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Need to Remove SOFTEX form and TDS on Software products immediately

Subsequent to announcement of the Software product policy there was an expectation in Software product industry that Government of India will make sweeping reforms to promote this Industry. In this regard we bring to your attention two below regulations that create hurdle in ease of doing business very specifically for Software product trade.

  1. SOFTEX forms filing for international trade
  2. TDS on domestic Software product sales

We have been representing through iSPIRT time and again to removal of both these provisions to no avail. Given below is a very short representation on why they are totally unrequired regulation in today’s time.

Given below is the explanation on why these two provisions should be removed. A video recording of same is embedded below.

SOFTEX form

This form was brought in place to regulate remittances received on foreign exchange on exports, especially in early times of Indian Software industry with advent of Software Technology Park Scheme. The form governs two major aspects given below, with reasoning why this form is an obsolete a redundant mechanism.

  1. The foreign exchange remittances due against the exports invoiced has been duly received. RBI systems manage this in synch with Authorized dealers (Banks).
  2. The valuation of exports was to be certified by STPI/SEZ.

Both these provisions can be regulated through GSTN digitally in case of Software product exports and does not require an extra interference by STPI.

GSTN system should be used by RBI to govern quantum of exports: After GST has come into place, all exports are Invoiced as “Export Invoices” and can be well regulated through GST system. All exports of a Indian company can be well regulated through GSTN and Remittances matched with banking systems. Why should there be one more redundant filing for this purpose. The regular Software exporters also file a LUT with GST online.

Products do not require valuation: There in no valuation of Software product required as these are standard products with a List price / MRP based mechanism unlike Software services where there is case to case variation. Software products are traded just like any other products /goods based on MRP or volume-based discounts.

Most Software products are downloaded or used on cloud (SaaS/PaaS mode). These procurements happen online in majority of cases.

SOFTEX form puts a very unnecessary burden on Software product companies for compliance and an extra cost both on internal Administration and fees paid to STPI.

TDS on Software

In 2012 budget a provision to deduct tax at source (TDS of 10%) was brought in, mainly to check the loss of tax income when Software was procured from foreign entities. However, this was also imposed on purchases of Software from domestic Companies.

The provision is a heavy burden specially for Small and Mid-Size Software product companies as in order to effectively deal with this provisions the Software product companies are now forced to float one more entity to avoid burdening their trading channels from TDS by end buyers.

This is totally unjustified provision as no other product is subjected to TDS.

A Software product is like any other product which is produced and sold unlimited number of times.

The TDS provisions

  1. A huge friction of Digital India concept as it hinders trade of Software products Digitally
  2. Does not bring any extra tax revenue to Government

This reform is highly desired and Removal of these two provisions will greatly benefit and boost the moral of Indian Software product industry and strengthen Indian Software product eco-system, which is much desired in present global economic conditions.

We sincerely request Government of India to expeditiously act on removal and reform of these provisions. Ministry of Electronics and IT should take up leadership on this and get these bottlenecks removed.

Disclaimer: The views expressed here are not in nature of legal advice but a consensus opinion in iSPIRT internally and Software product Industry at large.

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COVID-19 Relief announcement for businesses that may benefit Software product MSMEs

Finance Minister, Nirmala Sitharaman announced stimulus to help economic revival in wake of COVID-19. Out of these measure a major portion was announced for businesses in MSMEs category.

Some of the important measures announced and that may directly benefit MSMEs in Software product eco-system are as given below.

  1. Collateral free loan of Rs 3 lakh crores for MSMEs.  This is expected to enable 45+ lakh MSME units to restart work and save jobs. How and who will disburse this is yet to be announced.
  2. This is an announcement which can be used in best ways by many MSMEs. However, the ease of getting this loan will only be known once the complete process and guideline is issued.
  3. Subordinate debt provision of Rs 20,000 crore for 2 lakh stressed MSMEs.
  4. Rs 50,000 crore equity infusion via Mother fund-Daughter fund for MSMEs that are viable but need handholding. A fund of funds with corpus of Rs 10,000 crore will be set up that will help MSMEs to expand capacity and help them list on markets.
  5. Global tenders will be disallowed up to Rs 200 crore for government
  6. Statutory EPF contribution to be reduced to 10% from 12% for all organisations and their employees covered by EPFO. Government expects this to infuse Rs 6,750 crore of liquidity. This measure is temporary and will provide relief to only those who has substantial workforce in lower bracket of Salaries.
  7. TDS rates have been slashed till March 2021 i.e. for entire financial year almost by 25%. An important rate of TDS applicable here is section 194J which is reduced from 10% to 7.5%. This will just increase the liquidity available in hand of Software product companies. A full list is given in link here at Income Tax site.
  8. The Definition of MSMEs has been revised. This was long due and will help more units to take benefit.  In present definition the distinction between manufacturing & services sector MSME has been removed. The new definition will be based on below norm.
    • Micro units with investment till Rs 1 crore, turnover up to Rs 5 crore
    • Small units with investment till Rs 10 crore, turnover up to Rs 50 crore
    • Medium units with investment till Rs 20 crore, turnover up to Rs 100 crore

iSPIRT was pursuing with Govt. of India to provide incentives for MSMEs to buy from Indian Software product companies.

However, in present situation of high volatility and huge pressure from MSMEs which is a sector that is more important for revival, this has not been considered. iSPIRT will keep pursuing with MeitY and MSME ministry for creating a domestic market access.

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iSPIRT Playgrounds Coda

As you may have heard from us or read about in our publications, iSPIRT takes the long view on problems. We call ourselves 30 year architects for India’s hard problems. The critical insight to a 30-year journey of success is that it requires one to be able to work with and grow the ecosystem, rather than grow itself. An iSPIRT with more than 150 volunteers would collapse under its own weight. Instead we work tirelessly to build capacity in our partners and help them on their journeys. We remain committed to being in the background, taking pride in the success of our partners who are solving for India’s hard problems.

However, many people think we’re trying to square a circle here. Why would anybody, that too, folks in Tech jobs who get paid tremendously well, volunteer their time for the success of others? 

The motivation for volunteering is hard to explain to those who have not experienced the joy volunteering brings. Our story is not unique. Most famously, when the Open source movement was taking root, Microsoft’s then CEO, Steve Ballmer, called Open Source “cancer”.

We have published all of our thinking on our model as and when it crystallised. However, we realised a compendium was needed to put our answers to the most commonly expressed doubts about iSPIRT in one place. This is that compendium for our volunteers, partners, donors and beyond.

1. What is iSPIRT?

a) iSPIRT is a not-for-profit think tank, staffed mostly by volunteers from the tech world, who dedicate their time, energy and expertise towards India’s hard problems.

b) iSPIRT believes that India’s hard problems are larger than the efforts of any one market player or any one public institution or even any one think-tank like ourselves. These societal problems require a whole-of-society effort. We do our part to find market players and government entities with the conviction in this approach and help everyone work together.

c) In practical terms, this means that the government builds the digital public infrastructure, and the market participants build businesses on top of it. We support both of them with our expertise. We have iterated this model and continue to improve and refine this model.

d) To play this role we use our mission to align with the Government partners, Market partners and our own volunteers. We believe those who have seen us work up close place their trust in us to work towards our mission. Our long-term survival depends on this trust. All our actions and processes are designed to maintain this trust, and so far if we have any success at all, it can only be seen as a validation of this trust.

2. What is our volunteering model?

a) Anyone can apply to be a balloon volunteer, and we work with them to see if there is a fit.

b) The ideal qualities of a volunteer are publicly available in our Volunteering Handbook, the latest one was published in December 2017.

c) We require every volunteer to declare their conflicts, and ask them to select a pledge level. This pledge level determines their access to policy teams and information that can lead to potential conflict of interest. For every confirmed volunteer, we make available this pledge level publicly on our website.

d) We are often asked what’s in it for our volunteers. We let all our volunteers know this is “No Greed, No Glory” work. Wikipedia is maintained by thousands of volunteers, none of them get individual author credits. What volunteers get is the joy of working on challenging problems a sense of pride in building something useful for society a community of like-minded individuals who are willing to work towards things larger than themselves

e) There are not too many people who would do this for no money, but it does not take a lot of people to do what we do. All of this is given in much greater detail in our Volunteer Handbook.

3. How does iSPIRT decide the initiatives it works on?

a) We have seen success due to the quality of our work and the commitment to our mission. We only take on challenges related to societal problems where technology can make a difference.

b) Even within those problems, our expertise and focus is in solving the subclass of problems where the hard task of coordination between State and Market, between public infra and private innovation is crucial to the task at hand.

