IT AND ITeS INDUSTRY

August 2018

© THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

Disclaimer

Due care has been taken to avoid errors or omissions in this publication. In spite of this, er ors may

still persist. Any mistake, er or or discrepancy if noted, may be brought to the notice of the Institute,

which shal be taken care of in next edition.

The Institute shall not be responsible for any loss or damage resulting from any action taken on the

basis of the contents of this publication. To avoid any doubt, it is suggested that the reader should

cross-check the contents of this publication with original Government notifications.

This industry specific research report is for wide circulation among experts to receive valuable

suggestions and necessary supports for further improving the manuscript. Experts are encouraged to

email their suggestions and contribute any material which they think could value add the manuscript

to research@icsi.edu.

The Section 3, “Legal Framework” is indicative only.

Published by :

THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

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Printed at: Indian Offset Press/August 2018

ii

PREFACE

In the liberalized economic policy regime, the corporate sector has been assigned a

major role as the driver of growth and development of the Indian economy. This has

resulted in a number of changes, especial y in the regulatory framework applicable to

specific industry sectors. As an economy is consist of different industries like agriculture,

service, engineering, manufacturing etc., it provides impetus to the economy i.e.

employment generation, production of goods and services, income distribution in the

whole economy.

With the intent to further enhance the competitiveness of India’s services sector and

to boost productivity with the creation of new employment opportunities, the Central

Government has focused attention on 12 sectors in the economy as ‘Champion Sectors’

i.e., IT & ITeS, Tourism and Hospitality, Financial, Accounting and Finance, Transport and

Logistics, Construction and Related Engineering, Communication, Education, Medical

Value Travel, Audio Visual, Legal and Environmental.

As part of its support to government’s policy initiatives, the Institute has started an

initiative by projecting Company Secretary as ‘Corporate Saviour’- a person who can

be relied upon by stakeholders i.e., Corporates, Promoters, Shareholders, Government

and Regulators.

With this basic objective, the institute has initiated the process of developing industry

specific knowledge through research, creating awareness among the members about

the contribution the Company Secretary can make in specific industry, capacity building

of members in the specific industry, securing recognitions for members in specific industry

sector, and sensitisation of regulatory authorities about the contribution the Company

Secretaries can make in specific industry.

For conducting the detailed analysis in a structured manner, a format is designed with

four sections, Section-I covering the industry profile, Section-II Business Scenario, Section-III

legal framework and Section-IV Contribution of Company Secretary in employment and

in practice. The research publications in all the industry sector are based on exploratory

research.

I wish to express my sincere thanks and gratitude to CS Ahalada Rao V, Vice-President, the

ICSI for his efforts in guiding and finalizing industry specific publications.

iii

I also appreciate Dr. Prasant Sarangi, Director (Research), and Dr. Neelesh Neelmani-

Research Associate, the ICSI-Research Cell for doing in-depth study of IT & ITeS Industry

and bringing out this research publication, under the guidance of CS Sonia Baijal, Director,

Professional Development, Prospective Planning and Studies and Dr. S.K. Dixit, Mentor,

Research Cel .

I am sure this research publication will prove to be of immense value to professionals,

corporates and researchers. The research is an ongoing process, and I welcome the

readers to give suggestions to make this research publication more comprehensive.

I wish all the readers a happy reading

New Delhi

CS Makarand Lele

Date: August 23, 2018

President

The Institute of Company Secretaries of India

iv

TABLE OF CONTENTS

Section No.

Title of the Section / Sub Topics

Page Number

1

1.1 Introduction

1

1.2 Composition

2

1.3 Scope of the Industry

3

2

Business Scenario

5

2.1 History

5

2.3 Business Scenario

6

2.3 Scale of Operations of Organizations

13

2.4 Diversity and Inclusion

20

3

Legal Framework

32

3.1 Sector Type

32

3.2 Applicable Laws

32

3.3 Concerned Ministries

33

3.4 Tribunal

34

3.5 Regulators

35

4

Contribution of Company Secretary

38

4.1 Introduction

38

4.2 Role of Company Secretary

38

BIBLIOGRAPHY

43

v

vi

1

SECTION 1

INTRODUCTION

1.1 INTRODUCTION

It has been noted that IT Services and ITeS-BPO segments have been responsible for

impacts on the growth of Indian economy. The Indian IT / ITeS industry has made one

of the great success stories on modern India putting the country on the global map as

the leader in the Information Technology (IT) and Business Process Outsourcing (BPO). The

Indian Information Technology (IT) and Information Technology Enabled Services (ITeS)

sectors go hand-in-hand, in every aspect. The industry has not only transformed India’s

image on the global scenario, but also fuelled economic growth and has contributed

a lot to social transformation in the country. India has the opportunity to tap a market

that is growing day by day with its cost advantage, huge resource pool and expertise.

This sector has evolved over the past few years with main focus on the execution of

Business Processes and Information/ data Security, End User Privacy, Business Contingency,

Technology, People Management and above all efficiency, productivity and customer

satisfaction.

Business Process outsourcing (BPO) implies the outsourcing of a specific set of business

process activities and the knowledge that is required by outsourcing service provider for

carrying out these activities for a division, a process or a function on behalf of a client

organization. Business Process Outsourcing focuses on the performance of the outsourced

business processes rather than on the performance of the Information System. ITeS-BPO is

different from IT Services. A detailed analysis is presented in Table 1.

Table 1: Differences between IT Services and Business Process Services

Major Differences

ITeS BP Services

IT Services

between IT Services and

ITES Business Process

Services

Customer Stakeholders

CEO, CFO, COO CIO/CTO

Business/ Functional

Heads

1

2

IT AND ITeS INDUSTRY

People

Operational

Technical

Process

Minimal

onshore Combination of onsite

presence;

and offshore

Domain Knowledge

Technology Centric

Centric

Technology

Mostly

driven

by Service provider has

customer preference major stake

Source: Compiled from different sources

1.2 COMPOSITION

In fact, it is not easy to categorize the Indian IT and ITeS Industry separately. Mainly due

to the wide variety of ways the terms IT, IT Services, ITeS and BPO are in use and also

these words are often used interchangeably. The definition of IT (Information Technology)

is the common term for the entire spectrum of technologies for information processing,

including software, hardware, communication technologies and related services. The

simple composition of the segment is analysed in the figure derived below:

Figure-1: Composition of IT & ITeS Industry

SECTION 1 – INTRODUCTION

3

ITeS-BPO is moving up the value chain and the industry now caters to the requirements of

high end BPO services. In India, the industry has now been renamed as “Business Process

Management” considering the complexities and nature of work carried out by the Indian

Service Providers in IT enabled Business Process Services. The ITES BPO services now cover

transformation not only in the bottom-line of the customer organization but it also deals

with the Top-line improvements. The BPS industry has gone beyond transactional Business

Process Services. The scope for BPS now includes Knowledge Process Services (examples:

Pharmacovigilance, Legal Process Outsourcing, etc.) Analytical & Insight Services

(examples: Market/Customer Analytics, Financial Analytics, etc.) Platform Based Services

(BPaaS), etc.

The drivers for outsourcing have moved beyond cost-saving to include other key influencers

such as need for sustained performance improvement, access to the global talent pool,

need for a flexible and scalable organization, prompting organizations to re-evaluate and

restructure their outsourcing strategies.

The demand dynamics and the drivers of global-sourcing of services continue to evolve

rapidly across the globe. Moving much beyond cost savings, there is a greater focus

on sustained performance improvement, multishore operating model and creation of a

flexible and scalable organization.

1.3 SCOPE OF THE INDUSTRY

Some important scope of the industry includes:

• Customer Interaction & Support (CIS) - It includes al forms of IT-enabled customer

contact; inbound or outbound, voice or non-voice based support used to

provide customer services, sales and marketing, technical support and help

desk services.

• Finance & Accounting (F&A) - It includes activities such as general accounting,

transaction management, account receivables and payables management,

corporate finance (e.g. treasury and risk management, and tax management);

compliance management and statutory reporting, etc.)

• Horizontal-Specific BPM Services - Services that are reasonably similar across

industries. Horizontal BPM services include Customer Interaction and Support (CIS),

Finance and Accounting (F&A) and other related processing services, Knowledge

Services, Human Resource Management (HRM), Procurement BPM, etc.

• Human Resources Processing - HR processing services include services that

support the core HR activities plus talent management activities and associated

business processes, such as benefits, payrol and talent management.

4

IT AND ITeS INDUSTRY

• Knowledge Services- Business research, Market research, Data management &

reporting, Data analytics, Social media research, risk management.

