Bangalore: The Indian information technology (IT) industry will return to a double-digit growth rate on a larger base soon, saidSom Mittal, president of Nasscom, the software industry lobby. Edited excerpts from an exclusive interview:
Is the worst over for the Indian IT sector?
Last year, when the Indian IT industry reported a growth rate of 16%, it essentially masked the negative growth which happened in the last two quarters because of the spectacular growth in the first two quarters. Such kind of negative growth was unprecedented in the history of Indian IT. We had got accustomed to a 24-28% CAGR (compounded annual growth rate) over, say, the last five years.
Bullish note: Nasscom’s Mittal says efficiencies have risen between 3% and 5% depending on a firm’s utilization during the economic crisis, while fixed price contracts are up 7% giving them ability to manage margins. Hemant Mishra / Mint
In the first two quarters of the current year while there has been a quarter-on-quarter growth, for the entire half year it is still flat as compared with the same period last year. So we believe we will end up with around 4-7% growth this year compared with the whole of last year.
The good news is that all the indications show we will return to double-digit growth rates next year. Look at the signals. Companies are back to recruiting. Customers of the Indian IT industry (that I have been meeting) are telling me that they have taken their fingers off the pause button. They are setting budgets for the next year (which traditionally happens in December). We will definitely witness double-digit growth rate (next year) and remember this is on a much larger base.
What have Indian IT companies been doing to enhance their competitive advantage?
Indian IT has not wasted this crisis. Our efficiencies are up anywhere between 3-5% depending on company to company utilization. Our fixed price contracts have gone up by 7% giving us the ability to manage margins (though risks are also higher), unlike the traditional time and material contracts. Our percentage of onsite work has gone down indicating customers’ confidence in our delivery abilities. We have started addressing newer geographies, newer customers, newer verticals.
However, we cannot be complacent. Countries like China, (the) Philippines, Vietnam, Egypt, Jordan and other Latin American countries are also getting their act together. While we have an edge, we cannot be complacent.
China has come up with this war cry of 10x100x1,000 given by their prime minister; 10 hubs like Bangalore, 100 multinational companies (MNCs) to service their parent companies and 1,000 Chinese companies to service the world. They are investing in education, infrastructure and English, and they are wooing both Indian and other MNCs to come there with incentives.
For example, if we want to crack the Japanese market (the second largest IT market after the US), we need to do better. We just have 450 students studying in Japanese universities whereas China has 80,000. To crack the Japanese, German, French and other non-traditional markets, we need to have the language and cultural skills.
Won’t decreasing onsite work create a backlash at a time when the Obama administration is incentivizing companies to create US jobs?
Increase in offsite work happened because customers wanted to reduce their costs. This was led by the customers and not by (Indian IT companies). If you look at the job losses (in the US), it has happened in construction, retail, manufacturing, financial services and some areas of technical services. There have been no job losses in technology.
What kind of support are you looking for from the government?
With regard to IT SEZs (special economic zones) some issues have been addressed in the budget, but more needs to be done. We were asking it be done with retrospective effect. The 10A and 10B issue (of concessions under the STPI, or Software Technology Parks of India, scheme being extended) has been done only for a year, whereas for the large number of SMB (small and medium business) players it should have been done with a five-year time frame at least. Our double taxation agreements have anomalies with regard to service industries like us which need to be corrected and clarified.