4. How does it work with State and Market partners

a) On the hard problems we select in #3 above we assemble a team of volunteers. These volunteers outline a vision for the future. We begin by sharing this vision in multiple forums and creating excitement around them. Examples of these forums are: 

  1. 2015: Whatsapp moment of India. Nandan Nilekani presentation on the future of finance and many articles written about it
  2. 2016: Startup India Launch – Jan 2016 13th. India Stack unveiled as part of official program of Digital India (Public event)
  3. 2017: Cash Flow Lending – DEPA launch 2017 August – Carnegie India Nandan Nilekani and Siddharth Shetty Presentation
  4. Many different public appearances by Pramod Varma, Sharad Sharma, Sanjay Jain, Nikhil Kumar
  5. 2019: Siddharth Shetty explaining AA at an event at @WeWork Bangalore
  6. 2019 Sahamati Launch with a presentation by Nandan Nilekani and representatives from MeiTY, SEBI, multiple Bank CEOs, and AA entrepreneurs.

b) On market partners

i. We work with any market partner who shows conviction towards the idea, and are willing to commit their own resources to take the vision forward. Previous and current partners include banks, startups, tech product and service companies. These early adopter partners form part of our Wave 1 cohort. 

ii. We dive deeper with this wave 1 cohort and iterate together to build on the “private innovation” side of the original vision with their feedback. This is developed with the mutual commitment to sharing our work in the public domain, for public use, once we have matured the idea. We work with them and iterate till we surface a MVP for wider review.

iii. At iSPIRT, we don’t like mission capture. There are no commercial arrangements between iSPIRT and any individual market participants. 

iv. We never recommend specific vendors to any of our partners.

v. New infrastructure/ new frameworks often require the creation of a new type of entity. We engage with these through domain specific organizations such as Sahamati for Account aggregators, as an example.

vi. After Wave 1 partners co-create an MVP, we open up for wider public review and participation. We make public all of our learnings to help the creation of Wave 2 of market participants.

vii. The mental model you should have for iSPIRT Vision/Wave 1/ Wave 2 is those of Alpha/closed Beta/public Beta in the tech world.

c) On government partners

i. We work together with any government partners who show conviction towards the idea, and are willing to commit their own resources to take the vision forward. Previous partners have been RBI, NPCI, MeiTY, TRAI, etc.

ii. We dive deeper with these partners and iterate together to build on the “public infrastructure” side of the original vision with their feedback. As part of the government process, many authorities have their own process to finalize documents, etc. Many of these involve publishing drafts, APIs etc. for feedback, and potential improvement from market participants. We publish the work we do together and invite public comments. Examples: UPI Payment Protocol; MeITY Electronic Consent Artefact; ReBIT Account Aggregator specifications

iii. We only advise government partners on technology standards and related expertise. 

iv. There are no commercial arrangements between iSPIRT and government partners, not even travel expenses.

v. We never recommend any specific market players for approval towards any licenses or permissions. Both iSPIRT and our partners would suffer greatly if this process was tarnished.

  1. With UPI we did not recommend any individual PSPs for inclusion in the network. This was entirely RBI and NPCI prerogative.
  2. Similarly for AA, RBI alone manages selection of AAs for approvals of licenses.

vi. We also respond to public comments wherever they are invited. The following are some examples of our transparent engagement on policy issues.

  1. iSPIRT Public Comments & Submission to Srikrishna Privacy Bill
  2. iSPIRT Public comments to TRAI Consultations
  3. Support to RBI MSME Committee Report
  4. Support to RBI Public Credit Registry Report

5. How does iSPIRT make money?

a) iSPIRT’s expenses includes a living wage for some of its full-time volunteers, travel expenses and other incidental expenses related to our events. This is still a relatively small footprint and we are able to sustain entirely on donations.

b) These donations come from both individuals and institutions who want to support iSPIRT’s long-term vision for India’s hard problems. Sometimes, donor institutions include our market partners who have seen our work up close.

c) Partnerships do not require donations. We engage with many more market partners who are NOT donors than donors who are market players.

6. How does iSPIRT protect against conflict of interest?

We see two avenues of conflict of interest, and have governance mechanisms to protect against both

a) First is Donor Capture. We try to structure donation amounts and partners such that we are not dependent on any one source of funds and can maintain independence

i. We maintain a similar separation of concerns as do many news organizations with their investors.

ii. Our volunteers may have a cursory knowledge of who our donors are. However, this knowledge makes no difference to their outcomes.

b) Second is Volunteer conflicts, where they may get unfair visibility or information to make personal gains.

i. We screen for this risk extensively in the balloon volunteering period.

ii. We have hard rules around this that are strictly enforced and constantly reminded to all our volunteers in all our meetings.

iii. For volunteers who need advice whether a potential interaction could constitute conflict we provide an easy avenue through our Volunteer Fellows Council. The council will advise on whether there is conflict and if yes, how to mitigate it.

iv. To prevent a “revolving door” situation, we require that volunteers from the policy team leaving to continue their careers in the industry undergo a “cooling-off” period.

To volunteer with us, visit: volunteers.ispirt.in

The post is authored by our core volunteers, Meghana Reddyreddy and Tanuj Bhojwani. They can be reached at [email protected] and [email protected]

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Indian Software Product Registry – All That Product Companies Need to Know

Earlier this year, National Policy on Software Products was rolled out to create a robust, participatory framework to bring together industry, government and academia on a common platform to make India as a global hub for software products development. This is a much-needed initiative to provide holistic and end-to-end support to the Indian software product ecosystem. The registry is the first step among many towards solving the real problems of the industry and nurturing the software product companies. If done right, this initiative will have immense potential and far-reaching impact to benefit the industry.

Under this policy, one of the key initiatives is the set-up of the Indian Software Product Registry (ISPR) through industry ownership. It is a collaborative platform which will act as national coordination, facilitation and inter-connected centre for all activities related to the Indian software product ecosystem.

The main purpose of this policy is to focus towards the promotion of Indian software products which are defined as under for implementation:

  • Indian Company: As per sub-section 26 of section 2 of the Income Tax Act, 1961, “Indian company” means a company formed and registered under the Companies Act, 1956 or Companies Act, 2013,  provided that the registered office or, as the case may be, principal office of the company, corporation, institution, association or body in all cases is in India.
  • Indian Software Product Company (ISPC):  An ISPC is defined as an Indian company in which 51% or more shareholding is with Indian citizen or person of Indian origin and is engaged in the development, commercialisation, licensing and sale /service of software products and has IP rights over the software product(s).

ISPR aims to create a platform to enable discovery of Indian Software Product Companies and their products while simultaneously giving automatic access to the Government e-Marketplace (GeM) platform. This will enable the government to identify Indian companies as part of their buying process. However, more work on specific allocation of government buying and redeveloping of RFP’s in government for products will also be initiated so that the government can finally buy Indian products.

Secondly, by listing on exchange on ISPR will enable MEITY to get a better understanding of the industry so that specific product-related interventions like recurring payments for SaaS companies, credits for R&D to enable Indian companies to invest in research and development, and facilitation of Indian software product industry for providing fiscal incentives, if any, at a later stage among others will also be achieved.

Thirdly, ISPR will also enable Indian Software Product Companies to list their products here and connect to buyers across the world. Since this is a government-backed platform, it provides a high level of trust and authenticity in the global market. 

Indian Software Product Companies can register here.  For any more queries, please feel to reach out on [email protected].

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The Global Stack: A Manifesto

In 1941, soon after he had secured an unprecedented third term as President of the United States, Franklin D. Roosevelt mobilised the US Congress to pass the Lend-Lease Act. Its context and history are storied. British Prime Minister Winston Churchill famously wrote to FDR requesting material assistance from the United States to fight Nazi Germany — “the moment approaches when we shall no longer be able to pay [to fight the war]”. FDR knew he would not get the American public’s approval to send troops to the War (Pearl Harbor was still a few months away). But the importance of securing the world’s shipping lanes, chokepoints, manufacturing hubs and urban megalopolises was not lost on the US President. Thus, the Lend-Lease Act took form, resulting in the supply of “every conceivable” material from the US to Britain and eventually, the Allied Powers: “military hardware, aircraft, ships, tanks, small arms, machine tools, equipment for building roads and airstrips, industrial chemicals, and communications equipment.” US Secretary of War Henry Stimson defended the Act eloquently in Congress. “We are buying…not lending. We are buying our own security while we prepare,” Stimson declared.

The analogy is not perfect, but FDR’s Lend-Lease Act offers important lessons for 21st century India’s digital economy. Our networks are open; our public, electronic platforms are free and accessible to global corporations and start-ups; our digital infrastructure is largely imported; and — pending policy shifts — we believe in the free flow of information across territorial borders. India has made no attempt, and is unlikely in the future, to wall off its internet from the rest of the world, or to develop technical protocols that splinter its cyberspace away from the Domain Names System (DNS). While we have benefited immensely from the open, global internet, what is India doing to secure and nourish far-flung networks and digital platforms? The Land-Lease Act was not just about guns and tanks; a quarter of all American aid under the programme comprised agricultural products and foodstuff, including vitamin supplements for children. The United States knew it needed to help struggling markets in order to build a global supply chain that would serve its own economic and strategic interests. Indeed, this was the very essence of the Marshall Plan that followed a few years later.

In fact, India’s digital success story itself is a creation of global demand. When the Y2K crisis hit American and European shores, Indian companies stepped up to the plate and offered COBOL-correction ‘fixes’ at competitive rates. In the process, Western businesses saved billions of dollars — and Y2K made computing ubiquitous in India, which in turn, added great value to the country’s GDP. 