Central Board of Direct Taxes (CBDT) notification No. 890E dated 26.09.2000, the list of

eligible IT enabled services under BPO operations considered in IBPS are as under:

• Back Office Operations

• Call Centres

• Content Development or Animation

• Data Processing

• Geographic information System Services

• Human Resource Services

• Insurance Claim processing

• Legal Databases

• Medical Transcription

• Payroll

• Remote Maintenance

• Revenue Accounting

• Support Centres

• Website Services

SECTION 2

BUSINESS SCENARIO

2.1 HISTORY

The Indian IT industry is not an old industry. It evolved as a sector in India during the

1990’s. But because of a galloping growth, presently it has become one of the leading

contributors to the economy. The growth phase of the industry is outlined below:

Figure-2: Growth of the Industry

IT experts were outstarted to Developed countries, more particularly to US

The remuneration structure was marginal and low

1990's

Indian Economy emerged as a growing economy in the world

Various developmental activities has started in India

up to 2000

India started ositioning itself as a product development destination in the world

Indian firms by experding foreign expousere due to liberalization and such factors,

enhanced their size and scope of operations

By 2005's

Indian Economy become able to attract foreign companies as a business destinations

Indian companies placed themselves as Multinational companies

By Next 10

Indian IT companies have emerged as leading players in the international arena

Years

India Ranks 3rd among global start-up due to various government measures

Ease of Doing Business in India has created new opportunities which predicts that the IT

In 2017

and BPM industry could grow more than US$ 3000 billion by 2025.

Union Bugeget announcement created more scope form the sector in various activities

In 2018

5

6

IT AND ITeS INDUSTRY

2.2 BUSINESS SCENARIO

IT/ITeS industry has been continuously evolving since the economic reforms of 1990.

The industry played a subtle role in the initial years as the supplier of manpower and

processes. Gradually the Indian IT/ITeS industry started to make a formidable in the Global

presence. They were marketed by competitively bidding for turnkey projects and winning

them from world leaders in the industry. The Indian IT/ITeS industry shifted its position in the

value chain with horizontal and vertical integrations. Process delivery and human capital

at a competitive price with specified quality helped the Indian IT/ITeS industry to flourish

and make a mark in the global IT/ITeS industry.

(a) Business Quantum and Segments

The domestic revenue growth of IT and ITeS industry in India with CAGR of circa 10.7

%, has been performing on a promising growth trajectory in the last five years. The

domestic IT – ITeS industry has been strengthened by government support through

initiatives to lead India to be a digital y enabled economy.

BFSI, manufacturing, telecom and retail amount to around 80 percent of the exports for the

IT –ITeS Industry. BFSI alone contributes around 53 percent of the IT-ITeS exports. NASSCOM

Strategic Review for 2018 indicates the revenue generation indicated in Table-2 below:

Table 2: Segment wise Revenue Generation in ITeS

(Al figures in INR bil ion

CAGR %

Year/

2014-

2015-

2016-

2017-

2013- 14

(2013-

Segment

15

16

17

18

18)

IT Service

72721.6

81662

89562

100500 113600 11.37

ITeS-BPO

19593.8

21490

23364

26800

26800

8.90

Software

Products

22468.8

25788

27907

33500

33500

10.32

Engineering

Services

Total IT-ITeS

114784.2 128940 140833

160800 173800 10.75

Source: http://meity.gov.in/content/statistics

IT Services has been the most promising segment for the IT-ITeS sector in India. Export of

services continues to be the mainstay of this segment. The competitive cost advantage

estimated to be one third to one fourth of the US contributes towards creating its Unique

Selling Proposition (USP).

SECTION 2 – BUSINESS SCENARIO

7

ITeS/BPO segment can be observed to growing with CAGR of 8.9% . This segment has

focus on creating new paradigms by offering time bound quality services.

Engineering R&D and Product Development can be observed to be growing with the rate

of 10.32 % CAGR. This segment has got attention of the international market by bringing

new enterprise solutions meeting the benchmarks of the global requirements.

Contribution to Economy

IT sector contributes to around 7.5 percent to the GDP of India. The sector ranks 3rd in

India’s total Foreign Direct Investment (FDI) share and has received US$ 29.825 billion of

FDI inflows between April, 2000 and December, 2017. The following table provides the

comparative figures of Exports and Domestic in USD Billion.

Table 3: Revenue from Exports and Domestic business

Year

Exports

Domestic

Total

2013-2014

87.3

19

106.3

2014-2015

97.8

21

118.8

2015-2016

107.8

21.7

129.5

2016-2017

117

24

141

2017-2018

126

25

151

Source: http://meity.gov.in/content/performance-contribution-towards-exports-it-ITeS-industry

Market Size

IT/ITES has got recognition as a separate division under the ministry. One of the compel ing

factors is the increasing volume of the business. Revenue from Indian IT-ITeS industry revenue

is circa USD 151.0 billion in FY2017-18 over USD 141.0 billion in FY2016-17. It can be further

established that an approximate growth of 7.0% is registered. Industry growth and absolute

contribution (USD bil ion) over the last five years is presented in the Table 4 given below.

Table 4: Performance & Contribution towards Exports by IT-ITeS Industry

CAGR

2013- 2014- 2015- 2016- 2017-

Year/ Description

%(2013-

14

15

16

17

18

18)

Exports

87.3

97.8

107.8

117.0

126.0

10.49

Domestic

19.0

21.0

21.7

24.0

25.0

5.42

Total

106.3 118.8

129.5

141.0

151.0

9.55

Source: http://meity.gov.in/content/performance-contribution-towards-exports-it-ITeS-industry

8

IT AND ITeS INDUSTRY

Figure3 : Exports Market share of the Industry (in US$ Bil ion)

Figure 4 :Domestic Share of the Industry by the year 2018

The total Market share of the industry is reached to 151 US$ billion by the year 2018.

Figure-5 derived below shows the trend of growth of total market share which is calculated

by totaling domestic and export share.

SECTION 2 – BUSINESS SCENARIO

9

Figure 5: Total Market Share of the industry by the year 2018.

Exports Revenue share of various segments in IT/ITeS Sector

Exports of IT services have the largest contribution of around 57 % which amounts to

USD 86 billion approximately. The Engineering Research and Development and product

development contribute 21.8 % of the total exports. The ITES segment which mainly

comprise the Business process outsourcing has a share of 21.2 %. The data has been

presented in the figure given below. The table given below reflects the quantum of

contribution (USD billion) from each segment.

Table 5: Quantum of Contribution from each segment of ITeS in

(USD billion)

CAGR %

2013-

2014-

2015-

2016 2017-

Year/ Segment

(2013-

14

15

16

-17

18

18)

IT Service

49.2

55.3

61.0

66.0

69.3

10.07

ITeS-BPO

20.4

22.5

24.4

26.0

28.4

9.19

Software Products,

Engineering

17.7

20.0

22.4

25.0

28.3

13.09

Services, R&D

Total IT-ITeS

87.3

97.8

107.8

117.0

126.0

10.32

Source: http://meity.gov.in/content/performance-contribution-towards-exports-it-ITeS-industry

It can be established from the above table that IT-ITeS exports’ contribution is at US$ 126.0

billion for FY2017-18. The growth over last year is at 7.5 %. Cumulative growth rate of

last five years stands at 10.32. Disruptive technologies like AI (Artificial Intelligence), SMAC

10

IT AND ITeS INDUSTRY

(Social Media, Mobility, Analytics and Cloud), embedded systems etc. are the emerging

trends of the industry to create new paradigms.

As is evident from table below IT Services manage to have the largest share as a

segment, i.e., as compared to other segments. The exports revenue generated stands

at US$ 69.3 billion for 2017-18. The growth over last year is at 5%, however cumulative

growth rate for the last five years stands at 10.07. ITeS/BPO segment has been a

moderate performer with contribution of US$ 28.4 billion in year 2017-18. However

the growth over last year was at 9.2%, and the cumulative growth rate for the last five

years stands at 9.19%.

Engineering R&D and Product Development contribution is pegged at US$ 28.3 billion for

the years 2017-18. The growth over last year is at 13.2% and the cumulative growth rate

of the last five years stands at 13.09%. Such high growth rate is being registered due to

increase in demand of innovative products in the global economy.

Domestic Market Revenue share of various segments in IT/ITeS Sector

IT/ITeS Sector is export-oriented, however the domestic market has also been rising and has

now become a significant contributor to the sector. The performance of IT-ITeS (excluding

hardware) on yardstick of revenue (INR100 crores/ billion) is presented in the Table 6 given

below.

Table 6: Domestic Market Revenue Share

CAGR

2014-

2015-

2016-

Year/ Segment 2013- 14

2017-18 %(2013-

15

16

17

18)

IT Service

72721.6

81662

89562

100500 113600

11.37

ITeS-BPO

19593.8

21490

23364

26800

26800

8.90

Software

Products

22468.8

25788

27907

33500

33500

10.32

Engineering

Services

Total IT-ITeS

114784.2 128940 140833 160800 173800

10.75

Source: http://meity.gov.in/content/performance-contribution-towards-exports-it-ITeS-industry

As evident from the above table the revenue contribution from Domestic operations of IT-

ITeS (excluding hardware) is around INR 1738 billion for FY2017-18. The growth over last years

is at 8.7 %. Cumulative growth rate for the last five years stands at 10.75%. E-Commerce

growth fuelled by investors from across the world is going to intensify the operation of

the domestic market of IT-ITeS. The latest development of acquisition of majority stake of

SECTION 2 – BUSINESS SCENARIO

11

Flipkart by Walmart will take the operations to next level and it will require a regulator to

guide the overall operations in ethical manner. Corporate Governance and Compliance

at highly level will be required to safeguard the interest of various stakeholders in the

industry. The government of India’s emphasis on leading India to a new digital paradigm

may invigorate the growth of the Domestic IT/ITeS operations.

