology Sector
- In the knowledge process outsourcing, India
is climbing the global value chain and is expected
to add value to global KPO-valuation research,
investment research, patent filing, insurance
claims processing, online teaching and legal
process outsourcing.
- Increased M&A driven by need for global
service delivery capabilities
- IT sector emerged as the preferred space for
venture capital investments in India
Policy
Framework
Information Technology (Amendment) Act 2008
Full
text of the act
Information Technology Act 2000
Full
text of the act
Industrial Approval Policy
- Industrial Licensing has been virtually abolished
in the Electronics and Information Technology
sector except for manufacturing electronic aerospace
and defence equipment.
- There is no reservation for public sector
enterprises in the Electronics and Information
Technology industry and private sector investment
is welcome in every area.
- Electronics and Information Technology industry
can be set up anywhere in the country, subject
to clearance from the authorities responsible
for control of environmental pollution and local
zoning and land use regulations.
- Large and Medium Industries exempted from
licensing are only required to file information
in the prescribed I ndustrial Entrepreneurs'
Memorandum (IEM) with the Secretariat for Industrial
Assistance (SIA), Department of Industrial Policy
and Promotion, Ministry of Commerce & Industry,
Government of India and obtain an acknowledgement.
Immediately after the commencement of commercial
production, Part B of the IEM has to be filed.
No further approval is required. Small Scale
Industries are required to register with the
District Industries Centre (DIC). Forms can
be downloaded from the website of the Department
of Industrial Policy and Promotion, Ministry
of Commerce & Industry.
Foreign Trade Policy
- India welcomes investors in Electronics and
IT sector. Government of India is striving to
bring greater transparency in policies and procedures
to provide an investor friendly platform.
- In general, all Electronics and IT products
are freely importable, with the exception of
some defence related items. All Electronics
and IT products, in general, are freely exportable,
with the exception of a small negative list
which includes items such as high power microwave
tubes, high end super computer and data processing
security equipment.
- Second hand capital goods are freely importable.
- Export Promotion Capital Goods scheme (EPCG)
allows import of capital goods on payment of
5% customs duty. The export obligation under
EPCG Scheme can also be fulfilled by the supply
of Information Technology Agreement (ITA-1)
items to the DTA provided the realization is
in free foreign exchange.
- Special Economic Zones (SEZs) are being set
up to enable hassle free manufacturing and trading
for export purposes. Sales from Domestic Tariff
Area (DTA) to SEZs are being treated as physical
export. This entitles domestic suppliers to
Drawback/ DEPB benefits, CST exemption and Service
Tax exemption.
- Supplies of Information Technology Agreement
(ITA-1) items and notified zero duty telecom/electronic
items in the Domestic Tariff Area (DTA) by EOU/EHTP/STP/SEZ
units are counted for the purpose of fulfillment
of positive Net Foreign Exchange Earnings (NFE).
- The import of second hand computers including
personal computers and laptops are restricted
for imports. However, second hand computers,
laptops and computer peripherals including printer,
plotter, scanner, monitor, keyboard and storage
units can be imported freely as donations by
the following category of donees, subject to
the condition that the goods shall not be used
for any commercial purposes and are non-transferable:
- School run by Central or State Government
or a local body
- Educational Institution run on non-commercial
basis by any organisation
- Registered Charitable Hospital
- Public Library
- Public funded Research and Development
Establishment
- Community Information Centre run by the
Central or State Government or local bodies
- Adult Education Centre run by the Central
or State Government or a local body
- Organisation of the Central or State Government
or a Union Territory
Foreign Direct Investment Policy for Information
Technology
FDI upto 100 percent is permitted for E-Commerce
activities subject to the condition that such
companies would divest 26 percent of their equity
in favour of the Indian public in five years,
if these companies are listed in other parts of
the world. Such companies would engage only in
business to business (B2B) E-Commerce and not
in retail trading, inter alia, implying that existing
restrictions on FDI in domestic trading would
be applicable to E- Commerce as well.
Export Promotion Schemes
Special schemes are available for setting up
Export Oriented Units for the Electronics/IT Sector.
These schemes are:
- Export Oriented Unit (EOU) Scheme
- Electronics Hardware Technology Park (EHTP)
Scheme
- Software Technology Park (STP) Scheme
- Special Economic Zones (SEZ) Scheme
- Export promotion Capital Goods (EPCG)
Scheme
- Duty Exemption and Remission Scheme
EOU/EHTP/STP Schemes
Units undertaking to export their entire production
of goods and services, except permissible sales
in the Domestic Tariff Area (DTA), may be set
up under the EOU, EHTP or STP Scheme for manufacture
of goods, including repair, re-making, re-conditioning,
re-engineering and rendering of services. Trading
units, however, are not covered under these schemes.
