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The End of Inspector Raj in India’s IT Sector

  • IASbaba
  • November 7, 2020
  • 0
UPSC Articles
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ECONOMY/ GOVERNANCE

Topic: General Studies 2,3:

  • Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment
  • Government policies and interventions for development in various sectors and issues arising out of their design and implementation. 

The End of Inspector Raj in India’s IT Sector

Context: The Centre did away with the onerous Other Service Provider (OSP) regulations and issued new guidelines for the IT/ITeS industry. For an industry that employs close to 50 lakh people, this is a significant development.

What are Other Service Provider (OSP)?

  • OSPs are entities providing applications, IT-enabled or any kind of outsourcing services using telecom resources. The term refers to BPOs, KPOs (knowledge process outsourcing), ITES, call centres, among others.
  • In other words, OSPs are companies using telecom resources for its operations like tele-banking, tele-medicine, tele-trading, e-commerce, call-centre operations etc
  • OSP regulations was introduced in the 1990s when business process outsourcing (BPO) started in India and the Indian telecom industry was going beyond BSNL.
  • The government then introduced OSP terms and conditions to help the industry grow and ensure that they don’t suffer due to lack of resources. 

What was the earlier regulatory regime for OSPs?

  • The conditions included registrations for OSP licence, frequent reporting obligation to track the BPO firms and bank guarantees.
  • What started as a facilitator became a burden as the industry grew over years.
  • For instance, a company applying for a licence should pay a bank guarantee of Rs 1 crore per office. So, if the company has 76 offices, it should pay Rs 76 crore as bank guarantee. While a large firm can afford this, it is a burden on smaller companies.
  • For companies that were evaluating whether or not to use India as a base for new operations, these regulations imposed high level of constraints for their operations and thus discouraged them to establish their businesses in India.

New guidelines

  • Requirements such as bank guarantees, frequent reporting obligations, penal provisions, the obligation to ensure that each additional site obtains a separate registration etc. have been removed.
  • The registration requirement for OSPs has been done away with altogether.
  • Narrow definition: The BPO industry engaged in data-related work have been taken out of the ambit of OSP regulations.
  • Those few entities to whom OSP regulations now apply only need to comply with a few security obligations.
  • In addition, restrictions such as the need for a network diagram and using static IP addresses for all agents working from home, have all been done away with.

Merits of the new regulations

  • End of Inspector Raj: The regulatory regime for OSPs has now been liberalised thus effectively put an end to the inspector raj that these outdated regulations had perpetuated for so long.
  • Ease of doing business enhanced: Doing away with frequent reporting obligations will tremendously reduce the compliance burden of the business process management (BPM) industry.
  • Prevents Corruption: The previous broad definition was the reason for random acts of harassment by department of telecommunications (DoT) officials who were free to use the ambiguity inherent in the language of rules & regulations.
  • Makes India IT Sector Globally Competitive: It is aimed at providing a strong impetus to the industry and positioning India as one of the most competitive IT jurisdictions in the world.
  • Flexibility to companies: With the concept of remote working picking up and OSP relaxed, it gives a company a choice on how they want their delivery model to be.
  • Boost to Startups: Smaller firms and startups, for whom the bank guarantee were an additional strain, are relaxed now. This makes it easier for entrepreneur to start his business operations in this field without much financial contraints
  • Adaptation of work models to new normal: The new regulations will facilitate WFH or ‘work from anywhere’, which is likely to stay at the back of the pandemic. For instance, companies can have their employee in the North-East or in any remote corner in India and still take advantage of the remote working set up
  • Decongesting Urban Metropolis: It is expected that close to 25-30 percent of the IT workforce could move to smaller cities and towns in the next five years, which will help reduce the Urban load and move towards regionally balanced development.
  • Attract Foreign Investment: With OSP regulations no longer a constraint, and offshoring (moving talents to low-cost countries like India) picking up, global companies can expand their India operations quickly.
  • Boost to Women Employment: One of the advantage is that companies can tap into a new talent pool such as the young female workforce in tier-2 & tier-3 cities who, due to social compulsions, find it suitable to work remotely from their native place.

Conclusion

  • The cadres of bureaucrats whose business was to manage this obscure corner of the regulatory landscape will have to be disbanded and put to better use elsewhere
  • These reforms combined with labour and agriculture reforms all point towards Liberalisation 2.0 of Indian Economy.

Connecting the dots:

  • Labour Reforms: Click here
  • Agricultural Reforms: Click here

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