Growth in the last five years of domestic revenue for each segment (INR crore) of IT-ITeS

industry is represented below:

Table 7: Segment Wise Growth of Last Five Financial Year

Year

IT-Service

ITeS-BPO

Software

Total

Product&

Engineering

Services

2013-2014

72721.6

19593.8

22468.8

114784.2

2014-2015

81662

21490

25788

128940

2015-2016

89562

23364

27907

140833

2016-2017

100500

26800

33500

160800

2017-2018

113600

26800

33500

173800

Source: http://meity.gov.in/content/performance-contribution-towards-exports-it-ITeS-industry

Export Destinations

The USA, UK and EU remain the major markets for the IT software and services exports,

accounting for ~90% of the total IT-ITeS exports, however, there are new challenges

surfacing in these traditional geographies. Demands from Asia Pacific (APAC), Latin

America and Middle East Asia is growing and new opportunities are emerging for

expanding in continental Europe, Japan, China and Africa. The share of export markets in

FY2017-18 is given below in Table 8.

Table 8: Share of Exports of it Software and Services Exports

USA

62%

UK

16%

Europe (Excluding UK)

11%

Asia

8%

Rest of Word

2%

Source: Compiled from various sources

12

IT AND ITeS INDUSTRY

Figure-6 shows country-wise contribution to the industry in India. It can be seen that the

USA is the largest contributor with 62 per cent of share to total export.

Figure 6 : Country-Wise Contribution of Export in the Industry

Employment

The IT/ITeS workforce is becoming increasingly diverse in terms of socio-economic,

linguistic, multinational and regional backgrounds. The direct employment in the IT

services and BPO/ITeS segment is expected to grow by about 4.0 % reaching and add

around 1,05,000 employees during the year 2017-18 reaching a total of 3.96 million,

which is a significant achievement for the sector. The details of direct employment by

the sector for both, the exports segment and domestic market segment, over the last five

years are given below (in Millions):

Table 9: Direct Employment Over the Last Five Years in ITeS Segments

2013-

2014-

2015- 2016-

2017-

Year/ Segment

14

15

16

17

18(E)

IT Services & Exports

1.6

1.74

1.846

1.921

1.984

BPO Exports

0.989

1.03

1.086

1.152

1.191

Domestic Market

0.699

0.745

0.758

0.790

0.793

Total Employment

3.267

3.485

3.690

3.863

3.968

Net Addition

0.301

0.218

0.203

0.173

0.105

Source: http://meity.gov.in/content/employment

SECTION 2 – BUSINESS SCENARIO

13

In addition to being one of the largest job provider and creator in the organized industry

segment, this sector also plays a key role in enabling higher levels of indirect employment

in other verticals such as transportation, real estate and hospitality, security services, and

house-keeping.

2.3 SCALE OF OPERATIONS OF ORGANIZATIONS

IT/ITeS follow the global trend and large players dominate the industry. Captive

technology centers and medium organizations are contributing around 35 percent of

the total exports. The organizations in this domain are shifting from economies of scale

to economies of scope and finding new possibilities to become an integrated service

provider. The emerging and smal organizations are contributing 20 percent and 18

percent respectively towards the total exports revenue. These organizations are working

in specialized services and verticals. The challenge for these organizations however is

immense as they always have to carve a niche with a differentiating service. Maintaining

their growth rate along with creating sustainable development is a great challenge being

faced by these organizations.

Table 10: Scale of Operations of Organization in the ITeS Industry

Category Number Percentage Percentage

Work focus

of

of total

of total

players

export

employees

revenue

11

47-50%

35-38%

*Range of Services by

completely equipped

Large

players

*Huge

Infrastructure

and operations

120-150

32-35%

28-30%

Services

across

number of verticals

Medium

being offered captive

technology

centers

main contributor

On-site

and

off-

site operation in 40

countries

14

IT AND ITeS INDUSTRY

Emerging

1,000-

9-10%

15-20%

Players

offering

1,200

specialized services

Focused Setup for

specialized services

Small

15,000

9-10%

15-18%

*Players with focus in

particular services or

verticals

*Indian firms mostly

Source: Compiled from various sources

Initiatives of Government of India

The ministry has classified the industries activities in fol owing broad categories:

• Software and Services Sector

• Industrial Promotion Activities

• Export Promotion Schemes

• Schemes & Policies - Electronic Hardware

• Electronic System Design & Manufacturing

SECTION 2 – BUSINESS SCENARIO

15

The Ministry is working upon various dimensions and expecting a rapid growth in all its

activities. Incorporation and growth of many IT/ITES organizations is expected as an

outcome of all these activities. The opportunities and avenues for Company Secretaries

can be identified in collaboration with the Ministry. At this juncture each of the identified

activities is being elaborated.

• Software and Services Sector

Information Technology Enabled Services (IT/ITeS) industry in India has made India a global

powerhouse today. It has made an unparallel contribution in positioning the country to

become a high preference investment destination in the eyes of the global investors.

The contribution of IT/ITeS in creating job opportunities has been incomparable in India.

Performance of the industry in the last decade has been quite impressive with increased

share in the GDP of India peaked at 7.9 percent for the FY 2017-18. Across the world India is

credited with being one of the most preferred off-shoring destinations. IT/ITeS organizations

in India have performed with dominance in services to global clients for on-shore and

off-shore services as wel . The changing and evolving technologies present plethora of

opportunities for all the companies operating at different scale in the IT domain. Strategic

differentiation with a low-cost advantage gives IT firms in India to have the upper hand

in maximizing the profits with quality output and high reliability. The investments made by

Indian IT firms in up scaling the infrastructure and establishing state-of-the-art technology

centers has resulted in facilitating deliverables to meet the predefined timelines within

international norms. These competitive advantages have enabled the Indian firms to

outperform the growth of global industry growth.

The Ministry of Electronics and Information Technology has been emphasizing on activities

to promote programmes for skill development and uplifting infrastructure capabilities.

Research and Development programmes are being encouraged at every possible level

to maintain India’s strategic advantage in IT and IT-enabled Services in the global market.

The government of India envisions a digitally equipped India. One of the great initiatives in

this context is carving out Ministry of Electronic and Information Technology from the Ministry

of Communications and Information Technology. The ministry was earlier functioning as

The Department of Electronics and Information Technology (DeitY). Some organizations

working towards the growth and development of the IT/ITeS industry need a mention here.

Electronic and Computer Software Export Promotion Council (ESC)

Electronics and Computer Software Export Promotion Council (ESC) represents the interests

of Indian electronics and IT sector at numerous forums including international trading

arena of the Electronic and Computer Software, Joint Trade Committees of Ministry of

Commerce, as well as at Joint Business Councils of various countries. Under the aegis of

16

IT AND ITeS INDUSTRY

the Council, the IT services exports have reached the shores of more than 200 countries

across the world establishing India’s leadership in quality and competitiveness. ESC has

a strong membership base across the country covering the entire gamut of Electronics

and Software Industry. ESC offers a basket of services to its members for boosting exports.

• National Association of Software and Services Companies (NASSCOM)

NASSCOM is the premier trade body and the chamber of commerce of the IT-BPM

industry in India. The global trade body has over 2000 members from both Indian and

multinational companies that have a presence in India. NASSCOM members currently

account for over 95% of the industry revenues in India, employing about 3.5 million

professionals. It is a platform where industry leaders collaborate to determine strategies

– both short term and long term that will impact the industry’s growth. NASSCOM has

created 7 dedicated industry councils representing the different industry segments – IT

Services, BPM, Software Products, Engineering R&D, Global in-house centers, Domestic

market, Internet and Mobile. In addition, the 10,000 start-ups initiative by NASSCOM, aims

to build and support 10,000 companies over the decade.

NASSCOM is implementing projects for making efforts to further strengthen existing

markets, and simultaneously diversify and increase presence in the new and emerging

markets. These participative efforts have helped the government and industry to address

policy and administrative issues and challenges in the developed markets of the USA,

Canada, the UK and EU; especially the Government could address the turbulent issue of

movement of IT professionals in the USA and UK. The Indian IT industry has also been able

to make new pathways in the emerging markets in China and Japan.

NASSCOM has founded many institutions including Data Security Council of India

(DSCI) that focuses on data and cyber security; NASSCOM Foundation that focuses on

sustainability and CSR; National Institute of Smart Governance (NISG) – a partnership with

government to build capability and capacity for e-governance; IT-ITeS Sector Skill Council

under the NSDC initiative to focus on skill building

• Software Technology Parks of India (STPI)

Software Technology Parks of India were set up in 1991 as an autonomous society under

the ministry. STPI’s main objective has been the promotion of software exports from the

country. STPI acts as ‘single-window’ in providing services to the software exporters. STPI has

set-up a total of 57 STPI operational centres/sub-centres across the country, out of which

49 centres are in Tier II and Tier III cities. During the FY 2016-17, estimated IT/ ITeS export

made by STPI registered units are 350679.7 crore which annually account for about 50%

of total software exports.

The services rendered by STPI for the software exporting community have been statutory

services, data communications services, incubation facilities, training and value added

SECTION 2 – BUSINESS SCENARIO

17

services. STPI has played a key developmental role in the promotion of software exports

with a special focus on SMEs and start up units.