100% Foreign Direct Investment is permitted through
automatic route for the units set up under these
schemes. EOU/EHTP/STP units may import and/or
procure from the DTA or bonded warehouses in DTA,
without payment of duty, all types of goods, including
capital goods, required for its activities, provided
they are not prohibited items of import in the
ITC(HS). The units shall also be permitted to
import goods including capital goods required
for the approved activity, free of cost or on
loan/lease from clients. An EOU/EHTP/STP unit
may, on the basis of a firm contract between the
parties, source the capital goods from a domestic/foreign
leasing company without payment of customs/excise
duty. EOU/EHTP/STP unit shall be a positive net
foreign exchange earner. Net Foreign Exchange
Earnings (NFE) shall be calculated cumulatively
in blocks of five years, starting from the commencement
of production. The donation of computers, imported/indigenously
procured duty free by EOU/STP/EHTP units to recognized
non-commercial educational institutions, registered
charitable hospitals, public libraries, public
funded research and development establishments,
etc., two years after their import/procurement
and use by the said units is permitted.
Supplies of Information Technology Agreement
(ITA-1) items and notified zero duty telecom/electronic
items effected from EOU/EHTP/STP units to DTA
will be counted for the purpose of fulfillment
of positive NFE. EOU/EHTP/STP units are permitted
DTA access upto 50% of the FOB value of exports
subject to fulfillment of positive NFE on payment
of concessional duties. Depreciation upto 100%
is permissible to computers and computer peripherals
over a period of 5 years.
Export Promotion Capital Goods
(EPCG) Scheme
The EPCG Scheme allows import of capital goods
for pre-production, production and post-production
(including CKD/SKD thereof) at 5% customs duty
subject to an export obligation equivalent to
8 times of duty saved on capital goods imported,
to be fulfilled over a period of 8 years. The
capital goods shall include spares (including
refurbished/reconditioned spares), tools, jigs,
fixtures, dies and moulds. Second hand capital
goods without any restrictions on age may also
be imported under the EPCG Scheme. The export
obligation can also be fulfilled by the supply
of ITA-1 items to the DTA provided the realization
is in free foreign exchange.
Duty Exemption and Remission
Schemes
The Duty exemption schemes enable duty free import
of inputs required for export production. An Advance
Licence is issued under Duty Exemption Scheme.
A Duty Remission Scheme enables post export replenishment/remission
of duty on inputs used in the export product.
Duty remission schemes consist of (a) Duty Free
Replenishment Certificate (DFRC) and (b) Duty
Entitlement Passbook Scheme (DEPB). DFRC permits
duty free replenishment of inputs used in the
export product. DEPB allows drawback of import
charges on inputs used in the export product.
The details of these schemes are available on
the website of the Directorate General of Foreign
Trade, Ministry of Commerce & Industry ( http://www.dgft.delhi.nic.in
).
Advance Licence
An Advance Licence is issued to allow duty free
import of inputs, which are physically incorporated
in the export product (making normal allowance
for wastage). In addition, fuel, oil, energy,
catalysts etc., which are consumed/utilized in
the course of their use to obtain the export product,
may also be allowed under the scheme. Duty free
import of mandatory spares up to 10% of the CIF
value of the licence, which are required to be
exported/supplied with the resultant product,
may also be allowed under Advance Licence. Advance
Licences are issued on the basis of the inputs
and export items given under Standard Input Output
Norms (SION). However, they can also be issued
on the basis of Adhoc norms of self declared norms.
Duty Entitlement Pass Book
Scheme (DEPB)
The objective of the DEPB is to neutralize the
incidence of Customs duty on the import content
of the export product. The neutralization shall
be provided by way of grant of duty credit against
the export product. Under the DEPB scheme, an
exporter may apply for credit, as a specified
percentage of FOB value of exports, made in freely
convertible currency. The DEPB scheme will continue
to be operative until it is replaced by a new
scheme, which will be drawn up in consultation
with exporters.
Duty Free Replenishment Certificate
(DFRC)
DFRC is issued to a merchant exporter or manufacturer
exporter for the import of inputs used in the
manufacture of goods without payment of basic
customs duty. However, such inputs shall be subject
to the payment of additional customs duty equal
to the excise duty at the time of import. DFRC
shall be issued on a minimum value addition of
25% only in respect of products covered under
the SION as notified by Directorate General of
Foreign Trade (DGFT).
Major
IT and ITES Companies in India
- Tata Consultancy Services
- Wipro Technologies
- Infosys Technologies
- HCL
- Intel
- GE
- IBM
- Dell
- Microsoft
- Cisco
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