Policies to focus on SME growth in the IT sector is vital for both sectoral employment and new innovation which happens more in the SME sector. We need to address the funding of the SME. With challenges such as low asset base access to bank funds, investor regulations and lack of tax incentives make equity funding difficult, firms with sub 50 crore turnover need encouragement and must have special incentives. Larger IT companies should be encouraged to do seed/small funding of these SMEs with appropriate incentives. Most importantly SMEs must be encouraged to bid for Government projects – all projects below 50 crores budget should be reserved for SMEs. Today the eligibility criteria is loaded in favour of bigger firms with large balance sheets. This should go. The future of the IT sector is in the development of SMEs.
Secondly, focus needs to be on development of software products to compete on global scale. The services model of “time and material” is now out-dated and firms need to be encouraged to develop non- linear scalable business models that can compete globally. For this, the below aspects need to actioned.
- Remove ambiguous software product taxation and impart clarity
- R&D incentivization
Lastly, the technology industry is a manpower intensive one that requires constant re-skilling to stay globally relevant. Manpower development expenses need to be incentivised with deferred tax credits. So also recruitment or office establishment from/in rural and semi-rural areas need encouragement.
If these incentives are aligned properly – the IT industry can generate twice the current employment in 4-5 years.