STPI is working closely with respective state governments/local authorities for creation of

more space, equipped with the state-of-the-art infrastructure facilities, for development of

the software industry and increasing exports.

• Export Promotion Schemes

The IT and ITeS sector employs 34% women, out of total 39.68 lakhs employees for FY 2017-

18. After the economic reforms of 1991-92, liberalization of external trade, elimination

of duties on imports of information technology products, relaxation of controls on both

inward and outward investments and foreign exchange and the fiscal measures taken by

the Government of India and the individual State Governments specifically for IT and ITeS

have been major contributory factors for the sector to flourish in India, and for the country

to be able to acquire a dominant position in offshore services in the world. The major fiscal

incentives provided by the Government of India have been for the Export Oriented Units

(EOU), Software Technology Parks (STP), and Special Economic Zones (SEZ).

Software Technology Parks (STPs)

For the promotion of Software exports from the country, the Software Technology Parks

of India was set up in 1991 as an Autonomous Society under the Ministry of Electronics

and Information Technology. The services rendered by STPI for the Software exporting

community have been statutory services, data communications servers, incubation

facilities, training and value-added services. STPI has played a key developmental role

in the promotion of software exports with a special focus on SMEs and start up units. The

STP Scheme which is a 100% export-oriented scheme has been successful in fostering

the growth of the software industry. The exports made by STP Units have grown over the

years. The STP scheme allows software companies to set up operations in convenient and

inexpensive locations and plan their investment and growth driven by business needs.

More than 4000 units are registered with STPI.

(a) Benefits under STP Scheme:

Ø Customs Duty Exemption in full on imports.

Ø Central Excise Duty Exemption in ful on indigenous procurement.

Ø All relevant equipment / goods including second hand equipment can be

imported (except prohibited items).

Ø Equipment can also be imported on loan basis/lease.

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IT AND ITeS INDUSTRY

Ø 100% FDI is permitted through automatic route.

Ø Sales in the DTA up to 50% of the FOB value of exports permissible.

Ø Use of computer imported for training permissible subject to certain conditions.

Ø Depreciation on computers at accelerated rates up to 100% over 5 years is

permissible.

• Special Economic Zones (SEZ) Scheme

In 2005, the Department of Commerce, Ministry of Commerce & Industry, Government

of India has enacted the Special Economic Zone (SEZ) Act, with an objective of providing

an internationally competitive and hassle free environment for exports. A SEZ is defined as

a “specifical y demarked duty-free enclave and shall deemed to be foreign territory (out

of Customs jurisdiction) for the purpose of trade operations and duties and tariffs”. The SEZ

Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006.

It provides drastic simplification of procedures and a single window clearance policy

on matters relating to central and state governments. The scheme is ideal for bigger

Industries and has a significant impact on future Exports and employment.

The SEZ policy aims at creating competitive, convenient and integrated Zones offering

World class infrastructure, utilities and services for globally-oriented businesses. The SEZ Act

2005 envisages key role for the State Governments in Export Promotion and creation of

related infrastructure.

(b) Salient features of SEZ scheme are as under:

Ø Duty free import/domestic procurement of goods for development, operation

and maintenance of SEZ units

Ø 100% Income Tax exemption on export income for SEZ units under Section 10AA

of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of

the ploughed back export profit for next 5 years.

Ø Exemption from Central Sales Tax, Exemption from Service Tax and Exemption

from State Sales Tax. These have now subsumed into GST and supplies to SEZs are

zero rated under IGST Act, 2017.

Ø Other levies as imposed by the respective State Governments

Ø Single window clearance for Central and State level approvals.

Ø This scheme has a significant impact on future exports & employment. About 230

IT-ITeS specific SEZs have been notified by the Department of Commerce.

SECTION 2 – BUSINESS SCENARIO

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• BPO Promotion Schemes

As per NASSCOM, BPO includes fol owing processes that are IT-enabled, but they do not

necessitate on-shore presence, hence, they are meant for offshore.

Ø Customer Interaction & Support (CIS) - CIS includes all forms of IT-enabled

customer contact; inbound or outbound, voice or non-voice based support used

to provide customer services, sales and marketing, technical support and help

desk services.

Ø Finance & Accounting (F&A)- F&A includes activities such as general accounting,

transaction management (account receivables and payables management),

corporate finance (e.g. treasury and risk management, and tax management);

compliance management and statutory reporting, etc.

Ø Horizontal-Specific BPM Services - Services that are reasonably similar across

industries. Horizontal BPM services include Customer Interaction and Support (CIS),

Finance and Accounting (F&A) and other related processing services, Knowledge

Services, Human Resource Management (HRM), Procurement BPM, etc.

Ø Human Resources Processing - HR processing services includes services that

support the core HR activities plus talent management activities and associated

business processes such as benefits, payroll and talent management.

Ø Knowledge Services - Business research, Market research, Data management &

reporting, Data analytics, Social media research, risk management.

The BPO promotion Schemes has been branched into India BPO Promotion Scheme (IBPS)

and North-East BPO Promotion Scheme (NEBPS).

India BPO Promotion Scheme (IBPS)

The India BPO Promotion Scheme (IBPS) has been approved under Digital India Programme,

to incentivize BPO/ITES Operations across the country [excluding certain cities and the

States in North-East Region (NER)], for the creation of employment opportunities for the

youth and growth of IT-ITES Industry. IBPS aims to incentivize establishment of 48,300 seats

distributed among each state in proportion of state’s population, with financial support

up to Rs. 1 lakh/seat in the form of Viability Gap Funding (VGF), with an outlay of Rs. 493

crores up to 31.03.2019.

The objectives of IBPS are as under:

Ø Creation of employment opportunities for the youth, by promoting the IT/ITES

Industry particularly by setting up the BPO/ITES operations.

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IT AND ITeS INDUSTRY

Ø Promotion of investment in IT/ITES Sector in order to expand the base of IT Industry

and secure balanced regional growth.

2.4 DIVERSITY AND INCLUSION

Special incentives will be provided within the ceiling of total financial support i.e. Rs. 1 Lakh/

seat. Special incentive (% of eligible financial support) for Units providing employment to

women, and to persons with disability will be provided as mentioned in Table 11.

Table 11: Incentive for Diversity and Inclusion

Special Incentive (% of

Inclusion & Diversity

eligible financial support)

50% women employment

5%

4% Employment of persons with Disability

2%

Source: http://meity.gov.in/content/industrial-promotion-activities

Ø Incentive for providing employment beyond target: Special incentive (% of eligible

capital support) for units providing employment beyond their employment target

(1.5 times the number of seats) will be provided as indicated on Table 12.

Table 12: Special Incentive for Employment beyond Target

Special Incentive (% of

Employment generation

eligible financial support)

2 X no. of seats

5%

2.5 X no. of seats

7.5%

3 X no. of seats

10%

Source: http://meity.gov.in/content/industrial-promotion-activities

Ø Incentive for wider dispersal within State including rural areas : Special Incentive

(5% of eligible financial support) for units setting up BPO/ITeS operations at locations

other than the State Capital.

Ø Incentive for promoting local entrepreneur : Special Incentive (5% of eligible

financial support) for units setting up BPO/ITeS operations as a consortium with

local entrepreneur (Domicile of State/UT).

Ø Special Package for Hilly Region (Himachal Pradesh, Uttarakhand and Jammu

& Kashmir): The eligible entities can participate in the scheme with minimum 50

seats with average annual turnover of last 3 FYs as Rs. 1 Crore instead of minimum

100 seats with average annual turnover of last 3 FYs as Rs. 2 Crore.

SECTION 2 – BUSINESS SCENARIO

21

A Company, availing financial support under IBPS, can also avail support under

any other Scheme of the Central/State Government concerned other than similar

financial support availed under IBPS.

Under the IBPS, the quantum of financial support shal be determined through an open

bid system, subject to overall ceiling of Rs. 1 lakh per seat. This Scheme seeks to incentivize

establishment of 48,300 seats in respect of BPO/ITeS operations, at an outlay of about Rs.

493 crores, providing employment opportunities to about 1,45,000 persons considering

three shifts BPO operations.

• North-East BPO Promotion Scheme (NEBPS).

The North-East BPO Promotion Scheme (NEBPS) has most of the provision similar to IBPS

mentioned above. Few incentives and provision which differ are being mentioned below.

• Training Incentive:

Up to 50% of training expenditure with cap of 6,000/employee for total regular employees

up to the 1.5 times (employment target) the number of approved seats of BPO/ITeS

operation (e.g. For 100 seats BPO/ITeS operation, training incentive can be availed for

max. 1.5 X 100 = 150 regular employees).

• Incentive for diversity & inclusion:

Special incentive (% of eligible financial support) for Units providing employment to

women, and to persons with disability will be provided as under:

Table 13: NEBPS Incentive for Diversity and Inclusion

Inclusion & Diversity

Special Incentive (% of

eligible capital support)

50% women employment

5%

75% women employment

7.5%

4% employment for persons with disability

2%

Source: http://meity.gov.in/content/industrial-promotion-activities

• Incentive for promoting local entrepreneur:

Special Incentive (5% of eligible financial support) for units setting up BPO/ITeS operations

as a consortium with local entrepreneur (Domicile of the State where BPO/ITeS operations

are being established).

