Indian Govt. may come out with a national policy for software products

NEW DELHI: The Indian software products sector — for long obscured by the shadows of the IT industry and the recent ecommerce phenomenon — could finally get its place under the sun. The government is working on a national policy for software products.

The policy will take a comprehensive view of the sector and try to fix some longstanding issues pertaining to international tariffs, taxation and R&D among others that have been scuttling the industry’s growth, two people aware of the development said.

The policy is aimed at providing the sector the “due recognition” it deserves, said a government official involved in discussions over the initiative. “The first draft of policy in the form of a consultation paper is ready and will be circulated soon for industry consultation,” the person told ET on condition of anonymity.

The policy is a longstanding demand from the tech industry, which has accused policymakers of stepmotherly treatment of the software products segment. Sharad Sharma, former CEO of Yahoo India R&D and cofounder of iSPIRT, said the think-tank has been pursuing the cause of making India a product nation for many years now. “The value nowadays lies in products, not services,” he said, citing the example of Microsoft that generates more profit that the top 20 pure-play global IT services firms.

According to estimates, Indian software product industry index grew by 26.6 per cent annually in 2015. And 80 per cent of this growth has come from companies focused on global markets.

New companies like Druva, Freshdesk, Capillary, Nandan Nilekani-backed Team Indus, Forus Health, Julia (an open-source language out of Bengaluru and the MIT) and car firm Savari are some torchbearers of this industry.

NRK Raman, cofounder of i-flex, one of the most popular banking products to be developed out of India (now part of Oracle), believes that whatever growth the sector has seen has been due to heroic efforts and perseverance of the entrepreneurs.

“We are seeing huge number of product companies come up in the last 12-18 months, now is the time for the government to get its act together,” said Raman, who has invested in half a dozen tech companies himself.

While the department of electronics and information technology already has in place policies for the IT sector and electronics, it will be the first time that it is drafting a policy document specifically on software products.

Other than the broad strokes mandate of developing a conducive ecosystem for software products, the policy is looking at addressing some longstanding concerns.

For example, the industry has been seeking clarity from the government on whether digital goods will be taxed as a product or a service.

Even the proposed goods and services tax (GST) does not have a definition for digital goods. The confusion has led to digital product downloads off the internet being treated as both products as well as services, and companies have to pay dual taxes on them.

Software product companies also suffer from over regulation, especially when it comes to recurring payments. For instance, companies that provide software-as-a-service (SAAS) can’t process payments from their Indian clients on a monthly basis without an authentication each time, according to RBI guidelines. Similarly, they need to set up different accounts for each of these customers in order to process refunds.

Sangeeta Gupta, senior vice-president at Nasscom, said the focus of the proposed policy is on enabling ease of access for software products including the domestic market.

“In a lot of government projects, departments are mainly procuring MNC products so the Indian software products need to be given a level-playing field,” said Gupta.

She added that access issues pertaining to working capital also need to be addressed since not everyone can get access to venture capital funding along with those of double taxation and recurring payments need to be addressed.

“The consultation paper which has been floated is at a very initial stage right now and we hope we can address some or all of these issues,” Gupta said.