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STPs one up on SEZs

Through all convolutions the SEZ idea has been in past few months, a lot is still not clear, writes Ganesh Natarajan.

india Updated: Dec 12, 2006 17:47 IST

The late Pramod Mahajan, India's first minister for Information Technology used to joke that the country's first two sectors that really became world class were IT and beauty and both thrived because of the absence of a ministry to regulate or direct them. Mahajan himself did a lot for the industry and his successors have demonstrated that a mature industry only needs enabling policies and the elimination of roadblocks to go from strength to strength.

Call it vision or just an inspiration, but the Government of India's Software Technology Parks (STP) scheme has been one of the key enablers for this success. The knowledge sector succeeds when a few bright individuals with a great idea can set up shop in their garage a la Infosys which started in an apartment in Pune or indeed Google, which was the brainchild of a couple of Stanford graduates. The elegance of the STP scheme is that it enables such entrepreneurs to avail the same tax benefits that their bigger brethren can enjoy in their large buildings and campuses.

Through all convolutions the SEZ idea has been in the past few months, a lot is still not clear but some of the glaring problems that it has confronted the IT sector with are:

• Land Requirements - Maintaining a 25 acre land area does not make sense for IT companies, as this industry is not land-based, it is all about people, and people can work in vertical buildings or ideally from geographically dispersed locations
all over the world.

• Proximity to Cities: An SEZ scheme's primary objective is encouraging employment and investment, for which they need to be located closer to cities, but ironically, because of land requirements, SEZs are seeing a move away from cities. This leads to increase in transportation and social overhead costs, and adds long hours spend in commuting for employees. For a non-polluting industry, forcing people to work far away from their homes makes no sense at all.

•Bias towards Larger Companies: SEZ regulations are not a practical option for smaller companies, who will be unable to afford such large land requirement and will need to lease a part of an SEZ in order to avail benefits, at exorbitant costs.

•Prevention of Dispersed Development: SEZs will become a concentration of wealth at centres. We are already seeing larger companies rushing to SEZ's, which may lead to a concentration of development. This will further skew development and regional imbalances.

If STPs are given SEZ status, it would work best for the industry and still retain the SEZ concept as the vehicle of India's globalisation. The biggest benefit is that being virtual, it is not limited to a physical location. This enables the industry to grow and go to wherever there is talent, entrepreneurship, or a conducive environment. Thus it decentralises and disperses development. With the problems of digital divide looming large, a dose of rationality would go a long way in enabling the industry to continue to blaze new trails in the world of Information Technology.

The writer is Chairman of the NASSCOM Innovation Forum for 2005-07 and the Deputy Chairman & MD of Zensar Technologies Ltd.

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First Published: Dec 12, 2006 17:47 IST