(c) Under the NEBPS, the quantum of financial support shall be determined through

an open bid system, subject to overall ceiling Rs. 1 lakh/seat. The bids would be

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IT AND ITeS INDUSTRY

invited from eligible companies in each State in the N.E.R, through a Request

For Proposal (RFP), to determine the lowest amount of financial support to be

provided as Viability Gap Funding.

(d) A company, seeking to avail financial support under this scheme, shal be under

obligation not to claim the similar financial support from any other Scheme of

the Central/State Government concerned. However, other supports not claimed

under NEBPS may be availed from other Scheme of the Central/State Government.

Based on the types of operations carried out classification as indicated in Table 14 can

be done.

Table 14: Types of Operations in ITeS industry

Scale of Service

Nature of Service

Solution Providers

Well structures business lines with integrated

enterprise solutions.

Consolidators

Business integration to enhance scale of

operations.

Multi-Domain Players

Distinct capability for number of verticals

Niche Service Providers

Providing specialized services for a large

business player

Source: Compiled from various sources

• Geography of Operations and Government Initiatives

Major cities which are important for IT/ITeS within India include Bangalore, Chennai,

Hyderabad, Pune and NCT. The government of India under the The India BPO Promotion

Scheme (IBPS) has been attempting to increase the reach of the IT/ITeS by setting up state

of art Software Technology Parks (STP) in India. At present most state governments are

expressing interest to set up STPs and making IT/ITeS industry widespread in India. Details of

the scheme are shared in the next section of Government Initiatives.

• Industrial Promotion Activities

Ministry of Electronics and Information Technology (MeitY) has been putting its best foot

forward for promotion programmes to boost the IT and Electronic Hardware sector.

Emphasis has been laid on developing adequate infrastructure enabling research and

development to promote growth of the market size.

Training plays vital role in drawing optimum development of business management

capacity by utilizing the existing infrastructure and giving the organisations the competitive

advantage. Ministry through its flagship India BPO promotion scheme has designed a

SECTION 2 – BUSINESS SCENARIO

23

mechanism to encourage participation which is evenly spread across the contours of the

nations. Special endeavour is being unleashed through dedicated task force which will

enable professionals to sharpen their skills in technologies which will help the industry to

move ahead and make new benchmarks.

Some of the major promotional activities in the field of Information Technology and

Electronics Hardware Manufacturing include the following : creating the right infrastructure

in the country that is conducive to growth, broaden the markets and create a level

playing field, provide R&D expertise and training programmes, assist in building a better

and strong competitiveness among organizations. Providing latest information on industry

trends, management models, market and advanced technologies.

The broad categories in which such initiatives exist are as follows:

§ Infrastructure Support

§ R&D Promotion

§ Tax Provisions

§ Prioritization of Electronics Hardware Manufacturing

§ Task Force

The initiatives of the Ministry are being discussed in this section.

Ø Infrastructure Support

Information Technology Investment Regions (ITIRs) in Information Technology (IT), Information

Technology Enabled Services (ITES) and Electronic Hardware Manufacturing (EHM) have

been established to boost the overall growth of the sector in an integrated manner.

The State Governments have been entrusted to establish and empower the ITIRs. The

ITIRs have a provision of State Level Empowered Committee to carry out the following

functions:

i) Monitor, Review and Appraise the functions of and performance of ITIRs

ii) Deal with issues relating to disputes between the stakeholders, and

iii) Other functions which may include liaison with in order to obtain security clearance

in respect to ITIR proposals of foreign origin and sensitive areas.

The above roles are suitable for governance professionals

Ø R&D Promotion

Support International Patent Protection in Electronics & IT (SIP-EIT) scheme has been aimed

24

IT AND ITeS INDUSTRY

to support MSMEs and Technology Startup with seed capital and finance. It is anticipated

that research and development activities can be strengthened by encouraging innovation

and processing international patents related to them. Value creation by identifying global

capabilities and nurturing them to bloom and become trend setter is the objective of

these activities. The Ministry has decided that expenditures on such activities shall be

reimbursed to the tune of INR 15 lakhs for each invention.

Multiplier Grants Scheme (MGS) is aimed at encouraging combined R&D activities from

industry and academics. Such collaborative efforts of R&D institutions result in development

of innovative products and packages. It shall be in effect till 31st March, 2020 with total outlay

of Rs. 36 crores. Technology Development Council (TDC) has been authorized to allocate

and disburse budget for various R&D activities to ensure effective implementation of this

scheme. The scheme has a clause that institutions can commercialize products which

are outcome of the R&D activities and seek financial support for same. The proposals shall

be submitted jointly by the industry and institutions in order to get financial support under

the scheme. The quantum of such financial support is twice the expenditure borne by the

industry to facilitate such research.

Ø Tax Incentives

GST rate for all kinds of IT Software supply which may include services, products, and

supply on media, electronic download and temporary transfer of Intellectual Property (IP)

has been ascertained at 18% with full Input Tax Credit (ITC).

Delivering services from various locations and integrated pricing for the contract as a

whole is the norm in IT/ITES industry. Normally the contract or agreement with the recipient

is entered into by one of the branches (say “Principal Branch”). Therefore, in such cases of

service delivery from multiple locations of the supplier to the recipient, the supply could

be visualized as consisting of two distinct supplies. First supply- the different branches of

the supplier located across different States are making the supply to the main branch

which entered into a contact or an agreement with the recipient for the supply of such

service. Second supply- main branch is making a supply to the customer. GST is to be

levied accordingly. In such a scenario, the main branch would get input tax credit of GST

paid by the other branches on supplies made by them to the main branch.

Ø Prioritizing Electronics Hardware Manufacturing

Electronics and IT Hardware manufacturing are also expected to grow immensely and

therefore it is being focused through Initiatives in the Foreign Trade Policy, as a result of

which:

1. Provisions has been made by DGFT for expediting clearance of approvals required

SECTION 2 – BUSINESS SCENARIO

25

2. Exporters/Associations would be entitled to utilize Market Access Initiative (MAI) &

Market Development Assistance (MDA) Schemes of the Department of Commerce

for promoting Electronics and IT Hardware Manufacturing Industry exports

Under the above mentioned schemes, assistance to reverse visits from prominent buyers,

journalists/editors of trade journals and representatives of leading buying houses from the

identified countries for visiting trade fairs/exhibitions/Seminars and to visit selected units in

India shall be provided to the Eligible Agencies.

Level of assistance provided is to a tune of 65% of the total approved expenditure

including Venue Cost, Publicity cost for the event, Cost of the catalogues and other

material, Translation and Interpreters charges etc.

Ø Task Force to Stimulate Growth

A Task Force was set up by the Department of Electronics and Information Technology

through Office Order dated 11th August, 2009 to make recommendations on the following

issues:

1. Strategies to augment the growth of the IT software and IT enabled services sector

in the context of global developments.

2. Steps needed to accelerate domestic demand for (i) Electronics Hardware

products and (ii) IT & IT enabled services.

Concerted action is required to capture the opportunities and mitigate the risks to achieve

the vision for 2020. In doing so, stakeholders (industry, NASSCOM and the government) will

need to act together in an unprecedented manner. Industry and NASSCOM have already

started working on the key enablers mentioned below:

a. Developing a high caliber talent pool providing higher level training to the recruits,

focus on building specialization and language skills Industry academia partnerships

on curriculum, faculty development Introduced Common assessment program

to identify skill gaps and build programmes for the gaps in education system

b. Establishing India as a trusted global hub for professional services, Industry building

business continuity/disaster recovery implementation strategy India to become

leader in setting standards in data security/data privacy NASSCOM working with

government to enhance enactment and enforcement

c. Harnessing technology for inclusive growth : Industry leveraging PPP models and

building applications for e-health, e-education, e-financial services and e-skills

Balanced regional growth through setting up in tier 2/3 cities by the industry; rural

BPOs to provide employment

26

IT AND ITeS INDUSTRY

d. Fostering a Sustainable Ecosystem for Innovation and R&D Carrying out Research

and IP development both internal and sponsored Thrust on PhD programmes and

research partnership with academic institutions

e. Catalyzing growth beyond today’s core markets : Industry concentrating on

developing new markets; building global viewpoint Industry leveraging Global

workforce through offshore delivery centers – hiring best talent and participating

in local ecosystem development NASSCOM facilitating Policy Advocacy, building

coalition partners at a global level NASSCOM acting as the brand ambassador

for global services in global forums to champion globalization of the industry and

relevant imperatives.

• Schemes & Policies - Electronic Hardware

Special schemes are available for setting up Export Oriented Units for the Electronics

Hardware Sector. Various incentives and concessions are available under these schemes.

The salient features of EOU, EHTP, STP and SEZ schemes are tabulated here.