Therefore, there are both security-related concerns and economic consequences that should prompt India to develop “digital public goods” for economies across Asia, Europe and Africa. Can India help develop an identity stack for Nigeria — a major source of global cyberattacks — that helps Abuja mitigate threats directed at India’s own networks? Can we develop platforms for the financial inclusion of millions of undocumented refugees across South and Southeast Asia, that in turn reduces economic and political stress on India and her neighbours when confronted with major humanitarian crises? Can we build “consent architecture” into technology platforms developed for markets abroad that currently have no data protection laws? Can we nurture the creation of an open, interoperable and multilateral banking platform that replaces the restrictive, post-9/11, capital controls system of today with a more liberal regime — thus spurring financial support for startups across India and Asia? Can India — like Estonia — offer digital citizenship at scale, luring investors and entrepreneurs who want to build for the next billion, but do not have access to Indian infrastructure, markets and data? These are the questions that should animate policy planners and digital evangelists in India. 

The Indian establishment is not unmindful of the possibilities: in 2018, Singapore and India signed a high-level agreement to “internationalise” the India Stack. The agreement has been followed up with the creation of an India-Singapore Joint Working Group on fintech, with a view towards developing API-based platforms for the ASEAN region. As is now widely known, a number of countries spanning regions and continents have also approached India with requests to help build their own digital identity architecture. 

But the time has come to elevate piecemeal or isolated efforts at digital cooperation to a more coordinated, all-of-government approach promoting India’s platform advancements abroad. The final form of such coordination may look like an inter-ministerial working group on digital public goods, or a division in the Ministry of External Affairs devoted exclusively to this mission. Whatever the agency, structure or coalition looks like within government, its working should be underpinned by a political philosophy that appreciates the strategic and economic value accrued to India from setting up a “Global Stack”. In 1951, India was able to successfully tweak the goals of the Colombo Plan — which was floated as a British idea to retain its political supremacy within the Commonwealth — to meet its economic needs. Working together with our South Asian partners and like-minded Western states like Canada, we were able to harvest technology and foreign expertise for a number of sectors including animal husbandry, transportation and health services. India was also able, on account of skilful diplomacy, to work around Cold War-era restrictions on the export of sensitive technologies to gain access to them.

That diplomacy is now the need of the hour. The world today increasingly resembles FDR’s United States, with very little appetite to forge multilateral bonds, liberal institutions, or rules to create effective instruments of global governance. It took tact and a great deal of internal politicking from Roosevelt to pry open the US’ closed fist and extend it to European allies through the Lend-Lease Act. India, similarly, will need to convince its neighbours in South Asia of the need to create platforms at scale that can address socio-economic problems common to the entire region. This cannot be done by a solitary bureaucrat working away from some corner of South Block. New Delhi needs to bring to bear the full weight of its political and diplomatic capital behind a “Global Stack”. It must endeavour to create centripetal digital highways, placing India at the centre not only of wealth creation but also global governance in the 21st century.

The blog post is authored by Arun Mohan Sukumar, PhD Candidate at The Fletcher School at Tufts University, and currently associated with Observer Research Foundation. An edited version of this post appeared as an op-ed in the Hindustan Times on October 21, 2019.

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#5 What is the Federated PHR Component of the Health Stack?

PHR – Personal Health Record – is a mechanism to access a longitudinal view of a patient’s health history and be able to use it for different purposes. It is a component of the health stack:


It relies on two building blocks – (a) registries, to know the source of the data; and (b) health identifier, to know whom the data belongs to. Separating out the building blocks with each serving singular functions helps design a more scalable and sustainable system. We follow certain principles for both of these building blocks:

1. Registries are master databases with information about different entities in the healthcare ecosystem, for example, of hospitals, doctors, care beneficiaries, etc. There should be checks and balances built to ensure correctness of data (such as digital signatures, audit trails, etc.), and this information should be made accessible for different use cases (through open APIs, and consent). Opening access to this information will have a positive effect of increased demand, thus improving quality and leading to convergence towards singular sources.

2. Health identifier is a mechanism to integrate a patient’s health records. This identifier should incorporate the following features:

  • The identifier need not be unique. This means that a patient should have the ability to create multiple health identifiers for different health records – think of different digital folders for mental health cases and cancer cases (a common practice in the physical world).
  • The power to unify health records should lie with the patient. In the physical world, this would translate to the patient having the right to either keep two folders or merge them into one. The same should be allowed digitally.
  • Patients should be allowed to use any identifier to verify themselves. However, since we are creating an electronic system of health records, it is important that these be digitally verifiable – such as mobile number, email ID or Aadhaar.

3. Electronic consent, as specified by MeitY, is a mechanism to give consent electronically in a manner that follows the ORGANS Principles – Open, Revocable, Granular, Auditable, Notifiable, Secure.

_____________________________________________________________________

With these building blocks in place, we come to features of the PHR architecture:

1. Federated – instead of having a centralised repository of all health records, we propose a federated framework where data resides at the source of generation. This has many benefits – (i) ease of operations, as data is not stored with a single entity (ii) lower costs, as no additional repository is being built (iii) better security, as data is stored at different nodes; and (iv) patient empowerment, as data is being shared directly with the patient.

2. Schema level standardisation – we believe that only standardising the schema without enforcing codification standards (which require a significant behavioural shift) should be sufficient for a number of use cases. Since this standardisation is at an IT systems level, it only requires a one-time mapping and does not require any change in clinical workflows.

3. Health data access fiduciaries – these would be entities that would route the consent and data requests between information users and information providers. In doing so, they would play the role of privacy protection, consent management and user education.

4. Health data vault – this is an option for the patient to store his/ her records in a personal storage space. While most hospitals that capture data continue to store it for a long period of time,  an individual might still choose to store this information separately (for long-term access, trust-deficit between patient and provider, etc.). In such a case, the patient can request a copy of the record to be pushed to his/her health data vault.

_____________________________________________________________________

Proposed architecture:

Workflow:

Patient goes to a healthcare provider. At the time of issuance:

Option 1: patient shares mobile number/ email id/ aadhaar no.
1. Provider authenticates user using one of the digital identifiers
2. (a) Provider sends a link to patient for downloading the report. Patient can later link these records with his/ her HDAF; or
2. (b) Patient can sign up with HDAF and search for provider to link records

Option 2: patient shares HDAF ID
1. Provider links patient records to the HDAF

Post linkage, patient can approve requests from data consumers through the HDAF for different use cases.

_____________________________________________________________________

We believe that building PHR as a public good will enable interesting use cases to come to life, that would together improve the healthcare ecosystem. While we will continue our quest for these, we would love to receive feedback on our thinking! If you work in this space and have comments, or would like to understand how this could help your product, please drop me a line at [email protected].

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A right HS Code ‘need of hour’ for NPSP Success

National Policy on Software Product provides for creating a HS Code under Strategy item 1 for “Promoting Software Products Business Ecosystem”

The tax regime will be demarcated for ‘Software Products’ from ‘Software Services’, by providing clearly defined HS Code for the “Software products (intangible goods)” delivered through any medium; physically or online using internet (to be published within three months of notification of this policy). A model HS code will be evolved that will be further sub categorized based on the type of software products, its inter-linkages with other economic sectors, including services and hardware manufacturing. Thus, software products defined by such identifiable HS code will be treated as goods manufactured in India and will be able to avail all incentives provided under Make in India Programme.

Objective of this blog

There are number of challenges to get the HSN Code issue resolved and to get a right HSN code from the Govt. of India. This blog is an attempt to understand the regimes of HSN/SAC Code use and its application to promote a Software product industry in India to implement the above said item in the NPSP 2019.

It will be good to read the following reference documents (Click below to read)

  1. HS Code Chapter 85
  2. HS Code Chapter 49
  3. SAC Codes

Present status of HSN and SAC Code

After launch of GST, all transactions are to mention the relevant HSN code /SAC Codes are must to be mentioned in Invoices. HSN for Goods and SAC for services.

Under GST regime, all IT Software has been treated as “Service”.  Yet, there exists HSN codes and SAC codes both. HSN codes traditionally meant for physical exports through ports still exist in GST regime as there still will be Physical exports through ports.

iSPIRT has time and again represented to Government of India that the provisioning for a “Digital Goods” regime will help India embark upon a Software product wave. However, the GST regime has assumed all Software as service.

Following HS Codes or SAC codes are in use by Indian Software product companies.

For a full view of the codes relevant file links at CBIC are given above.

HS Code Item Description
4907 00 30 Documents of title conveying the right to use Information Technology software
4911 99 10 Hard copy (printed) of computer software (PUK Card)
8523 80 20 Information technology software on Media (Packaged or Canned)

 

SAC code Item Description
 

9973 31

 Under 9973 – Licensing services for the right to use intellectual property and similar products.

Licensing services for the right to use computer software and databases.
 

9984 34

 Under 9984 Online Content

Software downloads

 

Most prevalent uses are of

  1. 8523 80 20 – for packaged products and downloads
  2. 9973 31 – SaaS Software

Following Codes are specifically for use of Software Services companies

Under Category 9983 – Management consulting and management services; information technology services.

9983 13 Information technology (IT) consulting and support services
9983 14 Information technology (IT) design and development services
9983 15 Hosting and information technology (IT) infrastructure provisioning services
9983 16 IT infrastructure and network management services
9983 19 Other information technology services n. e. c

The coding mechanism covers both international trade Domestic Tariff Area (DTA) under new GST regime for invoicing.

