Draft National Policy on Software Products, 2016

The government has recently formulated a Draft National Policy on Software Products-2016 and has been put in public domain here for comments/views on the same. This policy is based on the premise that the future of software industry would leverage the complimentary strength of the digital products and services, and there is a need of a national policy around software products to provide further impetus to the software sector in the country. We note that first such policy was released by Indian government back in 1986.

Key Highlights

The key highlights include: creation of 10,000 tech start-ups; create 35 lakh jobs by 2025; 10 fold increase in India’s share in global software market; creation of an Interministerial group dedicated to software development industry; creation of a pool of 1 lakh software professionals by 2025; setting up Rs. 100000 crore fund of funds; friendly tax atmosphere; preference to domestic software development companies in government procurement and E-governance services;  30 dedicated entrepreneur parks in Tier-II and Tier-III cities; launching of a Software Product Industry Research Programme (SPIRP) etc. The policy ultimately lets us know that the government is soon to launch a National Software Product Mission with the industry participation.

Vision

The vision of this policy is to drive the rise of India as a “Software Product Nation”. With the synergy of the ITES sector, it wants to place India has leading player as “creator, producer and supplier” of innovative Software Products globally.

Mission

Its mission includes:

• To promote creation of sustainable software industry leveraging India’s strength in IT;
• Create conducive environment for creation of 10,000 tech start-ups, which would develop globally competitive software products and generate employment for 3.5 million people.
• To support software industry via ease of doing business, enhanced market access and improve R&D and innovation.
• To make efforts to create a 10 fold increase in the share of Global Software product market by 2025 by promoting easy access to domestic and international markets.
• To create an specialized talent pool of one lakh professionals by 2025 in software industry.
• To develop absorptive capacity in domestic market and develop linkages with other sectors including core & social infrastructure.
• The above objectives and missions are to be achieved via some of the strategies as follows:

Strategies

The draft policy has come up with some strategies as follows:

Ease of doing business

The government will set up an Inter-ministerial Group for this strategy. On the basis of recommendations of this group, government will be leveraging the Start-up India initiative; Easing and making online the process of incorporation and winding up of a software product company; creation of a single window online platform through STPI {Software Technology Parks of India} for setting up and winding up of software product enterprises. The policy also calls to create parameters to define Software Products, Digital Products and Goods, Software Products and Company etc. via a consultation product.

Funding, Seed Funding and Stock Options

Under this strategy, the policy has called for removing the bottlenecks in availability of funds, seed capital or angel investments. Another worth mention thing is making available an easy employee stock option regime of Fund of Funds of Rs. 1 Lakh crore under the Electronic Development Fund. Further, an innovation fund is also to be created by the finance ministry exclusively for domestic software product industry.

Employment Generation

The policy calls for creation of 35 Lakh direct and indirect jobs by 2025 via various ways under a proposed “Software Product Policy”. It also calls for aligning the National Skills Mission with the need of software product companies.

Tax on Software Products

As far as taxation is concerned, the policy calls to ensure and promote easy, fair, neutral and transparent tax regime for software products. It highlights the need to demarcate tax regime for “Software Products” from “Software Services” by providing clearly defining software products as intangible goods delivered online or physically.

Trade Promotion

With respect to trade promotion, the policy calls for focus on Indian software products in international trade development programmes.

Improving access to Domestic Market

Under this, the policy calls for – (1) development of an enabling framework for inclusion of Indian software product in government procurements (2) development of a cloud based infrastructure for Indian software products having applications in E-government. (3) provide special incentives to companies developing solutions under Digital India (4) promote software products in emerging sectors such as smart cities, smart agriculture, e-learning etc. (5) promote use of Indian software in strategic sectors such as defence, atomic energy, space, railways, telecom etc. (6) promote use of open APIs and Open Data in E-Government services (7) to develop a seamless electronic payment infrastructure (8) increase access of domestic software industry in MSME sector.

 Incubators and Competitive Clusters

This strategy calls for setting up of specialized incubators for Software development start-ups. The policy also calls for setting up 30 dedicated entrepreneur parks spread in Tier II and III towns.

R&D Credits, Grants and Challenge Grants

The policy proposes to create an enabling environment for innovation, R&D and IP creation and protection leading to a globally competitive ecosystem.

Training and Education

This include promotion of Indian SaaS (Software as a service), cloud infrastructure,  data analytics, IoT (Internet of Things) and mobile solutions. The policy proposes special emphasis on cloud computing, usage of E-commerce, Information security, real time social media etc.

For R&D in software development – the policy calls for creation of a Software Product Industry Research Programme (SPIRP), which shall focus on building strategic technologies at IISc, IIT and IIIT institutions.

Implementation

For implementation part, the policy says that Government (MeitY) will launch a National Software Product Mission with industry participation.

Current Status and Analysis

At this point of time, the above policy is a draft and getting comments from people all over. As we shall witness the launch of a national mission after some time, we can analyse the current draft in the light of below questions:

• What is current status of India’s software product industry in global market. Is the 10 fold increase in global market share achievable?
• What is needed for achieving the planned targets?

What is current status of India’s software product industry in global market. Is the 10 fold increase in global market share achievable?

Currently, the software product industry accounts for 1.48 percent of global market. Total revenue of software product industry in India is $6.1 billion, while software product industry is estimated to be $411 billion globally. The 10 fold increase in 9 years is not a pipedream. India has traditionally enjoyed several advantages of its human capital due to its being a former British colony (English as lingua franca of IT industry); and India’s early investments made in modern engineering education and research. India’s first software policy in 1986 had resulted in  the Software Technology Park (STP) scheme in 1991 and that policy was highly successful. Today, IT industry accounts for close to 9% of India’s GDP. However, in all these years, there have been tectonic shifts in global ground realities and India’s early advantage is eroding fast. In these years, China has developed as a hub of global hardware production, while East Asian tigers have flourished in service as well as manufacturing related to IT industry. The country is producing half a million engineering graduates every year but bulk of them are not employable.

What is needed for achieving the planned targets?

The policy has suggested 10 proactive strategic action areas. All of them are equally important for development of the product ecosystem. The industry development needs ease of business, funding, research and development, domestic demand boosters and frictionless trade and tax regimes. If the action plans such as schemes, programmes, missions and incentives are done properly, there is no doubt that India can really become a software product nation.