Table 15: Salient Features of EOU, EHTP, STP and SEZ schemes

Benefits

EHTP/STP/EOU Unit

SEZ Unit

Foreign Equity 100% FDI investment permitted 100% FDI investment permitted

permissible

through automatic route

through automatic route

Duty free

Capital goods, Raw materials, All goods for development,

imports/

Components and other inputs

operation and maintenance

domestic

procurement

permissible

Income Tax

Export profits 100% tax-exempt 100% Income Tax exemption on

Benefit

under Sections 10A/10B of the export profits under Section 10AA

Income Tax Act, 1961 (up to of the Income Tax Act, 1961 for

31st March 2011)

5 years, 50% for next 5 years

thereafter and 50% of ploughed

back export profit for next 5 years

Export

Unit shall be a positive Net Unit shall be a positive Net Foreign

Obligation

Foreign

Exchange

(NFE) Exchange (NFE) Earner. Supplies

Earner. Supplies of ITA-1 items of ITA-1 items manufactured by

manufactured by these units these units in the Domestic Tariff

in the Domestic Tariff Area Area (DTA) shall be counted

(DTA) shall be counted towards towards fulfillment of export

fulfillment of export obligation

obligation

SECTION 2 – BUSINESS SCENARIO

27

DTA Sales

DTA sales permissible up to 50% DTA sales permissible on payment

of FOB value of exports, subject of ful duties. However, the unit

to fulfillment of positive NFE, on is required to be a positive Net

payment of concessional duties Foreign Exchange (NFE) Earner

(50% of basic customs duty over the five year period of its

and full excise duty). DTA sales operation.

beyond this entitlement are

permissible against payment of

ful duties provided the unit has

achieved positive NFE.

Central Sales Refundable

Exempted

Tax

Supplies from Deemed Export

Physical Export

DTA

Source: Compiled from various sources

Ø Export Promotion Capital Goods (EPCG) Scheme

The Zero duty EPCG Scheme is available to exporters of electronic products. It

al ows import of capital goods for pre-production, production and post-production

(including CKD/SKD thereof as wel as computer software systems) at zero% customs

duty, subject to an export obligation equivalent to 6 times of duty saved on capital

goods imported under EPCG scheme, to be fulfil ed in 6 years reckoned from

Authorization issue-date.

The concessional 3% duty EPCG Scheme allows import of capital goods for pre-production,

production and post-production (including CKD/SKD thereof as well as computer software

systems) at 3% customs duty, subject to an export obligation equivalent to 8 times of

duty saved on capital goods imported under EPCG scheme, to be fulfilled in 8 years

reckoned from Authorization issue-date. The capital goods shall include spares (including

refurbished/reconditioned spares), tools, jigs, fixtures, dies and moulds. Second hand

capital goods, without any restriction 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.

Ø Duty Exemption and Remission Schemes

Duty exemption schemes enable duty free import of inputs required for export production.

Duty exemption schemes consist of:

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IT AND ITeS INDUSTRY

1. Advance Authorization Scheme

Advance Authorization is issued to allow duty free import of inputs, which are

physically incorporated in export product.

2. Duty Free Import Authorization (DFIA) scheme

DFIA is issued to al ow duty free import of inputs which are required for the

production of an export product

A duty remission scheme enables post export replenishment / remission of duty on inputs

used in export product. Duty Remission Schemes consist of:

1. Duty Entitlement Passbook (DEPB) Scheme

Duty Entitlement Pass Book Scheme (DEPB) is an export incentive scheme. It has

been conceptualized with the objective to neutralize the impact of custom’s duty

in international transactions. The neutralization is provided as credit against the

export product.

2. Duty Drawback (DBK) Scheme

DBK scheme has provisions to refund duty of customs and duty of central excise that are

levied on imported and indigenous materials used in the manufacture of exported goods.

Ø Deemed Exports

“Deemed Exports” refer to those transactions in which the goods supplied do not leave

the country and the payment for such supplies is received either in Indian rupees or in

free foreign exchange. The fol owing categories of supply of goods by the main/ sub-

contractors are regarded as “Deemed Exports” under the Foreign Trade Policy, provided

the goods are manufactured in India:

a. Supply of goods against Advance Authorization/Advance Authorization for annual

requirement/DFIA;

b. Supply of goods to Export Oriented Units (EOUs) / Software Technology Park (STP)

units / Electronic Hardware Technology Park (EHTP) units / Bio Technology Park (BTP)

units;

c. Supply of capital goods to Export Promotion Capital Goods (EPCG) Authorization

holders;

d. Supply of goods to projects financed by multilateral or bilateral Agencies/Funds

as notified by the Department of Economic Affairs, Ministry of Finance under

International Competitive Bidding (ICB) in accordance with the procedures of

SECTION 2 – BUSINESS SCENARIO

29

those Agencies/Funds, where the legal agreements provide for tender evaluation

without including customs duty;

e. Supply of capital goods, including in unassembled/disassembled condition as

wel as plants, machinery, accessories, tools, dies and such goods which are used

for installation purposes till the stage of commercial production, and spares to the

extent of 10% of the FOR value to fertilizer plants;

f. Supply of goods to any project or purpose in respect of which the Ministry of

Finance, by a notification, permits the import of such goods at zero customs duty;

g. Supply of goods to the power projects and refineries not covered in (f) above;

h. Supply of marine freight containers by 100% EOU (Domestic freight containers -

manufacturers) provided the said containers are exported out of India within 6

months or such further period as permitted by the customs;

i. Supply to projects funded by UN agencies; and

j. Supply of goods to nuclear power projects through competitive bidding as

opposed to ICB.

The benefits of deemed exports shall be available under paragraph (d), (e), (f) and (g)

only if the supply is made under the procedure of International Competitive Bidding.

Benefits for Deemed Exports

Deemed exports shal be eligible for any/all of the following benefits in respect of

manufacture and supply of goods qualifying as deemed exports subject to the terms

and conditions as given in the Chapter-8 of Handbook of Procedures (Vol.I), 2009-2014 of

the Department of Commerce, Ministry of Commerce & Industry:

(a) Advance Authorization/Advance Authorization for annual requirement/DFIA

(b) Deemed Export Drawback.

(c) Exemption from terminal excise duty where supplies are made against ICB. In

other cases, refund of terminal excise duty will be given.

• Electronic System Design & Manufacturing

Over the last couple of decades India has been the epicenter of consumer demand

fuelled by a phenomenal GDP growth. While demand increased across all sectors,

demand for high technology products, specifically electronic products has registered

significant growth and going by current estimates, the demand for electronics hardware

in the country is projected to increase from USD 45 billion in 2009 to USD400 billion by 2020

( Source: Task Force Report).

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IT AND ITeS INDUSTRY

The estimated production will reach USD 104 billion by the year 2020, creating a gap of USD

296 billion in demand and production. This creates a unique opportunity for companies in

the ESDM (Electronic System Design & Manufacturing) sector to look at India as their next

destination to cater to the domestic Indian demand as well as act as an exports hub.

Accordingly, the Government has started several initiatives for the development of

electronics sector in the country. The Government has recently approved National

Policy on Electronics (NPE). One of the important objectives of the NPE is to achieve a

turnover of about USD 400 Billion by 2020 involving investment of about USD 100 Billion

and employment to around 28 million by 2020. It aims at achieving a turnover of USD

55 Billion of chip design and embedded software industry, USD 80 Billion of exports in the

sector. Moreover, the policy also proposes setting up of over 200 Electronic Manufacturing

Clusters. Another important objective of the policy is to significantly upscale high-end

human resource creation to 2500 PhDs annual y by 2020 in the sector. India has become

the hub for semiconductor design with nearly 2000 chips being designed per year.

Annually India is generating nearly USD 2 Billion in revenues for the chip design services.

Several other policy initiatives have been approved providing very attractive financial

investment in electronics manufacturing and domestical y manufactured electronic

goods. The financial incentives are available not only for new units but also for units

relocating from abroad. Besides, when we speak of electronics, apart from covering

electronic hardware products in relation to IT and office automation, telecom, consumer

electronics, electronic components, etc. We cover a wide range of products relating to

verticals like solar photovoltaic, automotive electronics, medical electronics, avionics, LED

etc. To address the issue of infrastructure, a scheme for Electronics Manufacturing Cluster

provides 50% of the cost of upgrading infrastructure and logistics as grant in aid from

Government.

India has a vast pool of innovative and talented human resource. Our human resource

is our strength which we offer to an investor from abroad. We produce over 200,000

engineers every year. We also propose to enhance the number of post graduates and

PhDs in Electronics so that abundant manpower is available for Electronics industry to

grow and flourish.

Ø Incentive Schemes : Modified Special Incentive Package Scheme (M-SIPS)

To offset disability and attract investments in Electronic manufacturing, Modified Special

Incentive Package Scheme (M-SIPS) was notified on 27.7.2012. The scheme is available for

both new projects and expansion projects. The scheme provides capital subsidy of 20%

in SEZ (25% in non-SEZ) for units engaged in electronics manufacturing. It also provides for

reimbursements of CVD/ excise for capital equipment for the non-SEZ units. For some of the

high capital investment projects it provides for reimbursement of Central Taxes and Duties.

SECTION 2 – BUSINESS SCENARIO

31

The incentives are provided on reimbursement basis. The incentives were available for 29

electronic verticals. Units all across the manufacturing value chain are covered under the

scheme. For each of the product category, an investment threshold is prescribed which

an applicant has to incur for getting eligible for incentives. The investment threshold varies

from Rs 1 Crore to Rs 5000 Crores depending upon a type of project. The incentives are

available for 10 years from the date of approval. The scheme was initially opened for 3

years till 26-07-2015.