Present coding is bottleneck for Software product trade

The above coding scheme has emerged from a traditional regime which

  1. Classifies only physical ‘goods’ can only qualify for cross-border trade and hence under HSN and
  2. Software sales is a ‘license to use’ in stead of a product trade.

In addition, it induces a confusion in SAC 9984, where it also lists Software downloads along with other content.

  • ‘Software’ has not been given recognition but how Software is delivered is given an importance.
  • It also does not allow us to account for Software product in a clear manner, both Domestic and International Trade Statistics.
  • It does not allow us to ‘account’ for emerging segments of Software products due to technological change.
  • It is also confusing in sense packaged software downloads can be classified under 9984 also.

 “Having right code system is Central to promotion Software Product Industry and related ecosystem.”

A proper classification and coverage will help us promote Indian Software product industry and account for Software product trade verses Software services bother internationally and domestically.

Adoption of Software product will be an important measure of maturity of digital economy.

What is needed to boost SPI under NPSP

The very basis of NPSP launch by Government of India is the recognition of our Competitive advantage in “Software” and hence capability to create world class products.

We have earlier presented papers to Govt. where “digital goods” verses “services” debate is in advanced stage.

Despite being a Software power house, Indian today has a digital deficit.

Recognizing the “Software products” as a new reality will boost India’s strength in “digital deficit”.

Recognize Software product and Distinguish Products from Services

The goods/products exhibit the following properties (as per internationally accepted definition):

  1. Durability (perpetual or time bound)
  2. Countability – traded commodity can be counted as number of pieces, number of licenses used, number of users etc.
  3. Identifiability – identified as a standardised product
  4. Movability and storage. Can be delivered and stored and accounted as an inventory
  5. Ownership of the right to use
  6. Produced/Reproduced through a process
  7. Marketable/Tradable or can be marketed and sold using standard marked price (except when volume discounts, bid pricing and market promotion offers are applicable).

as distinguished from services that are consumed either instantly or within very short period of time or continually coinciding with the activity of provision of service.

Software product exhibit all the properties of a ‘good’ except that they are intangible. Hence, Software products is an ‘intangible’ good, with discrete symptoms.

Software product brings in high value for the Software manufacturer and is normally tied to “Intellectual Property” in its development. Traditionally all software products were installed and used on end-user computers.

However, with advent of cloud it is possible to ship same product as ‘on-premises’ product (to be installed and used by end-user on their premises) or be installed on computers/cloud resources owned by original manufacturer and used by end-user through internet.

The latter is category called “SaaS” based products.

Some Software take a expanded view and present themselves as ‘platform’ with multiple products integrated together capable of being used alone or as set of products and services and ability to serve at country or global scales.

‘Platforms’ are a reality in software world and to be a power in global game, countries having large “platforms’ will be winders. India has the capacity and capability, but has systemic bottlenecks to be removed.

Technological changed will bring in newer dimensions of trade. In 2019, India should provide direction to worls by setting new trends and nudge global community in that direction.

Software products trade can’t be delimited under ‘license’ to sale regime only.

Trade is central to success of an Industry. Treating Software as mere ‘license’ is limiting the trade under Indian tax regime as of now.

The IP and ‘Software product’ is central to original Software manufacturer (Software product company). Yet, it is a ‘product’ or intangible good.

Other ‘goods’ also have IP attached as patents and copy rights, but that never is the ‘license’ a barrier to sales.

Treating Software product as a license is creating a barrier, as then each sales of Software product is subjected to “withholding tax” regulations under direct taxes.

Treating Software product as intangible goods neither infringes the ownership of IP of Software OEM nor does it cause loss to tax. But, it lubricates the trade.

Break through from tradition leads to success

The traditional understanding of trade in tax regimes does not account for technological changes. Indian took a lead in past and has a reference point of adopting such changes to successfully create an Industry.

India created a success of IT Services industry by breaking tradition. In 1992, there was a similar problem that faced country after launch of Software Technology Park (STP) Scheme. As per customs, the exports of any goods could happen only through ports or at best from foreign post office.

To enable exports through data communication links, SOFTEX form was introduced, feeling the need of hour. This was a breakthrough from existing regulations that gave us glorious 25 years in IT.

Indian can have another glorious 25 years of being a Software power, by adopting a mechanism that can distinguish the Software products from services and recognises Software product as intangible goods.

Recommendations (for creating SW product ecosystem)

A HS code classification for following categories can be issued using the last 2 digits (first 6 Digits being defined under international system).

Following category of definition will solve the issues of raised above for creating favourable environment a Software product Industry.

  • (i) 8523 80 20 – IT Software on media that is not Off-the-self i.e. not covered under Product
  • (ii) 8523 80 21 – Software Product (Pre-packaged software downloaded or Canned Software)
  • (iii) 8523 80 22 – Software Product hosted by OEMs on cloud (SaaS, PaaS Model of Software) and used by end-clients using internet.

Note: Problem with 85238020 is that it can be any Software. The only requirement is it is Information Technology Software and on media.

This will give cover for all Software products in following two categories and leave (i) above for Software other than product on media.

  1. S/W product Used – On premises (on computers/private cloud of end-user) – 8523 80 21
  2. S/w product On Cloud of OEM – 8523 80 22 (SaaS/PaaS)

The above recommendation is minimum basic and should not be a limitation to a more wide and granular classification e.g. a different code for SaaS and PaaS etc.

Can we use SAC code?

It is recommended to use HSN rather than SAC for “Software product” for following reason.

  • (i) The Software ‘product’ attribution is difficult in Services codes and will always be confused with services. SAC is not right place either for a ‘product’ image or for a trade accounting of intangible ‘goods’.
  • (ii) The SAC code classification is not targeted at distinguishing Software services and Software product. Also, the license to use a database can not be same as license to use a pre-packaged product.
  • (iii) It is better Software product are defined in HSN to capture both national and International trade Statistics. Not having them at one place will create redundancy, with chances of lot of import happening under a code under existing HSN 85238020. (The idea is to get clear distinction between Software product from services)
  • (iv) In a “Digital Economy” eventually Software products will have a international trade dimension. Hence, HSN code is a better place.
  • (v) The whole idea of NPSP is to get Software product recognition with a vision aiming India as a “Software product nation”. Hence, we need to start accounting for intangible mercantile”. To make these changes will nudge the system in that direction.
Note:  Some countries have created a HS code under 98/99 for Downloaded Software e.g. China has a code under 980300 for Computer software, not including software hardware or integrated in products. Similarly, some countries are using 9916 as a code for pre-packaged software.

Conclusions

Future of ‘digital economies’ will see trade wards on ‘digital goods’. A meaningful breakthrough from traditional trade regimes is must for a winner. India must be a winner and we should play our games in the area we have enough capability.

Software product Industry is some thing Indian needs badly both for domestic and international trade, specially when our IT Services industry growth is diminishing day by day.

Let us power up the “Software product’ with new coding and classification that recognises Software product with legitimacy to do provided by NPSP.

In 1992, MeitY (then DOE) took lead and created a breakthrough that led to 25+ years of Success of IT Industry. Once more MeitY leadership can take lead and create next 25 golden years by making Indian a Software product nation.

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India’s new Software Products Policy marks a Watershed Moment in its Economic History – Can the nation make it count?

India is on the glide path of emerging as one of the economic powerhouses of the world – its economy is ranked sixth in size globally (and slated to climb to second by 2030); it has the fastest growing annual GDP growth rate amongst (major) countries; the country ranked in the world’s top 10 destinations for FDI in 2017-18. With a population of 1.3 billion and a large middle class of ~300 million+, it is one of the most attractive markets globally. Specifically in the digital economy – India has a huge $ 167 billion-sized IT industry; it boasts of a 55% market share in global IT services & outsourcing; 1140 global corporations run their tech R&D centres in India. In the tech startup space, India has attracted Private Equity (PE) & Venture Capital (VC) investments of $33 billion in 2018, and it has over a dozen unicorns (startups with over $1 billion valuations).

These data-points are truly impressive and would make any country proud, but they belie one of the glaring historical paradoxes of the Indian economic story – the sheer absence of world-beating products from India. Ask Indians to name three truly world class, globally loved Indian products or brands – chances are they’ll struggle to name even one. Check out the Global Innovation Index 2018 from the World Intellectual Property Organization (WIPO) – India doesn’t figure in the top 50 countries. Or the Interbrand 2018 Top 100 Global Brands Ranking – there’s no Indian name on that list. Leave aside brick & mortar industries, the Indian IT & Digital sector doesn’t fare any better on this count. IT services, which forms its lion’s share comprises largely of low end, commoditized services or cost arbitrage based outsourcing contracts. Most of the new age tech unicorns in India are based on ideas and business models that are copied from foreign innovators (with some local tweaks) – their outsized valuations are a result of them being the gatekeepers to the large Indian market, rather than from having created path-breaking products from first principles. So the overall trend is that India has a large domestic market, and it is a big supplier of technical brain power on the world stage, but when it comes to building innovative products, we come to a total cropper. This is best reflected in the Infosys Co-Founder, Narayan Murthy’s candid quote – “There has not been a single invention from India in the last 60 years that became a household name globally, nor any idea that led to the earth-shaking invention to delight global citizens”.



