Stung by rising rupee, IT firms move to smaller cities

NEW DELHI: Indian IT companies are relocating to smaller cities, as the unabated rise of the rupee against the US dollar continues to eat away at their profits, said an Assocham report.

Additionally, the Software Technology Park of India (STPI) scheme, which provides various tax concessions for the IT and ITeS companies, is expiring in March 2009.

This is also serving as a reason for IT and ITes firms to shift base, according to the 'Outsourcing Industry Strategies to Counter Appreciation of Rupee' report by the Associated Chambers of Commerce and Industry of India (Assocham).

More and more IT companies are relocating to tier-II and tier-III cities such as Lucknow, Kochi, Varanasi, Mohali, Jamshedpur, Allahabad, Chandigarh, Dehradun and Mysore to lower operational costs by about 15 percent.

The trend is particularly noticeable among BPO units based in Gurgaon, Bangalore, Hyderabad, Delhi, Noida, Chennai and Kolkata, the report said.

It urged extension of the STPI scheme benefits for another 10 years so that technology exporters can avail of tax incentives, which would enable them to meet their export targets and sustain the growth momentum.

Citing examples of other countries such as China and the Philippines, which are offering significant tax concessions to attract global companies, Assocham said India should not be lagging behind, as it is regarded as one of the most preferred outsourcing destinations in the world due to low labour costs and large talent pool.  

Without the extension of tax benefits, the Indian IT-ITeS industry, which is expected to provide employment to 10 million people by 2010, would be adversely affected, the report pointed out.

Shifting of IT firms to smaller cities, the Assocham said, however augurs well for development of these places and is expected to create 200,000 jobs in the next two years.