When Uncle Sam sneezes, India catches a cold. In a networked age, you catch it fast. How far has India been hit by the spreading uncertainty across the western world? Som Mittal, President of the National Association of Software and Services Companies (Nasscom), opens up on very many issues in a candid chat with Anuj Srivas. Excerpts:
How has the slowdown impacted the IT Industry?
We are integrated into both the Indian and global economy and, therefore, it surely will always have some impact. However, on the other hand, technology is such a transformational tool. In periods of crisis, people need more technology. The Indian crisis impacts more in terms of inflation (as it does anybody) and so on. . Also, sometimes you find the decision- making in the government gets slow. This is the time for us to invest in the economy, because this phase will pass. Fine we have 6 – 6.5 % growth, which is much less than the 9 per cent that we had. But what were our fundamentals? We were not an export-based economy; ours is a consumption-based economy. People are moving up the social ladder/economic ladder constantly, and because of that, they are becoming consumers. And that has not changed. And, that will not change. It’s just that sentiments will get lower, and we will get pulled down.
How has the crisis in the U.S. and Eurozone affected the industry Will the growth forecast be revised?
Looking at the global side, the scenario is a little different. Yes, clearly, there was a time where our visibility used to be four- five quarters. Now, there is uncertainty. Customers take shorter decisions; there are not big-bank projects.
Our ability to forecast has become less. Now it has dropped to two quarters. We have never given a growth range like 11 to 14 before – a clear indication of the uncertainty. But even if you take 11 – 14, the median is 8 – 9 billion dollars of growth, which speaks volumes in itself.
Banking (and investment banking generally) indeed has become flat, which is a huge business for us. But we are getting into new verticals such as insurance and analytics. There is a lot of thrust on these areas. The good news is that irrespective of where we are, countries will continue to invest – they just move into new fields such as ‘domains’.
The upcoming U.S. elections have outsourcing as an important issue. Has this accompanying heat and pressure affected the industry? How is NASSCOM weathering it?
Till the U.S unemployment comes down significantly, this debate will always be there. However, the fact is that in the tech space (which is ours), the unemployment rate of college graduates is less than 4 per cent. And, they need highly skilled manpower. In the end, what we do is actually good for the U.S. economy. We are not supplying goods to citizens; we are just improving the competitiveness of the companies that are there. We aren’t supplying shirts or shoes in a cheaper way. In the end, it’s not about India or Indian companies. It’s about the U.S. and its economy and they see the benefit. However, there will always be noise, and introduction of new bills. The majority of them will not go through, and we will bring it to the notice of people that some of these bills could be disruptive.
We did a recent study, which found that we are responsible for the creation of jobs in the US. Last year, we supported 280,000 jobs. We have invested more than 5 billion dollars in FDI through acquisitions and green-field projects. Therefore, I think, they are slowly realizing that we are a part of the solution for them. Even President Obama, while he talks about call centres on and off, is concentrating more on getting manufacturing jobs back in the fields of retail, construction, government, etc. Not the tech-industry. The unemployment rate is the highest in those areas, not the tech-space.
How has the rupee depreciation helped/hurt IT services?
It actually doesn’t help us very much. If you look at in the long-run, a rupee at the level that it is today, would obviously help improve our competitiveness. Not profitability, but competitiveness. It takes care of things such as our inflation costs. Why does it help us in the short-run though? When we sign contracts, we sign it assuming a particular currency rate. If we signed up a contract, two years back, which was at 49, we covered it at 49. Either way, we don’t want the rupee to be either a profit centre or a loss centre.
Mind you, India is running a huge current account deficit, and IT services are the highest value-add exports. Ours are almost 65 – 70 per cent value add. I think we are major contributors to the balance of payment in that context and, therefore, the government should help in promoting this. As long as it benefits to remain competitiveness, it is good. A weak rupee at this point, if that is where it will stabilize, will help us in long-term competitiveness especially against other countries.
Visa standards, procedures, guidelines and acceptance criteria are constantly shifting and changing, what is NASSCOM doing in this regard?
Internationally, we work very closely with all the governments. In most cases, some of these governments mix up immigration with trade. We are not for immigration. We are here for trade. The difference is that our people go on an average for less than two years. (Some go for 6, or 8, but on an average.)
If you look at the UK case, they have understood this. They have cut down on every other visa except intra-company transfers. We have no quota on intra-company transfers. We have an assurance form the U.K. authorities that for the next two years there will be no change – making it a predictable scenario for us. In case of the U.S, they actually do not have a work-permit, no employment visa. While there are guidelines, the way it is done is subject to a lot of interpretation by them.
For example the rejection rates we are facing on L1 visas are because it is for specialized knowledge. The question then becomes how are you going to determine what is specialized knowledge? Up till now, everything was working well, but now they have started putting a different yardstick on it.
Similarly, B1 visas have always been used for training (not working). What was okay then, they are rejecting now. We have provided our suggestions and guidelines, which they have not accepted. But we are expecting new guidelines to come out from CIS – Citizenship and Immigration Service (which will be up for debate for 60 days), where will we have a chance to comment on it.
This is a top priority for us.
What is the roadmap ahead?
Growth in the next 10 years is going to come from exploring new geographies, which includes the opportunities here in India. The U.K. and the U.S. are dominating so far. Areas such as Latin America are going to be looked at next. But looking at a longer-term it should be Japan and China (which have the second and third biggest markets) where we are less than 3 per cent.
Traditionally, we have focused high-tech, BFSI etc. However, the next area would be to look at the public sector – every Government has to become more efficient. So, it is public sector, its utilities, entertainment, media, even green areas which are going to be the new verticals.
Third, is a new customer base. So far, we have focused on large corporations, but SMBs are a very large market, both in India and abroad. So that is one major thrust area.
Coming to bottlenecks, as a country we have to ease up business from the uncertainties of policy. We have to make India a country which is easy to do business in and with. So things like multiple taxation and retrospective taxation impact the business moods, it’s just our tax administration, which leads to huge amounts of litigation.
We just need stable, predictable polices along with good tax administration and a level of trust that they should have.