The launch of the National Software Products Policy (#NSPS):

It is in this light that the recently rolled out National Software Products Policy (#NSPS) by the Ministry of Electronics & IT (MeitY), Government of India marks a watershed moment. For the very first time, India has officially recognised the fact that software products (as a category) are distinct from software services and need separate treatment. So dominated was the Indian tech sector by outsourcing & IT services, that “products” never got the attention they deserve – as a result, that industry never blossomed and was relegated to a tertiary role. Remember that quote – “What can’t be measured, can’t be improved; And what can’t be defined, can’t be measured”. The software policy is in many ways a recognition of this gaping chasm and marks the state’s stated intent to correct the same by defining, measuring and improving the product ecosystem. Its rollout is the culmination of a long period of public discussions and deliberations where the government engaged with industry stakeholders, Indian companies, multinationals, startups, trade bodies etc to forge it out.

#NSPS will bring into focus the needs of the software product industry and become a catalyst in the formulation of projects, initiatives, policy measures etc aimed at Indian product companies. One of its starting points is the creation of a national products registry that’s based on a schematic classification system. Other early initiatives that will help in operationalizing the policy – setting up of a Software Products Mission at MeitY, dedicated incubators & accelerators for product startups, development of product-focused industrial clusters, preferential procurement by the government from product companies, programs for upskilling and talent development etc.

The Indian IT / Software Industry Landscape:

To understand the product ecosystem, one needs to explore the $ 167 billion-sized Indian IT / Software sector into its constituent buckets. The broad operative segments that emerge are –

1) IT Services & ITES: This is by far the largest bucket and dominates everything else. Think large, mid & small sized services companies throughout the country servicing both domestic & foreign markets. e.g. TCS, Infosys, Mindtree, IBM, Accenture, GE etc
2) Multinationals / Global Development Centers: These are foreign software companies serving Indian markets and/or using India as a global R&D development centre. e.g. Microsoft, Google, Netapps, McAfee, etc
3) Domestic Product Companies: This is a relatively small segment of Indian software product companies selling in domestic or overseas markets e.g. Quickheal, Tally etc.
4) Startups – E-commerce / Transactional services: This is the large, fast-growing segment of startups into direct (or aggregated) transactional businesses like e-commerce, local commerce, grocery shopping, food delivery, ride sharing, travel etc. e.g. BigBasket, Flipkart, Amazon, Grofers, Milkbasket, Swiggy, Dunzo, Uber, Ola, Yulu, Ixigo, MMT etc. You could also include the payment & fintech companies in this bucket – e.g. Paytm, Mobikwik, PhonePe, PolicyBazaar, Bankbazaar etc. This segment has absorbed the maximum PE & VC investments and is poised to become bigger with time.
5) Product Startups – Enterprise / CoreTech / Hardware: This is comprised of companies like InMobi, Zoho, Wingify, Freshdesk, Chargebee, Capillary, electric vehicle startups, drone startups etc. They could be serving Indian or foreign B2B markets.
6) Product Startups – Consumer Internet: This segment is composed of media/news companies, content companies, social & professional networking, entertainment, gaming etc. e.g. Dailyhunt, Inshorts, Sharechat, Gaana, Spotify, YouTube, video/photo sharing apps, Dream11 etc.

(N.B. Off course, this segmentation schema is not water-tight and there could be other ways to slice and/or label it)

Why India lags behind in Software Products?

The global software products industry has a size of $ 413 billion, and it is dominated by US & European companies. India’s share in that pie is minuscule – it is a net importer of $ 7 billion worth software products (India exports software products worth $ 2.3 billion, while it imports $ 10 billion). “Software is eating the world” – entire industry segments are being re-imagined and transformed using the latest developments in cloud computing, artificial intelligence, big data, machine learning etc. In this scenario, it is worth understanding why India seems to have missed the software products bus. The reasons are multifarious, cutting across cultural, economic, market, behavioural and societal factors –

a) The cultural aversion to Risk, Ambiguity & Failure: Indian society has traditionally valued conformity and prepares people not to fail. Our family and educational environments are geared for teaching us to eschew risk-taking and avoid ambiguity. But building products is all about managing risk and failure. When you take a product to market from scratch, you take on multiple types of risk – market risk, execution risk, product risk. For many people in India, this is in stark contrast to their social/attitudinal skills and expectancies they have built up over a lifetime.

b) “Arbitrage” offers the Path of Least Resistance: If you pour water down a heap of freshly dug mud, it will find the path of least resistance and flow along it. Human behaviour is similar – it is conditioned to look for the path of least resistance. And “arbitrage” offers that least resistance path in the IT industry – be it cost arbitrage, labour arbitrage, geographical arbitrage, concept arbitrage et al. The IT services industry leverages the cost arbitrage model via cheaper labour costs. Many of the transactional e-commerce startups in India have used geographical arbitrage to their advantage – once a successful product or model is created in another market, they bring it to India to capitalize on a local first mover advantage, build a large valuation and become the gatekeeper to the market before the (original) foreign innovators arrive in India many years later! But arbitrage means, that while you are taking on market & execution risk, you are not assuming the product risk. These dynamics played out at scale over the years has meant it is easier for a wannabe entrepreneur in India to go the arbitrage way and quickly build out a business using a readymade template than go down the software products path, which has a much longer gestation & higher risks associated with it.

IMHO, this “arbitrage” factor represents the single biggest reason why India has seen a virtual explosion in e-commerce startups, at the expense of product startups. Look around the startup ecosystem and you’ll see all kinds of transactional businesses involving activities like buying, selling, trading etc. Why… this almost reminds of that famous 17th-century quote by Napolean when he described Britain as a “nation of shopkeepers”🙂

c) Tech isn’t enough – you need design, marketing skills: To build great software products, you not only need strong technical abilities but also good design, marketing & branding skills to carve out a compelling product offering. Ask any startup in India – one of their most common problems is the inability to hire good designers and UX professionals. This puts Indian companies at a comparative disadvantage – even if they have the engineers to build the technology, their inability to translate that technology into an appealing user experience often means the difference between success and failure.

d) Lack of “patient” venture capital: This is a complaint you hear often from Indian product startups – the lack of venture capital that’s willing to be patient over the longer gestation cycles software products demand. While there is some truth to it, the more likely explanation is that software product companies present a “chicken & egg problem” for Indian startup investors. Investors are driven by financial returns – if they see returns from product companies, they’ll bet their monies on them. It just so happens, that Indian investors haven’t yet seen venture sized returns from software product companies. Hopefully, this dynamics will even out as the ecosystem grows.

e) Inadequate Domestic Market Potential: Many software products are monetized via subscription models, where the market’s ability (and propensity) to explicitly pay for the service is critical for success. Sometimes (SAAS/enterprise) companies try their model in India, only to discover there just aren’t enough paying customers. These startups may then be left with no choice but to either target foreign markets, or in extreme cases just move abroad for business continuity. Thus it has become imperative for the Indian domestic market to grow in size and scale to ensure the viability of product startups.

Platform companies from India are a non-starter: One aspect that needs calling out specifically is the sheer absence of any platform companies from India. Platforms are the next evolutionary step for scaled software product companies – if you get to the stage, where other industry stakeholders start building on top of the plumbing you’ve provided (thereby becoming totally dependent on you), that’s an immensely powerful position to be in e.g. AWS, Android, iOS etc. This factor assumes even greater importance given upcoming trends in AI, machine learning, deep learning, automation, robotics – the companies which emerge as platform providers may offer strategic advantages to the country of their origin. As depicted by the graphic below, India is as yet a non-starter on this count. This is deeply worrying – imagine a scenario 10-15 yrs out, when Indian software companies start dominating the domestic markets and also are a force to reckon with globally, but it’s all built on intellectual property (IP) & platforms created & owned by foreign companies!!

Some Suggested Action Areas for the National Software Policy:

MeitY in consultation with industry stakeholders is likely to create an implementation roadmap for #NSPS. Here are some specific action points I’d like to call out for inclusion in that roadmap:

Domestic Market Development: As explained earlier, the Indian domestic market needs curated development to reach a potential that makes product startups viable without having to depend on overseas markets. This calls for a series of steps, such as policy support from sectoral regulators, funding support via special go-to-market focused venture capital funds etc. The government could also help by announcing a preferential procurement policy from domestic software product companies. The Government e Marketplace (GeM) can help in institutionalizing these procurement norms.

Creating Early Awareness (Catch ‘em young): Fed by constant news in media about IT services, ITES, BPOs, outsourcing etc the average person in India is likely to be aware of IT services, but not necessarily software products. Many people may have friends and family members who work at TCS, Infosys, Wipro, IBM etc, but the same can’t be said about product companies. Given this scenario, it is important to create early awareness about products in schools, colleges, universities across metros, Tier 1, Tier 2 & 3 towns. Some of the world’s biggest product innovators like Bill Gates, Steve Jobs started writing software before they had reached high school – so if we can catch people young, we actually get a much longer runway to get them initiated into the product ecosystem. If they learn about products after they’ve started working in the industry, or when planning a mid-career shift from services to products, it might be quite late.

