Background
Several states in the country have stepped up their IT game over the last decade by coming up with progressive, forward-looking and incentivising policies, including Gujarat, Haryana, Karnataka, Maharashtra, Uttarakhand and Chhattisgarh.
Himachal Pradesh is the latest State to join their ranks come out with an IT, ITes(IT-enabled services) and Electronic System Design Manufacturing(ESDM) policy. This article is an attempt to assess the policy in a holistic manner and explore how it can be a real win for the State and its growing IT entrepreneurial community.
To begin with, it is heartening to note that the Department has envisioned a 360o view of enabling IT development in the State by mapping the policy objectives towards fuelling IT investments, infrastructure, manpower, startups and entrepreneurs, e-governance and ease of doing business in the State.
Progressive Outlook and Generous Incentives
Let us now delve deeper into the incentives and stimuli offered by the policy. It is reassuring to note that the policy of Himachal Pradesh fares at par or better than similar policies adopted by other states and neighbouring countries of India.
For instance, affordable power/subsidy, skilled manpower incentives, subsidy on quality certification, land banks, promoting data centres, and e-governance are some of the areas where the policy offers comparable incentives in line with the offerings by the policies of the aforementioned states and neighbouring countries.
Lease Rental Subsidy, which is proposed to be 75% (up to Rs 15 lacs) for the first year and 85% (up to Rs 20 lacs) for the first year for Green Data Centres compares well with that of Uttarakhand and Gujarat.
With regard to tax benefits, Himachal Pradesh has put forward 100% reimbursement of Net SGST for 7 years, unlike Gujarat where there is a limiting upper cap on SGST reimbursement, the flat 5 years exemption in Uttarakhand, or the minimum floor rate charged in Maharashtra.
Along with attractive Interest Subsidy and Capital Subsidy, in view of the transportation challenges arising in Himachal’s hilly roads, the draft has further offered 50% Assistance for Transportation of Plant and Machinery (up to Rs 7 lacs).
Environment Protection support to entrepreneurs through funding 25% of ETP/ETF expenditure (up to Rs 3 lacs) and 50% of power tariff for running the ETP (up to Rs 1 lac per year for 4 years) puts the policy’s environmental lens in good perspective, as opposed to Gujarat where such support is glaringly absent. In comparison, Uttarakhand offers a significant one-time capital subsidy of Rs 50 lacs, but only for ETF.
Another boost to IT innovation in the State has been the provision for assistance for patent filing/IPR which is reimbursed up to Rs 5 lakhs or 75% of actual expenditure for domestic patents up to Rs 10 lakhs or 100% of actual expenditure for international ones. Overall, it seems like a great first step towards supporting Himachal entrepreneurs and innovators in protecting and capitalizing on their innovation.
Painting The Big Picture – What’s Missing?
Thus, prima facie, the policy pans out well in comparison to comparable policies already in place and doles out substantial benefits, generous incentives and attractive stimuli which could be perceived as a major step in the direction of meeting its objectives over the next five years.
However, it is impossible to overlook the deeper realities of Himachal Pradesh that threaten to compromise the efficacy of the policy significantly, especially in the long-run. A case in point is the series of assumptions underlying the policy, one of which is the abundance of skilled manpower in the State.
Skilled Manpower in Himachal Pradesh – Reality or Myth?
While it is true that the State is home to several prestigious institutes such as IIT Mandi, NIT Hamirpur and IIM Sirmaur these are hardly entirely consisting of Himachalis. On the whole, the availability of a skilled workforce in the State is rather dire, especially when considered in the context of employability in the IT sector.
Aside from academic and professional eligibility, the sheer lack of awareness on appropriate work ethics, acceptable workplace behaviour, the lacklustre attitude on professional commitment and delivering responsibilities on time, and even the basic ability to have a dialogue and negotiate is starkly missing among the State’s youth.
Bridging the Manpower Gap
Upgrading the Education Curriculum to Meet Industry Needs
The IT sector is one domain that hinges on exports to be profitable and scalable – but unfortunately, the majority of the workforce in the State is neither IT-ready nor groomed appropriately to interact with foreign clients. Those who do attain higher education, professional training and soft-skills up-gradation are drained out of the State through out-migration spurred by the lack of opportunities in the State to climb the ladder or innovate profitably at scale.
Unless the State Government gives due attention to the upliftment of the curriculum and bringing it in sync with the industry requirements, and unless it takes the responsibility of training teachers who will deliver such curriculum, Himachal’s IT dreams are bound to crumble.
The questions one needs to ask are – Which are the jobs of the future? What skills do these jobs necessitate? How can these skills be imparted? Once skilled and trained, how can our workforce be adequately incentivised to remain in the State and boost our GDP? IT is a sector that is heavily reliant on quality manpower to become successful, and if we ignore this simple truth, it will have to be at our own peril.
