Srinivas Vadlamani, CFO, Satyam Computer Services, said the company has already initiated steps to move out of large cities. "We are planning to move into places like Vizag, Nagpur, Gandhinagar and Madurai and are setting up our own SEZs. This can lower our cost of operations, cut travel time and traffic congestion which our associates face in the Tier I cities," he said.

He says the government should offer incentives such as salary subsidy, free office space and liberal tax breaks spread over 10-15 years to make this move successful. Some of the Asian governments like China and Malaysia already offer such incentives.

"The state governments, for instance, can support the development of these areas by extension of similar tax benefits that are given to the Software Technology Parks of India (STPIs) and the Special Economic Zones ", said Natarajan. But it is not clear whether the government plans fiscal incentives - similar to those enjoyed by companies set up in software technology parks - in the proposed IT cities. Companies are hoping it would, citing the slow-down in the US economy and its impact on their bottomlines.

According to Sanjay Khendry, vice-president (global business development), Sierra Atlantic, the proposed move to set up new IT cities will also help improve lives of people in small cities. "It will also provide an opportunity for existing employees to move to their native places. It could lead to improved educational opportunities as new institutes could come up in these cities. For smaller firms, it will be an added advantage as they will be able to get access to a larger talentpool," he said.

The average salary bill for IT companies that have been battling attrition is a whopping 45% of the total cost. This could come down as companies expand their foot-print in the hinterland. India's $64 billion IT-BPO industry employs around 2 million people and accounts for 5.4% of the gross domestic product. It is expected to increase its workforce to 8 million by 2018.

Fiscal incentives apart (the lure of these IT townships would not be tax sops only although each township could consist of tax-free SEZs), the overall success of the new proposal would hinge on the speed and commitment with which the government will work towards improving and developing physical infrastructure and urban environment in these locations.

As per the policy cleared by the Cabinet a few weeks ago, the developer of these IT investment regions (ITIRs) could be the government, private entity or a public private partnership. It has been rather difficult to attract private money into greenfield urban infrastructure at locations far away from big cities despite the reduction in cost of funds due to the government's viability gap funding mechanism. An assured market for the infrastructure facilities in the proposed IT towns could be an incentive for private funds to flow in. Even if the SEZ tag is not there, section 80 1(A) tax holiday for infrastructure projects is anyway available.

ITIRs would play a major role in urbanisation of the country. These new towns could at least slow the pace of migration to big cities. As to the IT industry , it can cut costs and be less dependent on tax sops. It's a win-win situation.