Reducing entry barriers for starting Software Product Companies: As shared earlier, one of the big problems in the Indian software product space is that there just aren’t enough entrepreneurs starting up product businesses. E-commerce & transactional services actually absorb (or suck in) a lot of entrepreneurial talent by virtue of having lower barriers to entry. To make a serious dent in products, you need a much larger number of product companies started off the ground. This can happen only by systematically bringing down the entry barriers – driving awareness, providing funding support, providing market development support etc. Advocacy and evangelism by software product industry role models also can help develop confidence and conviction in people to think products instead of services or e-commerce.

Building domestic Software Product Companies atop public goods: Silicon Valley has shown how you can build successful commercial applications on top of public goods (e.g. Uber built on top of GPS, Google maps & mobiles). In a similar way, public goods in India like IndiaStack, or HealthStack can be the base (or the plumbing) over which commercial applications get built for mass scalability. The good news is this trend has already been kickstarted, though its still early days.

This blog was first published at Webyantra.com

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SaaS founders discuss NPSP 2019 with MietY Officials in Chennai

Shri Rajiv Kumar Joint Secretary in-charge of National Policy on Software Products (NPSP 2019) and Senior Director Dr. A K Garg met 20 SaaS companies founders and leader in Chennai on 13th March 2019. At meeting it was discussed that NPSP announced by Government of India on 28th February will soon create a National Software Product Registry, where SaaS companies can register and have access to GEM portal. Also, the procurement process will be suitably amended to allow Govt. departments to procure and use SaaS products.  ‘National Software Product Mission (NSPM)’ envisaged in the policy will be setup at Ministry of Electronics and IT (MeitY).

 

  

Government has launched NPSP 2019 to focus on Software product ecosystem. iSPIRT has been advocating the cause of SaaS segment in Software products and its importance for India to remain a force to reckon with in Software in next 25 years.

The event was a golden opportunity for SaaS companies Founders and leaders, to provide feedback to and understand from the senior officials in Delhi, about the vision they have to make India a Software product power. Twenty SaaS companies represented in the event.

Speaking on behalf of SaaS founders, Suresh Sambandam, Founder and CEO of OrangeScape said,” Global landscape has changed very fast driven by new technology. We have a 2 trillion Dollar opportunity for SaaS industry. If we get our act right, India can aspire to remain in global game in Software Industry”.

The roundtable was organised by iSPIRT Foundation to facilitate officials to have direct interaction with SaaS industry and understand issues, problems and opportunities in SaaS industry, to enable Government to further carve out schemes/ programs under NPSP 2019 going further.

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Decoding the Aadhaar (Amendment) Bill – PMLA Amendment

The amendment made by way of the Aadhaar and Other Laws (Amendment) Bill, 2018 to the Prevention of Money Laundering Act,2002 gives true effect to the intention of the Hon’ble Supreme Court as set out in their judgment of September 2018.

It is clear from the judgment that the objective was to empower the individual and allow for the resident to be able to uniquely identify herself to avail of every service of her choice while ensuring that there are adequate protections for such use under the force of law.

Aadhaar Act Amendment

This is clearly set out in the now amended Section 4(3) of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (the “Aadhaar Act”) as follows:

Section 4(3) – Every Aadhaar number holder to establish his identity, may voluntarily use his Aadhaar number in physical or electronic form by way of authentication or offline verification, or in such other form as may be notified, in such manner as may be specified by regulations.

Explanation-For the purposes of this Section, voluntary use of the Aadhaar number by way of authentication means the use of such Aadhaar number only with the informed consent of the Aadhaar number holder.

And further in Section 4(4)-

An entity may be allowed to perform authentication if the Authority is satisfied that the requesting entity is-

  1. Compliant with such standards of privacy and security as may be specified by regulations; and
  2. (i) permitted to offer authentication services under the provisions of any other law made by Parliament; or

(ii) seeking authentication for such purpose, as the Central Government in consultation with the Authority and in the interest of the State may prescribe.

With the above amended provisions, it is clarified that (a) the objective is to ensure that the Aadhaar number holder is empowered to establish her identity voluntarily with informed consent (b) Entities that may be permitted to offer authentication services will do so pursuant to a law made by Parliament or by way of Central Government direction in consultation with the UIDAI and in the interest of the State.

PMLA Amendment

The amendment to the Prevention of Money Laundering Act,2002 (the “PMLA”) seeks to give clear direction to the above-enunciated ideas.

The newly inserted Section 11A of the PMLA provides for the manner in which a Reporting Entity may verify the identity of its clients and beneficial owner (conduct KYC). This is by way of offline verification of Aadhaar or where the Reporting Entity is a banking company- online verification of Aadhaar.

However, it is further clarified (in tandem with the aforesaid amendments to the Aadhaar Act) that upon satisfaction of standards of privacy and security, the Central Government may, in consultation with the UIDAI and appropriate regulator provide for online authentication for Reporting Entities other than banking companies.

And it is further explicitly clarified that in the scenarios as contemplated in this provision, nobody will be denied services for not having an Aadhaar number, i.e: ensuring that the presence of Aadhaar number is not mandatory but purely enables and eases the availing of services.

As next steps on this front, distinct Reporting Entities, including NBFCs, Mutual Fund Houses and other financial institutions need to approach the Central Government with requests for access to online Aadhaar authentication services.

Organisations such as DICE would be useful in mobilising groups of different financial institutions in approaching the relevant regulators and Central Government authorities for Aadhaar authentication access.

Saranya Gopinath is the co-founder of DICE (Digital India Collective for Empowerment)- an industry body representation across emerging technology sectors.

She can be reached on [email protected]

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Policy Hacks – National Policy on Software Products (NPSP) 2019