The scheme was amended on August 3, 2015. The salient amendments include (i) The

term of the scheme has been extended upto 27-07-2020. (ii) The scope of the scheme

has been extended to cover additional verticals. (iii) The procedure for grant of approval

has been simplified and streamlined. The incentives are now available for investments

made in a project within a period of 10 years from the date of application.

The M-SIPS require applicants to submit applications with Financial Closure (tied up funds)

for the project they propose to execute. The Financial Closure for a project, however, can

be given in phases.

SECTION 3

LEGAL FRAMEWORK

3.1 SECTOR TYPE

Proprietorship

Partnership

Companies- Private and Public

Foreign Companies Branch Offices

3.2 APPLICABLE LAWS

General Laws

• The Payment of Wages (Amendment) Act, 2017

• Equal Remuneration Rules, 1976

• Employees Compensation (Amendment) Act, 2017

• Maternity Benefit (Amendment) Act, 2017

• The Payment of Gratuity Act, 1972

• The Essential Services Maintenance Act, 1968

• The Inter-State Migrant Workmen (Regulation of Employment and Conditions of

Service) Act, 1979

Specific Laws

A) Information Technology Act, 2000

The legal enactment which governs the process and dissemination of information digital y

in India is the Information Technology Act, 2000. The Act along with its rules legalizes the

acceptance of electronic records and digital signatures providing a legal backbone to

e-commerce. The Indian Information Technology Act addresses the following issues:

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33

Legal Recognition of Electronic Documents;

Legal Recognition of Digital Signatures;

Offenses and Contraventions;

B) The Foreign Corrupt Practices Act of 1977 for US is important for lawful conduct of

business even at off-shore locations.

State Laws

The Information Technology Act, 2000 remains at the centre of all activities carried out by

various states in India. However, each state has the authority to incentivize the promotion

of ITeS by relaxing provisions of related laws to the extent possible as per constitutional

provisions.

3.3 CONCERNED MINISTRIES

MINISTRY OF ELECTRONICS AND INFORMATION TECHNOLOGY

The ministry has the mission to promote e-Governance for empowering citizens, promoting

the inclusive and sustainable growth of the Electronics, IT & ITeS industries, enhancing

India’s role in Internet Governance, adopting a multipronged approach that includes

development of human resources, promoting R&D and innovation, enhancing efficiency

through digital services and ensuring a secure cyber space. The Functions of the ministry

is mentioned below;

• Policy matters relating to information technology; Electronics; and Internet (all

matters other than licensing of Internet Service Provider).

• Promotion of internet, IT and IT enabled services. Promotion of Digital Transactions

including Digital Payments.

• Assistance to other departments in the promotion of E-Governance, E- Commerce,

E- Medicine, E- Infrastructure, etc.

• Promotion of Information Technology education and Information Technology-

based education.

• Matters relating to Cyber Laws, administration of the Information Technology Act.

2000 (21 of 2000) and other IT related laws.

• Matters relating to promotion and manufacturing of Semiconductor Devices in

the country excluding all matters relating to Semiconductor Complex Limited

(SCL).

• Interaction in IT related matters with international agencies and bodies e.g.

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IT AND ITeS INDUSTRY

Internet for Business Limited (IFB), Institute for Education in Information Society (IBI)

and International Code Council – on line (ICC).

• Initiative on bridging the Digital Divide: Matters relating to Digital India Corporation.

• Promotion of Standardization, Testing and Quality in IT and standardization of

procedure for IT application and Tasks.

• Electronics Export and Computer Software Promotion Council (ESC).

• National Informatics Centre (NIC).

• Initiatives for development of Hardware/Software industry including knowledge–

based enterprises, measures for promoting IT exports and competitiveness of the

industry.

• All matters relating to personnel under the control of the Ministry.

• Unique Identification Authority of India (UIDAI).

3.4 TRIBUNAL

Cyber Regulations Appellate Tribunal

(1) The Cyber Appellate Tribunal shall not be bound by the procedure laid down by the

Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural

justice and, subject to the other provisions of this Act and of any rules, the Cyber Appellate

Tribunal shall have powers to regulate its own procedure including the place at which it

shal have its sittings.

(2) The Cyber Appellate Tribunal shall have, for the purposes of discharging its functions

under this Act, the same powers as are vested in a civil court under the Code of Civil

Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely:

• summoning and enforcing the attendance of any person and examining him on

oath;

• requiring the discovery and production of documents or other electronic records;

• receiving evidence on affidavits;

• issuing commissions for the examination of witnesses or documents;

• reviewing its decisions;

• dismissing an application for default or deciding it ex parte;

• any other matter which may be prescribed.

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35

(3) Every proceeding before the Cyber Appellate Tribunal shall be deemed to be a

judicial proceeding within the meaning of section 193 and 228, and for the purposes of

section 196 of the Indian Penal Code(45 of 1860) and the Cyber Appel ate Tribunal shall

be deemed to be a civil court for the purposes of section 195 and Chapter XXVI of the

Code of Criminal Procedure, 1973 (2 of 1974).

3.5 REGULATORS

A) Department of Information Technology (DIT)

This department which is under the Ministry of Communications and Information

Technology is responsible for the formulation, implementation and review of national

policies in the field of Information Technology including hardware and software,

standardization of procedures, internet, e-commerce and information technology

education and development of electronics. Initiatives for development of Hardware/

Software industry including knowledge based enterprises, measures for promoting IT

exports and competitiveness of the industry are looked after by the Electronics Export and

Computer Software Promotion Council (ESC) and National Informatics Centre (NIC) along

with DIT. The Department of Information Technology undertakes the fol owing functions:

• Policy matters relating to Information Technology; Electronics; and Internet (all

matters other than licensing of Internet Service Provider).

• Promotion of Internet, IT and IT enabled services.

• Assistance to other departments in the promotion of E-Governance, ECommerce,

E-Medicine, E-Infrastructure, etc.

• Promotion of Information Technology education and Information Technology-

based education.

• Matters relating to Cyber Laws, administration of the Information Technology Act,

2000 (21 of 2000) and other IT related laws.

• Matters relating to promotion and manufacturing of Semiconductor Devices in

the country; The Semiconductor Integrated Circuits Layout Design Act, 2000 (37

of 2000).

• Interaction in IT related matters with International agencies and bodies e.g.

Internet for Business Limited (IFB), Institute for Education in Information Society (IBI)

and International Code Council - on line (ICC).

• Initiative on bridging the Digital Divide: Matters relating to Media Lab Asia.

• Promotion of Standardization, Testing and Quality in IT and standardization of

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IT AND ITeS INDUSTRY

procedure for IT application and Tasks.

• Electronics Export and Computer Software Promotion Council (ESC).

• National Informatics Centre (NIC).

• Initiatives for development of Hardware / Software industry including knowledge-

based enterprises, measures for promoting IT exports and competitiveness of the

industry.

• All matters relating to personnel under the control of the Department.

B) National Association of Software and Services Company (NASSCOM)

NASSCOM acts as an advisor, consultant and coordinating body for the IT-BPO industry in

India, and has played a key role in enabling the government in India to develop industry

friendly policies. NASSCOM was set up in 1988 to facilitate business and trade in software

and services and to encourage advancement of research in software technology. It is

a not-for-profit organization, registered under the Indian Societies Act, 1860. NASSCOM

has been proactive in pushing this cause for ensuring that the Indian Information Security

environment benchmarks with the best across the globe.

C) Data Security Council of India (DSCI)

It is a not-for-profit, industry body on data protection in India, setup by NASSCOM®,

committed to the making of cyberspace safe, secure and trusted by establishing best

practices, standards and initiatives in cyber security and privacy. To further its objectives,

DSCI engages with governments and their agencies, regulators, industry sectors, industry

associations and think tanks for policy advocacy, thought leadership, capacity building

and outreach activities.

D) Regulatory Environment for IT Governance and Ethics

Organizations face an ever-increasing list of statutory, regulatory, contractual and legal

compliance obligations. Compliance issues concern the board, not just the IT department,

and include issues of Data Governance, the Data Protection Act, Operational Risk,

Information Security, Best Practice and Basel II/III.

The Government’s IT/ITeS Sector Skill Council (SSC) is facilitating the expansion of the

skill workforce with the help of National Association of Software and Services

Companies (NASSCOM). A few of them include:

• “Policy on Adoption of Open Source Software for Government of India” by

Department of Electronics & Information Technology under the Ministry of

Communication & Information Technology.

SECTION 3 – LEGAL FRAMEWORK

37

• GST specific guidance for types of business in IT-ITeS domain.

• National Policy on Universal Electronic Accessibility.

• National Digital Communications Policy 2018.

International Centre for Information Systems and Audit (ICISA) is the International Training

Centre of the Comptroller and Auditor General of India.

Compliance and Best Practices

ISO 27001, ITIL® and COBIT are all potentially part of a best-practice approach to

regulatory and corporate governance compliance.

The challenge for many organisations is to establish a coordinated, integrated framework

that draws on all three of these standards. The Joint Framework, combining COBIT and

ITIL, is a good starting place. COBIT is a globally recognised framework, developed by

ISACA®, to help organisations govern and manage IT efficiently.

