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Any slowdown in the IT industry can have a cascading effect: Lakshmi Narayanan

Lakshmi Narayanan: “The IT/BPO industry has done a phenomenal job for the economy as a whole in terms of creating employment opportunities.”

NASSCOM has called for a new policy for the IT sector. The industry is concerned about the sharp appreciation of the rupee. It wants to consolidate its leadership position and ward off competition from other countries, including China. NASSCOM chairman Lakshmi Narayanan, who is Vice Chairman of Cognizant Technology Solutions, responds to questions on e-mail.

We have seen different States announce different IT policies with the intention of attracting investments. For instance, Tamil Nadu has taken the lead in stating that it will focus on knowledge and education, and promotion of Tier-II and Tier-III cities. In the area of education, Tamil Nadu has encouraged creation of self-funded colleges, autonomy to deserving colleges, and setting up education academies to promote faculty development. Likewise, at the central level too, there have been policies pertaining to STPI, SEZ, upgrading of RECs to NITs, and so on.

Today’s situation is a little different. While the States are competing for IT and BPO investments because they create huge employment potential, nations too have started competing for exactly the same reason. Countries such as China, Philippines, Malaysia, Sri Lanka and those in Latin America are more than keen to participate in the new knowledge economy and are offering incentives for investments.

In this context, we need to review our policies and regulations to ensure that the policy intent of encouraging the IT and BPO industry is reflected in the regulations and their implementation. It is also important to change them according to changes in the global competitive scenario.

One such change that we have been requesting is the extension of the STPI scheme. This scheme clearly helped the industry get to where it is today. There are so many new opportunities and business models for services that can be delivered from India. Some of these are architectural services, textbook preparation, media publishing and legal services. Many of these services are being pioneered by start-ups and companies in the interior parts of the country. This policy change will enable the creation of more companies, service lines and greater employment in small-and medium-sized (100-500 people) companies located in diverse locations in the semi-urban and urban hinterland.

While we firmly believe that the movement of the rupee against foreign currencies such as the U.S. dollar is best left to market forces, drastic appreciation of the rupee is difficult for the industry to manage. In the past, the industry has comfortably managed the appreciation of the rupee from Rs. 48 (in 2003) to Rs. 44 (in early 2007). But this time around, such an unprecedented rise in a short time frame is a cause for concern.

Large IT companies with robust margins may suffer an impact on their bottom line, but are in a good position to absorb or even counter the effect. However, the BPO segment — and small and emerging companies, which typically have lower margins — will be hit hard.

Just as the Reserve Bank of India intervenes in the currency market to ensure that there is no runaway appreciation or depreciation in the currency, the government can also ensure that the interests of the industry are protected. One important step in this direction will be the extension of the STPI scheme and Section 10A/10B tax benefits for another 10 years. This will go a long way in benefiting the smaller IT/BPO companies.

The IT/BPO industry has done a phenomenal job for the economy as a whole in terms of creating employment opportunities, both direct and indirect. We have over 1.6 million people working in the IT/BPO sector directly. Secondly, it has also been an industry that has invested its cash flows back into the business for sustained, long-term growth, education and training initiatives. For example, the BPO industry now hires even non-graduates and develops them into industry professionals. Considering the employment generation potential and its ability to deliver sustained and predictable growth, any slowdown in the industry can have a cascading impact on job creation.

It is also important to recognise that the IT industry is still far away from achieving a dominant status, say, as in the case of the diamond business in South Africa. We cannot assume that other countries or other disruptive technologies will not emerge as viable alternatives to India.

NASSCOM has been vocal about the issue and has often said that this industry follows the best human resources practices globally, and takes utmost care of its employees, the biggest asset of this industry. Labour unions have traditionally been associated with labour-intensive industries such as manufacturing. This industry offers employees direct access to CEOs, and wide-ranging medical, transportation and travel benefits. However, we have never mandated forming or not forming unions and have always maintained that it is up to the employees to decide whether they need a union.

I also think that self-regulation is the best form of regulation for any sector, and administered regulation in any form is not the answer.

India has taken a leadership position in the IT/BPO sector and we should be able to maintain it with investments in education and innovation. NASSCOM recently released a detailed White Paper on China that analyses the Indian and Chinese markets and the industry in both the countries. The findings clearly show that while China’s focus is on the domestic market and its potential is more advanced than India’s, when it comes to exports growth, India is still a few years ahead of China.

However, to maintain this leadership position, the industry will have to invest in innovation and in evolving newer business models that can deliver greater value to the customers. For instance, innovation in areas such as remote diagnostic care and tele-pathology has started to happen from India for global medical and healthcare professionals. In such innovation, China will have a lot of catching up to do.

I think there is a lingering uncertainty about investment policy in the country and it may not have anything to do with the rupee. Some of the large offshore financial services captives, who have been in India for several years and who we are in touch with, have said that they are moving newer investments to other destinations. As long as there is uncertainty, such instances may only grow as we go along.

The movement by the IT industry players into Tier-II and Tier-III cities is not merely about cutting costs. I think it is a conscious move to ensure that we go wherever talent pool is available and create opportunities for broad-based and diversified growth. The industry is making these proactive moves to be as inclusive as possible and to ensure that the digital divide narrows, rather than widens, in the coming years.

On the issue of infrastructure, even in the metros, the industry has been spending a lot of money on transportation, power, communication and security, which all add up to the total industry cost. If the public transportation is good, power supply is reliable, and law and order is of the highest order, these costs can come down tremendously for companies in this industry. In turn, the money thus saved can be deployed for more constructive projects and infrastructure creation in the Tier II and Tier III cities across the country.

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