It is a moment of delight at iSPIRT to see Govt. of India setting its focus on “Software Product”, with the announcement of National Policy on Software Products by government of India on 28th February 2019. The policy framed by Ministry of Electronics and Information Technology (MeitY) is aimed to sustain India as a global power in Software industry in emerging technological changes impacting the industry. iSPIRT had earlier covered this announcement in a blog titled “India powers up its ‘Software Product’ potential, Introduces National Policy on Software Products (NPSP)” A link to PDF document of the NPSP 2019 is given here on MeitY website. https://meity.gov.in/writereaddata/files/national_policy_on_software_products-2019.pdf Ispirt held a Discussion on NPSP 2019 on 2nd March 2019 with Dr. A. K. Garg, Director MeitY and iSPIRT volunteers Shoaib Ahmed, Amit Ranjan, Nakul Saxena and Sudhir Singh. A vedio of the discussion is placed below.   Given below is the transcript of the main part of the discussion. (We have tried our best to put this but It is not a ditto verbatim transcript but what each participant spoke in essence).  It is advised to watch and listen to the video. Sudhir Singh started the discussion and invited Dr. A.K. Garg to give an overview on the policy. Dr. A.K. Garg – The policy gives wholistic looks and a single window opportunity. issues involved with HS Code. Three tire effort of building a talent pool. First, Appraising Students at school level that there is a difference between product and services. Second, Dedicated pool of developers dedicated to products. Third, Developing a pool of people who can be mentors The other aspects we have looked at is, how do we provide dedicated market access to the product space. Unless and until there is a dedicated and early market access, we cannot create opportunities. We have not looked at graduating this from services industry to product industry, but we are looking at a completely new set of eco-system that will created around the product space, that is one thing which is very important and hallmark of this policy. Sudhir – in the Strategy section 1 that deals with ‘Promoting Software Products Business Ecosystem’ creating ‘Product registry was an important aspect that can be further utilised to create incentives, schemes and programs. Amit Ranjan – what can not be measured can not be improved, going further on the line, what can not be defined can not be measured. The government is taking a proactive view od first defining what is a Product and then a logical breakdown of that is building the registry, building the classification and codification system. So at least the system recognizes the different dimension and different players in the industry and then once you have a clear understanding of it than you know you can tailor policy and you can do specific thing for specific part and creating this registry will lead to mapping the industry and there after many things could emerge out of the system Nakul Saxena –  One of the main objectives of iSPIRT was to create a special focus on Software products and thanks to people like Mr Garg and Secty MeitY and the Minister that we finally got this out. The HS code creation can help product companies to get preferential inclusion in Government procurements and Software products being included in many of the international agreements, especially where Govt of India gives grant to developing countries. Shoaib Ahmed – Is the definition of Software product clear (referring to the early phase of development of policy when there was lot of debate on this part). Nakul – the definition on Software product company is that that the company need to be owned 51% by Indian origin person and IP should reside in India.” Dr. Garg – lot of thinking has gone in to Software product and Software product company. The first and foremost thing is that, it is a very dynamic world and what we have taken is an approach where Software product definition can adjust to changing dynamics. Initially we thought we will not keep any definition, but ultimately, we had to with pressure of various stake holders. Sudhir – requested Nakul to take up the second Strategy section on Promoting Entrepreneurship & Innovation. Nakul – One of the important features of the Policy is that Govt. and MeitY will be putting together 20 Grant Challenges to solve for specific eco-system problems in education, agriculture and healthcare. He mentioned that Secretary has asked to quickly start working on the Grant Challenges. Dr. Garg – Can we crowed source ideas using iSPIRT and Policy Hacks platform. Nakul – Yes, we can. This is a welcome idea and suggested we can have Policy Hacks session to structure discussions and then invite ideas. Dr. Garg – (further spoke on skilling)  for skill development to suit product space, one has to think product and live with it. We have to think through a program that can create a pool of 10 to 15 thousand product professionals who understand product eco-system can help innovation and creation of new ideas and or mentor product companies. And that will be the most important dimension for creating a product eco-system. Shoaib – I think that is a wonderful point and a very important point, beyond the technology and is a combination of skills with one being important is understanding of product market and development of these skills is important. Amit – The way to think about it is that we have to catch people when they are young and I actually see this playout when lot of times when student are in their secondary education, when they are doing their class 10th or 12th, if you are able to educate them at this stage then it takes very early root in their mind. Product system is all about being experimental and all about being failing then retrying and then improving via every attempt. We should educate them about what is a Product how is it different from Services. We do not have lot of Product success stories from India. But educate them and then skill building comes at secondary stage. Dr. Garg – We do not have to replicate the Silicon valley model and that will never work. We have to think and India specific solution that will work. Shoaib – We need to create an India eco-system, there are a few success stories which we have in India, we need not copy but which need to be understood. Sudhir – There are two more points covered in this section of Strategy. One is on common upgradable infrastructure to be created to support startups and software product designers to identify and plug cyber vulnerability. The second being creation of a Centre of Excellence will be set up to promote design and development of software products. Dr. Garg – the first market in Cyber Security is Govt. So creating a single repository of various Indian Cyber products will help. The other thing could be understanding Indian cyber problems and through Challenge grant on some of these problems. Sudhir – let us take up the Strategy section on improving access to market. Requested Nakul to start. Nakul – for Indian Companies to start growing and start scaling it is important getting some anchor customer. The policy has taken care of this aspect for Product companies to get access to anchor customers and then compete within domestic and international market. But the product entrepreneurs have also to be aware how to deal with Govt. RFP. Dr. Garg – So first two anchor customer are important. In Govt. space we are working on Gem to provide interface to Indian Software product. But we need to think how these product companies tie up with System Integration Companies and their interest are not compromised by Sis. Second thing is awareness building in various Govt. agencies. A young entrepreneur may not be able to get to the right stake holder, how does he get this access is what we need to think through. We will be very happy to get your views on creating access to first market. Amit – this is a very important point, especially in the context of SaaS companies, there is an unwritten rule that Indian Domestic market is not big enough or pay enough to sustain many of the SaaS startups. And that is why many VCs are suggesting that you can build a SaaS Company of out of India but that is essentially for engineering, product design but the market it self you will have to go overseas. Development of the Indian domestic market is extremely important. One of the factors which will play a role there is kind of graduating these startups up the Quality ladder as well. The buyer will look for best product in market at best price. By focusing on Quality, they can compete with foreign companies. It is very important to break this negative feeling in the Eco-system that if you are SaaS you can not sell in India, you have to go out. Shoaib – my point is that Quality software and creating a eco-system.  Selling Software, servicing Software and manage Software is a complete different eco-system. Making sure that policy supports that and recognizes it, is the first step. I think we have started with that and I am happy to spend more time to contribute on what does it take to do this. Dr.Garg – if you have a Quality and you do not have a brand it a challenge. Sudhir – this section again mentioned in Policy creating a Software product registry and connecting this with Gem for government product. Sudhir – Let us move on to the last strategy section on implementation. I remember that the ‘National Software Product mission’ (NSPM) was proposed by iSPIRT in to the policy. NSPM can play a vital role as it can become an umbrella cover. Using this it may be possible to create many schemes and program. For example, we have a formidable SaaS industry and it may be possible to quickly create a SaaS product registry and use Gem to get access to Government. Once the registry is created may be Govt. can also issue and advisory to state Government to adopt products from this registry. Dr. Garg – One of the important things is we have to educate the people, and secondly, we have to educate the people on procurement model. Most of the time procurement models are one-time purchase, whereas in a SaaS you have to budget every quarter or every month or it will be pay per use also. Which is a very difficult proposition in Govt. to be approved. One of this thing that come in to my mind is the entry barrier have to be made easier, e.g. there is lot of activity around e-commerce. Now Govt. is actively going to promote product. The e-commerce system is far more developed, it has lower gestation. You can find few companies having valuation of Billion dollars, but that is not true of Product startups. So, we need to see how do we make entry barrier lower for entrepreneur of product companies, other wise human nature is to go by the path of least resistance. Product takes much longer to build, the gestations are much longer, risk are much higher. Shoaib – the challenge are to get role models going, to showcase this. Education is some thing we have been talking about from two dimensions, one is the entrepreneur, second is the Indian SME customer or the Indian customer. The Participants did deliberate further on important of early implementation of NSPM and working on various section of Policy and providing active support from iSPIRT.  The discussion was closed with final remarks from the participants. (please listen/watch the Video for further details on final deliberations). The main Salient features of this policy for benefit of users are as follows:
  1. The visision is to make India a Software product leader in world
  2. In it’s mission – It aims at a ten-fold increase in India’s share of the Global Software product market by 2025, by nurture 10,000 technology startups, upskill 1,000,000 IT professionals and setting-up 20 sectorl technology cluster.
  3. The policy has 5 Strategie to implement the policy.
  4. Strategy are 1 – Intendents to create a congenniel environment for Sofware product business.
  5. An important feature of the policy is creation of a Software product registry of India that can facilitate implementation of schems and programs in future, creation of a HS Code category for Software products.
  6. To boost enterprenure ship, it itends to create a Software Product Development Fund (SPDF) with 1000 Croroe contributed by ministry in a fund of funds format. Remaining coming from private sources.
  7. 20 dedicated challenge grants to solve societal challenges.
  8. Readying a talent pool of 10,000 committed software product leaders
  9. Improving access to domestic market for Software product companies and boost international trade for Indian Software products.
  10. Lastly setting up of a “National Software Product Mission (NSPM)” to be housed in MeitY, under a Joint Secretary, with participation from Government, Academia and Industry. NPSM will further drive implementation of the policy and be able to craft schemes and programs for the said purpose.
An important part of announcing the scheme has been done. This has now to be leveraged to create a momementum in Software product. iSPIRT is committed to see the further development of India as a Product Nation.
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India powers up its ‘Software Product’ potential, Introduces National Policy on Software Products (NPSP)

This is an exciting occasion for our indigenous software industry as India’s National Policy on Software Products gets rolled out. This policy offers the perfect framework to bring together the industry, academia and the government to help realise the vision of India as a dominant player in the global software product market.

For ease of reference, let us summarise some of the major things that the policy focuses on

  • Single Window Platform to facilitate issues of the software companies
  • specific tax regime for software products by distinguishing  them from software services via HS code
  • enabling Indian software product companies to set off tax against R&D  credits on the accrual basis
  • creation of a Software Product Development fund of INR 5000 crores to invest in Indian software product companies
  • grant in aid of  INR 500 Crores to support research and innovation on software products
  • encouragement to innovation via 20 Grant Challenges focusing on Education, Healthcare & Agriculture thus further enabling software products to solve societal challenges
  • enabling participation of Indian software companies in the govt. e-marketplace to improve access to opportunities in the domestic market
  • developing a framework for Indian software product companies in government procurement.
  • special focus  on Indian software product companies in international trade development programmes
  • encouraging software product development across a wide set of industries by developing software product clusters around existing industry concentrations such as in automobile, manufacturing, textiles etc.
  • nurturing the software product start-up ecosystem
  • building a sustainable talent pipeline through skilling and training programmes
  • encouraging entrepreneurship and employment generation in tier II cities
  • creating governing bodies and raising funds to enable scaling of native software product companies.

There is good cause for cheer here. The policy offers to address many of the needs of the Software Product Ecosystem. For the first time, HS codes or Harmonised Codes will be assigned to Indian software product companies that will facilitate a clear distinction from ‘Software Services’ facilitating availing of any benefits accruing under the ‘Make in India’ programme. In addition, this will enable Indian software product companies to participate in govt contracts through registration on GeM (Govt. eMarketplace).

Considering that we remain a net importer of software products at present, steps such as the inclusion of Indian software products in foreign aid programmes, setting up of specialised software product incubators in other geographies and promoting our software product capabilities through international exhibitions definitely show intent in the right direction. With a commitment to develop 10000 software product start-ups, with 1000 of them in tier II cities, technology entrepreneurs building IP driven product companies can now look forward to infrastructural and funding support. The policy also aims to go beyond metro-centric development with a commitment to develop tech clusters around existing industry concentrations, enable skilling and drive employment in non-metros and tier II cities while actively encouraging Indian software companies to solve native problems.  

This policy could not have been possible without the vision of the Honourable Minister Shri Ravi Shankar Prasad, and continuous engagement and discussions with Shri Ajay Prakash Sawhney, Rajeev Kumar and Ajai Kumar Garg from MEITY and their team.

We have seen software companies solving native problems do exceptionally well, just look at what Paytm has been able to achieve while driving digital payments in India. There is now an understanding ‘Make in India’ can help us bridge the digital divide given that Indian entrepreneurs have a greater understanding of local issues and the challenges that are unique to us.

Setting up bodies such as the National Software Products Mission in a tripartite arrangement with the industry, academia and govt. to enable creation and monitoring of schemes beneficial to native software product companies is another much-needed step that will create a forum distinct to our software product companies and help give them a strong voice.

