The economic morass and Indian IT

We are truly living out the old Chinese curse “May you live in interesting times”.  As Ministers, top bureaucrats and senior members of Parliament spoke at keynotes and panels in the annual conference of CII, organized specifically to discuss the path to a return of economic growth, one fact became abundantly clear – every intelligent person in any position of influence in the country knows that we have hit a growth roadblock. Do we have a collective method of recognizing, accepting and removing these road blocks is the question that is always met with prevarication or silence!
It’s not that all is bad with the current state of the economy. Surely we can derive some satisfaction from the fact that the Gross Enrolment Ration in colleges is going up and the Right to Education bill has been passed, a National Manufacturing Policy has finally been formulated, the life expectancy in our country has almost doubled since Independence, some of the mission mode National eGovernment programs are being rolled out and over 200 million Indians will be covered by Nandan’s Adhaar scheme by end of the year. However the “policy paralysis” accusation that has been hurled often enough is now sticking, the land acquisition and labour reforms rationalization are yet to see the light of day and the delays in DRTC and GST implementation are likely to cost the country dearly. As one speaker rightly said, the roadblocks that were there in 1989 persist to this day and unless a way is found to eliminate friction in clearance and implementation processes, a quick return to a 8 to 9 percent GDP growth may well be a pipe dream.
For all of us in IT, the tax and duty issues for software products vendors, the lack of clarity on MAT for SEZs for the services folks and the weak budget for private equity and domestic venture capitalists does not augur well for a robust industry growth in this financial year at least.  A compounding factor is  the clouds that are hovering on the global economic horizon that have cause some concerns among the analyst community, particularly over the Financial Services vertical and large firms relying on hundred million dollar deals to keep their growth momentum intact. In an interesting report by a leading brokerage house on one of the large firms under the title “Rime of the ancient IT vendor” , three key shareholder concerns are articulated – how will companies who have been the darlings of the sector in India correct the loss of revenue and earnings to global peers, how will they restore predictability to their business and manage industry-leading operating parameters and finally when will they articulate a clear cash usage policy to avoid perceptions of shareholder value dilution.
In an industry which has been used to a CAGR of twenty percent, these questions have very rarely surfaced in the past but managements have to have strong answers ready if a period of lesser growth lies ahead!

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This Article was published in the April Edition of The DataQuest

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CII and the art of economic growth