COBIT 5 is based on five principles that are essential for the effective management and

governance of enterprise IT:

• Principle 1: Meeting stakeholder needs

• Principle 2: Covering the enterprise end to end

• Principle 3: Applying a single integrated framework

• Principle 4: Enabling a holistic approach

• Principle 5: Separating governance from management

Australian Standard for Corporate Governance of Information and Communication

Technology

The standard provides a framework for “Directors”, those to whom they turn to for advice or

those to whom they delegate to take responsibilities for managing the security, finances,

IT strategy and operations of the organization, such as senior managers, technical

specialists, vendors and service providers, to meet their obligations for the use of ICT in

their organizations.

SECTION 4

CONTRIBUTION OF COMPANY SECRETARY

4.1 INTRODUCTION

The BPO sector seems to have opportunities which can be capitalized by the company

secretaries as wel . Apart from the work relating to the mergers & acquisition in BPO sector

and Income Tax related mat ers, provisions of FEMA are also quite involved as more and more

foreign multinational companies are entering into this sector, where role of the professionals like

company secretaries comes in the picture. Besides, as far as practicing company secretaries

are concerned, in the words of outsourcing they are out and out third party service providers.

The services rendered by them e.g. consultancy services, secretarial audit, various certifications,

reports, issuance of various certificates, etc. and other mat ers relating to corporate laws are

generaly outsourced by the corporate on a large scale.

4.2 ROLE OF COMPANY SECRETARY

Company Secretaries may play a vital role in the IT/ITeS industry in the areas of Drafting,

Vetting of al types of Corporate Legal Agreements such as Supply Agreement, Non

Disclosure Agreement, Service Level Agreement, Memorandum of Understanding, Lease

Agreement, Sale Deed, Power of Attorney, Affidavit, Indemnity bonds and any other legal

agreements required by a public company.

Some roles for CS are being presented below:

A. General

1. Leading, managing and inspiring a team of over contract review attorneys who

are individually responsible for multiple client accounts and personnel

2. Guiding project managers with engagement set-up during the implementation

stage, and retaining general oversight in the day-to-day functioning and

management of engagements in a steady state

3. Working with senior subject matter experts on foundation level training

programmes for new hires, and ongoing training and skill development of

other team members

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39

4. Train team members on processes including contract review and management

B. Compliance with Standards

Company Secretary can efficiently car y out compliance and oversee that the

operations are being carried out with accepted standards. ISO/IEC 30105 Standard

has five parts and each part has to undergo bal oting process at every stage.

1. ISO/ IEC Standard Title ISO/IEC 30105-1 Information Technology – IT Enabled

Services – Business Process Outsourcing (ITES-BPO) lifecycle processes – Part

1: Process reference model

2. ISO/IEC 30105-2 Information Technology – IT Enabled Services – Business

Process Outsourcing (ITES-BPO) lifecycle processes – Part 2: Process

assessment model

3. ISO/IEC 30105-3 Information Technology - IT Enabled Services – Business

Process Outsourcing (ITES-BPO) lifecycle processes – Part 3: Measurement

framework and organization maturity model

4. ISO/IEC 30105-4 Information Technology – IT Enabled Services – Business

Process Outsourcing (ITES-BPO) lifecycle processes – Part 4: Terms and

concepts

5. ISO/IEC 30105-5 Information Technology – IT Enabled Services – Business

Process Outsourcing (ITES-BPO) lifecycle processes – Part 5: Guidelines

C. Legal Processes Outsourcing

1. Managing processes on drafting motions and petitions for the organization in-

house attorneys based at foreign Headquarters

2. Managing processes on auditing Law firms hired by the organization at the client

location to help collect debt in the US

3. Managing processes on providing Para-legal support to the Corporate Legal

Team at the client location for litigation filed against it

4. Providing legal research support on related law and issues

D. Strategic Decision-making

1. Develop Request for information, Request for proposal , Request for

quotation, Scope Of Work, KPIs and SLAs for all major areas of spend utilizing

company procedures and templates.

2. Develop negotiation strategies and drive negotiations to achieve stated

goals and objectives

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IT AND ITeS INDUSTRY

3. Negotiate contracts with suppliers on price, lead time, quality and service

for multiple services and commodities. Contracts may be Global/local/

regional in nature and must meet established quality standards, availability

requirements and price constraints as per corporate annual operating plan

4. Champion the continuous improvement activities within Contract

Management and Purchasing by coordinating six sigma process

methodologies to optimize the customers resources in the most effective

manner.

5. Work closely with Technology team to ensure an understanding of program/

project level SLAs, policies and procedures relative to the procurement

activities at hand, and facilitates seamless communications with said parties

before and during sourcing actions.

6. Lead all contract management/purchasing regulatory and compliance

activities including development of policies and procedures; review and

testing of control procedures to ensure their effectiveness; review and testing

of compliance with Supply Chain department policies and procedures.

7. Ensure controls are effective relative to third party service providers through

review of reports and other documents; and through development of other

audit controls; and periodic testing to ensure all controls are effective.

8. Manage Internal and Statutory Audits with highest possible level of

compliances.

E. Role in Intellectual Property Rights, Patents and International Laws

1. Preparing Shel s for Amendment Replies to Office Actions of Patents and

Trademark offices of the client location

2. Processing and getting through Patent Applications as Directed by Patents

and Trademark offices of the client location

3. Preparing correspondence to sensitize and make the clients aware about

the phases involved in Patents and IPRs

4. Preparing formal and finished documents for client approvals

5. Providing supportive back-ups from legal and compliance perspective or

Patent Engineers

6. Imparting training to the unit on familiarity international data protection

requirements, Patents and IPRs

SECTION 4 – CONTRIBUTION OF COMPANY SECRETARY

41

7. Imparting training for incorporating & integrating new businesses into

operations

8. Imparting training on International legislation pertaining to IT/ITeS. The Foreign

Corrupt Practices ACT of 1977 for US is important for lawful conduct of

business even at off-shore locations

9. Imparting training on compliances like Anti –Bribery/ Anti-Corruption Solutions

thorough conduct of session of Corruption Perception Index which is an

important facet of vendor management and third party contracts.

F. Company Secretary for IT Governance

A Company Secretary should ensure information technology issues make the

boardroom agenda just like any other enterprise risk. When information technology

items on the agenda require expertise that is not widespread on the board, the

company secretary should suggest a pre-discussion takes place. That way, he

adds, the boards knowledge can be brought up to a level in which an informed

debate can take place or a decision can be made. A Company Secretary should

seek ways to introduce a technology expert to the boardroom as a catalyst to

support more meaningful discussions.

Information technology has increased the efficiency of corporate secretarial

departments thorough the following:

1. Electronic statutory filing (e-filing)

2. Corporate information databases, and

3. Board portals.

Board portals provide company secretaries with a invaluable tool for secure

distribution of information which, in the current climate, would otherwise be very

difficult to achieve with a comparable level of security. A board portal is software

that allows for secure digital communication between members of a board

of directors including the corporate secretary. Board portals typically include

messaging features, voting tools, meeting and agenda features and other tools to

help make communication as seamless as possible. The company secretary can

help boards to understand technology. There is a role in coordinating induction

programmes and ongoing training and development for directors. It can ensure

that directors are aware of and understand both new and emerging technology

opportunities, as well as threats if the business doesn’t adapt to take account of

such technologies.

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Checklist of Activities for IT Governance

Ø Defining the meaning of governance in organization and identify where IT

Governance fits

Ø Achieving broad understanding of IT governance issues and benefits across

al stakeholders

Ø Publish and gain initial acceptance of an IT Governance framework, tools

and processes

Ø Completion of an initial gap analysis against best practice – to demonstrate

where IT is.

Ø Governance is already in place and to highlight areas of focus for the

roadmap

Ø Creation of a Project Initiation Document (PID) and/or Terms of Reference

(ToR) that has the support of stakeholders

Ø Creation of a Project Plan with definition and prioritization of the initial IT

Governance project deliverables

Ø Alignment of the IT Governance Initiative with business objectives/strategy

G. Role in Government Initiatives

IBPS scheme and NEBPS is going to see a number of new organizations being

set up. Al these organization will not only need governance consultancy but

also managerial guidance as how to perform will in the ITeS domain. As the

IBPS scheme is aimed at even distribution of ITeS work across India it will give

opportunity for Company Secretaries across India to play a vital role by sharing

professional acumen with the new organization which perhaps may be looking

for guidance from governance professionals.

BIBLIOGRAPHY

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BIBLIOGRAPHY

http://meity.gov.in/content/software-and-services-sector

http://meity.gov.in/content/export-promotion-schemes

http://meity.gov.in/content/statistics

http://meity.gov.in/content/industrial-promotion-activities

http://meity.gov.in/content/schemes-policies-electronic-hardware

http://meity.gov.in/electronic-hardware-schemes

http://meity.gov.in/electronic-hardware-policies

http://meity.gov.in/electronic-hardware-policies#IAP

http://meity.gov.in/electronic-hardware-policies#FIP

http://meity.gov.in/electronic-hardware-policies#FP

http://meity.gov.in/electronic-hardware-policies#FTP

http://meity.gov.in/writereaddata/files/Task_Force_Report-new_21211(2).pdf

http://bis.org.in/other/ISO_30105_BPS.pdf

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IT AND ITeS INDUSTRY

Document Outline

Contents

IT and ITeS Industry