Contents
Author: Ravi
Date: 2019-01-10T10:41:27.850542+00:00

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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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.

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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

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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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Document Outline

- Contents

- IT and ITeS Industry

Table of Contents

- Contents

- IT and ITeS Industry