The Confederation of Indian Industry’s annual meeting which starred the who’s who of government and industry had all the makings of a Bollywood potboiler! There was a debating society of parliamentarians Tharoor, Yechuri, Prasad and Singh that took the fine art of sarcasm and repartee to new levels but did not rain any new intelligence on the five hundred strong audience of business chiefs. It was amusing though not surprising to find that all the politicians from the treasury benches mouthed the party line and appeared almost startled at the extent of concern expressed at the economic quicksand the country is wallowing in. Leaders of the opposition could hardly conceal their glee at “watching the enemy commit suicide” as one worthy leader quipped!
As one takes stock of the year gone by, credit must be given to some of our well-meaning ministers for a few achievements and many new policy announcements. The National Manufacturing Policy with the creation of NIMZs, the multiple Education bills and the vocational education framework that are in play and the real progress in addressing skills are all signs of progress. However the track record of implementation of UPA-2 has been hardly creditable with many bills stuck in the quicksand of internal and external contradictions and the recent budget failing to enthuse both domestic and international investors and analysts. The admission of a state of political paralysis by one of the economic advisors to the Government and the suggestion that we would have to wait for 2014 to see any big ticket reforms can hardly provide much succor to over a billion Indians who are waiting to see a better future now that we know what it is to grow over eight percent, albeit for just a couple of years!
As Nandan Nilekani rightly pointed out, the country today spends over 300,000 crores in subsidies and other handouts. The role that initiatives like the UID or Adhaar can play in ensuring that finance and supplies flows to the right person at the right time has to be appreciated by the powers that be to eliminate major waste in the economy . Many other non-political steps – the Direct Tax Code, faster e-Government implementation to eliminate friction points between the Government and the citizens and well thought out PPP initiatives in Healthcare and Skills can also be accelerated to get some real results in the near term.
The IT industry has been hurt as well – by acts of commission that global software players are concerned about and acts of omission which smaller firms particularly product entrepreneurs fret about. As one of our most successful entrepreneurs has written in a recent hard hitting piece, the Government of Philippines must be thanking their Indian counterparts for the disillusionment of many IT CEOs which is resulting in the industry in that country growing faster than India. India has the potential to accelerate the growth of Software and Business Services exports to over three hundred billion dollars by 2020 if the right steps are taken to support and expand the sector. Clarity on transfer pricing and taxation, elimination or minimization of MAT on SEZs, special knowledge eco-system  creation in Tier 3 locations and tax and investment support to entrepreneurs creating valuable intellectual property from this country – the list can go on!
The results of the last quarter of the financial year FY 12 has been a mixed back. While most us have continued to grow our top lines though there have been some vagaries in the bottom line on a quarter to quarter basis, the results and more important the future commentary of some of the large firms have sent a few shivers down the spine of industry watchers and even prompted a rather unusual “open letter” from an analyst to one industry leader questioning the future directions of the firm. It is becoming clear that the next few quarters will not follow a predictable trend for the industry as a whole but the good stories will emanate from companies who are less defendant on Financial Services have a robust dual shore model and are able to have a wide enough portfolio to “farm” existing clients as well as “hunt” new deals!
And for a final thought, the near paralysis we are witnessing in the theater of political economics could not be better captured than the answer giving to a former public sector CEO who mentioned various reasons why his firm could not progress in the last few years. “The Government is seized of the problem” he was told! Will the nation itself have to get a collective seizure before an oxygen tank becomes visible to breathe life into the economy? These are interesting times, for the Government, the CII and all of us! There is a need for all of us to stay positive and defend the country vigorously in all international forums but it would be good to see some real steps towards progress in this financial year!
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This Article was published in the April Edition of The Financial Express

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Collaborating with Competitors

Kiran Karnik's new book launched at the recent Nasscom Leadership Forum is all about the theme of how people who fight bitterly in global and domestic competition are able to come together extremely well for common causes like global trade, innovation and other industry issues. It is a natural trait of all human beings to collaborate and we are only forced to take combative positions when the necessity of competition force us to do so !

My own experiences with NASSCOM over nearly two decades reveal that all IT CEOs are well meaning blokes and whether it is industry founder FC Kohli, doyen Narayana Murthy or even non resident former Chairmen like Raj Jain and Firoze Vandrewala, the alignment to the common cause is very strong indeed. Long may this bonhomie last and take this 100 billion dollar industry to a trillion by 2030 !

Kiran Karnik himself like his predecessor Dewang Mehta has collaborative skills as one of his main characteristics. I owe my Chairmanship of NASSCOM in 2008-09 to this man who genuinely believed that contributors should find their place in the sky even if it is resplendent with the shine of many bright suns !

Ganesh

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The IT industry status and outlook

The interesting conclusion one can draw from the FY12 outlook posted by NASSCOM is that the IT Services folks are still growing faster than the BPO and Engineering Services and Products players in spite of a much larger base. My own belief is that this will not change in the foresseable future. All of us who are significant players in services are embracing non-linear growth and creating IP as well as new platforms for Cloud and BPO which will enable us to maintain growth and profits and transform to true solutions companies.

Next year will be tougher though NASSCOM's 11- 13 percent growth outlook for Exports seems to be overly pessimistic in my opinion. We all will do better than that !

For the Product folks the challenges remain - finding the right niche, getting adequate access to capital and dominating the chosen market. This game is far from being played out !

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Its a new world !

In spite of all the doomsday forecasts for the global and Indian economy, the new year has started off reasonably well. The Stock markets are up, the rupee is the best performing currency in Jan and the outlook for the IT sector is fairly decent both for CY 12 and FY 13.

So relax folks, no need to worry ....yet!

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