Empowering & Incentivising IT Entrepreneurs to Carry Out On-the-job Training & Up-skilling
Until the necessary changes in curriculum and industrial training are ushered in, the State Government can also be proactive in bridging the current gap in manpower by stimulating enterprises who are ready to train the youth on-the-job and make them industry-ready. Given that even the workers churned out by the skill development centres in the State require substantial training and grooming by the entrepreneurs before they start adding any value to the enterprises.
Apart from running skill development centres, the state can look at providing incentives to IT businesses in the state towards hiring and training of interns by such business. Upon successful completion of their internship, such candidates can be offered jobs within such enterprises.
The government can share the burden of conducting such on-the-job training for 6 months to 1 year with the entrepreneur. Sharing the burden on a 50:50 or 60:40 basis by the State Government will incentivise entrepreneurs to take such calculated risks while still remaining accountable for such risks.
Small Entrepreneurs Need State Support to Boost Himachal Pradesh’s Growth Story
It is critical to take cognisance of the fact that Himachal Pradesh’s IT landscape cannot be perceived as identical to that of Karnataka, Maharashtra, Gujarat or the likes, where large IT corporations can mushroom and thrive overnight.
The State is ridden with a manpower shortage, infrastructure woes and the situation is further aggravated by its precarious hilly terrains, making it more realistic to promote IT entrepreneurship through clusters of many small to medium businesses, instead of a handful of large corporations. Given this reality check, what does the policy have to offer to the small entrepreneur ecosystem? Unfortunately, not much as yet.
The first step in this direction would be to take stock of the challenges faced by small and medium entrepreneurs in the State. Suboptimal condition of manpower aside, the State is severely constricted in terms of availability of such basic amenities such as affordable co-working spaces across the main cities of the State and a general lack of robust IT infrastructure such as universal availability of reliable telecom and internet networks.
Provisions to complement IT parks with plug-and-play co-working arrangements along with omnipresent and reliable network & connectivity would go a long way towards enabling the burgeoning community of small entrepreneurs.
Making Market Access a Reality at the Grassroots Level
Secondly, while the draft does bring up the issue of market access and earmarks incentives for the same, small entrepreneurs in Himachal Pradesh cannot gain real access to market unless there are opportunities created by the State to help entrepreneurs pitch in various national and international events and gain the attention of the world.
The State and its entrepreneurship talent need to be showcased to the world in order to invite investments, partnerships and projects. The State can also take the initiative in launching its own set of networking and showcasing events for its entrepreneurs, especially in the IT domain.
Procurement Preference to Local Entrepreneurs
Lastly, the policy needs to be clearer and sharper in its provision to confer local preference to Himachali entrepreneurs.
One way to ensure local preference would be to give procurement preference to entrepreneurs in the state. Various Government projects, IT infrastructure initiatives, eGovernance solutions, and so on, should award preference of procurement to local IT entrepreneurs who have the capability and can offer competitive or near-competitive pricing. In case of a mega-scale project, multiple small entrepreneurs can be awarded projects in clusters or groups.
Even when a project is awarded to a non-local entity, the State can mandate that such non-local corporations should necessarily onboard Himachali entrepreneurs as local partners with adequate in-project incentivisation. This will be a great opportunity for fledgeling entrepreneurs to learn from the experience and imbibe expertise, cross-cultural training and export orientation while getting a significant boost on the cash flows.
Fostering Local Innovation
The mechanism of such preference becomes particularly critical where the Government is the sole buyer of the product or service such as need for creating some social impact. The preference process can commence right at the inception of the pipeline where innovative ideas are being generated through startup incubators and entrepreneurship cells of leading institutes of pedigree in the State.
The State can have in place a policy on accelerating IT, ITes and ESDM innovation by absorbing them into the State machinery such that a suitable price is preempted between the State and the innovator. To keep the process fair, the State can open applications for bidding on tenders once the proof-of-concept is attained while giving the innovator a chance to match the lowest bid and guaranteeing a reasonable amount as compensation in case the innovator is unable to do the same.
This way, the State Government can prevent the IT ecosystem and innovation economy in Himachal from suffocating and stifling, and instead generate a multiplier effect by empowering competent entrepreneurs and innovators.
Concluding Note
In conclusion, while the draft policy looks promising & progressive, to ensure a level playing field for IT entrepreneurs of Himachal Pradesh it has to account for the lack of skilled manpower in the State, initiate partnerships to help showcase Himachal’s IT talent at national & international events, address the needs of small entrepreneurs through innovative solutions like co-working arrangements, establish a clear mechanism to award local preference by giving priority to local entrepreneurs and IT solution providers as well as taking the lead in boosting local IT innovation by minimizing the risks of local innovators.
The road to success lies through mitigation of these overarching problems and ignoring them will drastically reduce the chances of the policy attaining its stated and implied objectives over the next five years.