We would like to thank Lalitesh Katragadda, Vishnu Dusad, Sharad Sharma, Rishikesha T Krishnan, Bharat Goenka, T.V. Mohandas Pai, Arvind Gupta for their diligent efforts on the continuous dialogue and inputs for the policy.

While launching the policy is a great start, its implementation is what we all will have our eyes on. Now is the moment of action. We all look forward to fast-tracking of the various proposed measures under this policy for the benefits to start showing!

Website link to the official policy –  (https://meity.gov.in/writereaddata/files/national_policy_on_software_products-2019.pdf)

References

J​ANUARY​​ 15, 2019​ – ​https://tech.economictimes.indiatimes.com/news/internet/india-needs-to-win-the-software-products-race/67533374

DECEMBER 8, 2016​ – ​https://pn.ispirt.in/what-to-expect-from-draft-national-policy-on-software-products/

NOVEMBER 13, 2016​ – ​https://pn.ispirt.in/national-software-policy-2-0-needed/

MAY 10, 2016​ – ​https://pn.ispirt.in/taxation-and-digital-economy/

APRIL 29, 2016​ – ​https://pn.ispirt.in/saas-the-product-advantage-and-need/

JULY 16, 2014​ – ​https://pn.ispirt.in/government-recognizes-the-software-product-industry/

DECEMBER 11, 2013​ – ​https://pn.ispirt.in/three-waves-of-indian-software/

JULY 16, 2013​ – ​https://pn.ispirt.in/smbs-and-indian-software-product-industry-intertwined-fortunes/

JULY 4, 2013​ – ​https://pn.ispirt.in/8-truths-why-it-services-organizations-cannot-do-software-products/

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#2 Federated Personal Health Records – The Quest For Use Cases

Last week we wrote about India’s Health Leapfrog and the role of Health Stack in enabling that (you can read it here). Today, we talk about one component of the National Health Stack – Federated Personal Health Records: its design, the role of policy and potential use cases.

Overview

A federated personal health record refers to an individual’s ability to access and share her longitudinal health history without centralised storage of data. This means that if she has visited different healthcare providers in the past (which is often the case in a real life scenario), she should be able to fetch her records from all these sources, view them and present them when and where needed. Today, this objective is achieved by a paper-based ‘patient file’ which is used when seeking healthcare. However, with increasing adoption of digital infrastructure in the healthcare ecosystem, it should now be possible to do the same electronically. This has many benefits – patients need not remember to carry their files, hospitals can better manage patient data using IT systems, patients can seek remote consultations with complete information, insurance claims can be settled faster, and so on. This post is an attempt to look at the factors that would help make this a reality.

What does it take?

There are fundamentally three steps involved in making a PHR happen:

  1. Capture of information – Even though a large part of health data remains in paper format, records such as diagnostic reports are often generated digitally. Moreover, hospitals have started adopting EMR systems to generate and store clinical records such as discharge summaries electronically. These can act as starting points to build a PHR.
  2. Flow of information- In order to make information flow between different entities, it is important to have the right technical and regulatory framework. On the regulatory front, the Personal Data Protection Bill which was published by MeitY in August last year clearly classifies health records as sensitive personal data, allows individuals to have control over their data, and establishes the right to data portability. On the technical front, the Data Empowerment and Protection Architecture allows individuals to access and share their data using electronic consent and data access fiduciaries. (We are working closely with the National Cancer Grid to pilot this effort in the healthcare domain. A detailed approach along with the technical standards can be found here.)
  3. Use of information – With the technical and regulatory frameworks in place, we are now looking to understand use cases of a PHR. Indeed, a technology becomes meaningless without a true application of it! Especially in the case of PHR, the “build it and they will come” approach has not worked in the past. The world is replete with technology pilots that don’t translate into good health outcomes. We, in iSPIRT,  don’t want to go down this path. Our view is that only pilots that emerge from a clear focus on human-centred design thinking have a chance of success.

Use cases of Personal Health Records

Clinical Decision Making

Description: Patient health records are primarily used by doctors to improve quality of care. Information about past history, prior conditions, diagnoses and medications can significantly alter the treatment prescribed by a medical professional. Today, this information is captured from any paper records that a patient might carry (which are often not complete), with an over-reliance on oral histories – electronic health records can ensure decisions about a patient’s health are made based on complete information. This can prove to be especially beneficial in emergency cases and systemic illnesses.

Problem: The current fee-for-service model of healthcare delivery does not tie patient outcomes to care delivery. Therefore, in the absence of healthcare professionals being penalised for incorrect treatment, it is unclear who would pay for such a service; since patients often do not possess the know-how to realise the importance of health history.

Chronic Disease Management

Description: Chronic conditions such as diabetes, hypertension, cardiovascular diseases, etc. require regular monitoring, strict treatment adherence, lifestyle management and routine follow-ups. Some complex conditions even require second opinions and joint decision-making by a team of doctors. By having access to a patient’s entire health history, services that facilitate remote consultations, follow-ups and improve adherence can be enabled in a more precise manner.

Problem: Services such as treatment adherence or lifestyle management require self-input data by the patient, which might not work with the majority. Other services such as remote consultations can still be achieved through emails or scanned copies of reports. The true value of a PHR is in providing complete information (which might be missed in cases of manual emails/ uploads, especially in chronic cases where the volume and variety of reports are huge) – this too requires the patient to understand its importance.

Insurance

Description: One problem that can be resolved through patient records is incorrect declaration of pre-existing conditions, which causes post-purchase dissonance. Another area of benefit is claims settlement, where instant access to patient records can enable faster and seamless settlement of claims. Both of these can be use cases of a patient’s health records.

Problem: Claim settlement in most cases is based on pre-authorisation and does not depend solely on health records. Information about pre-existing conditions can be obtained from diagnostic tests conducted at the time of purchase. Since alternatives for both exist, it is unclear if these use cases are strong enough to push for a PHR.

Research

Description: Clinical trials often require identifying the right pool of participants for a study and tracking their progress over time. Today, this process is conducted in a closed-door setting, with select healthcare providers taking on the onus of identifying the right set of patients. With electronic health records, identification, as well as monitoring, become frictionless.

Problem: Participants in clinical trials represent a very niche segment of the population. It is unclear how this would expand into a mainstream use of PHR.

Next steps

We are looking for partners to brainstorm for more use cases, build prototypes, test and implement them. If you work or wish to volunteer in the Healthtech domain and are passionate about improving healthcare delivery in India, please reach out to me at [email protected].

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iSPIRT’s Response to Union Interim Budget 2019

Our policy team tracks the interest of Software product industry

INDIA, Bangalore, Feb 1st, 2019 – Proposals for Union budget of 2019 have been announced today by Finance Minister.

Being an interim budget not many announcements were expected. Some of the important announcements that may affect the expansion of the economy, in general, owing to increased income and ease of living in the middle class are as follows:

  1. Within two years tax assessment will be all electronic.
  2. IT return processing just in 24 hours
  3. Rebate on taxes paid for those with an income below 5 lakhs
  4. TDS threshold on interest income by woman on bank/post office deposits raised from Rs. 10,000 to 40,000
  5. Increase in standard deduction from Rs. 40,000 to 50,000
  6. Rollover of Capital gains tax benefit u/s 54 from investment in one house to two houses, for a taxpayer having capital gains up to Rs. 2 crore
  7. Recommendation to GST Council for reducing GST for home buyers
  8. Exemption from levy of tax on notional rent, on unsold inventories, from one year to two years
  9. Many benefits announced for Agriculture and Rural sector

The coining of the phrase “Digital Village” and placing it second on the list of ten-dimension vision statement in budget speech is a welcome step. The statement nudges the next Government to improve access to technology in rural India, a welcome step. We expect “Digital India” and easy and quality access to the internet for every citizen will remain a focus area, irrespective of which government comes to power.

The government has announced a direct cash transfer scheme for farmers. We are happy to see that technologies like the India Stack are being used by policymakers for effective policy-making irrespective of political ideology. Cash transfers promise to be more efficient initiatives that directly benefit our poor without needing them to run from pillar to post trying to prove their identity and eligibility. “Similarly, startups and SMEs remains a focus area in the vision statement. These are very important for a healthy ecosystem built up.

Similarly, focused phrases such as “Healthy India”, “Electric Vehicle” and “Rural Industrialisation using modern digital technologies” are welcome ideas in ten-dimension vision for Indian Software product industry and startup ecosystem.

However, among key issues for Startups and Investments which need to be addressed but have been missed out are Angel tax and Tax parity between listed and unlisted securities. Angel Tax is a very important issue which needs to be addressed conclusively at the earliest. We need to ensure gaps between policy declaration and implementation do not cause entrepreneurs and investors to relocate themselves aboard.

About iSPIRT Foundation

We are a non-profit think tank that builds public goods for Indian product startup to thrive and grow. iSPIRT aims to do for Indian startups what DARPA or Stanford did in Silicon Valley. iSPIRT builds four types of public goods – technology building blocks (aka India stack), startup-friendly policies, market access programs like M&A Connect and Playbooks that codify scarce tacit knowledge for product entrepreneurs of India. visit www.ispirt.in

For further queries, reach out to Nakul Saxena ([email protected]) or Sudhir Singh ([email protected])