In what is a first of its kind concession to incentivise IT companies to move to tier-II and tier-III cities, the State government in its annual budget has announced an initial corpus of Rs. 10 crore to be used to reimburse Provident Fund and Employees’ State Insurance scheme for new jobs created by the sector.

As a follow up of the recently announced State IT policy, Chief Minister Siddaramaiah announced the setting up of skills development societies, which will play a vital role in incentivising creation of jobs. It was announced that the societies’ funds will be used to reimburse Rs. 2,000 per month per employee for a period of two years for all IT businesses that are set up in tier-II and tier-III cities.

The incentive structure is unique in being directly related to jobs and job creation, unlike previous policies that have centred around concessional rates on land and tax sops.

Speaking to The Hindu, State IT Minister S.R. Patil said he hopes this will encourage IT companies to expand into cities outside Bangalore. “Bangalore is too congested. We need IT exports to grow and the growth must be in tier-II and tier-III cities. Together with concessional rates for land, we hope this will encourage smaller investors,” Mr. Patil explained.

Further, he said with 10 lakh direct jobs, the IT sector was the largest employer in the State.

“After the growth spurred by S.M. Krishna’s millennium policy, there has been stagnation. This will fuel the next round of job creation,” he said. The IT and BT sector has been allocated Rs. 200 crore in the budget.

Experts’ views

Industry representatives say that the PF and ESI reimbursement will benefit companies in the IT-enable services (ITeS) sector. Welcoming the fund allocation for this, chairperson of the government-appointed Karnataka ICT group Mohandas Pai said this is significant as it has, for the first time, incentivised job creation rather than capital. “This is a process of encouraging job creations which is verifiable. This is a substantial investment. Say for a BPO employee, who makes Rs. 15,000 per month, a PF/ESI sop of Rs. 2,000 amounts to almost 15 per cent of the cost to company. That’s a good incentive for smaller players, which need a leg-up,” Mr. Pai said.

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