Bangalore: In 2006, when the Union government outlined its ambitious National e-Governance Plan, or NeGP, covering 26 critical projects involving an investment of Rs23,000 crore over five years, there were high expectations among information technology (IT) firms.
Graphics: Sandeep Bhatnagar / Mint
For India’s IT companies that relied heavily on the US and Europe—some two-thirds of their total revenue comes from these regions—NeGP widened the domestic market and provided an opportunity to work with the government.
Its projects needed core infrastructure, support and technical assistance in various areas, including agriculture, income tax, land records, pensions and passports.
Similarly, when the government introduced an offset clause on defence purchases—making it mandatory for foreign firms to procure locally components worth 30% of the total value of the contract—Indian IT companies again sensed opportunity.
Government projects, defence and homeland security seemed to be the next wave to power the growth of IT companies.
But three years after the announcements were made, only a few of the projects have been awarded.
“Nobody can deny the scale and size of the opportunity. (But) yes, there is a gulf between the ideation to implementation stage,” said Tanmoy Chakrabarty, vice-president and head of the global government industry group at India’s largest software firm Tata Consultancy Services Ltd, or TCS. “The entire process is slow, and we would like to see greater momentum in the decision-making process.”
TCS gets around 7.8% of its total revenue from the domestic services market, including a few of the government projects awarded so far.
The single largest IT project the government has awarded in recent times is the Rs1,182 crore Panchdeep, by the Employees’ State Insurance Corporation to Wipro Ltd, the country’s third largest software firm, to improve management of healthcare facilities.
Wipro’s annual revenue from the project, spread over six-and-a-half years, would be just under Rs200 crore.
Anand Sankaran, chief executive of Wipro Infotech, the arm that handles IT businesses in the domestic and West Asian markets, concurs with Chakrabarty.
“A number of other opportunities like the state wide area networks, state data centres, the Army and Navy wide area network, and power sector IT implementation across state electricity boards, all are very promising. The worry has been about the pace of awarding them,” he said.
Wipro gets around 8% of its total revenue from the domestic IT services market. In 2008-09, it earned Rs400 crore from the government and defence verticals, and hopes to end the current fiscal year with Rs1,000 crore from these.
Infosys Technologies Ltd, India’s second largest IT company, earned a mere 0.9% of its revenue from the domestic market in the April-June quarter. But it, too, has won deals for setting up an integrated coach management system for the Indian Railways and a project from the department of industrial policy and promotion.
With the US and European economies yet to recover and international clients still cautious about their IT spending, companies have been forced to devote more attention to the promising domestic market.
Though there is no labour arbitrage in the domestic IT services market, margins are not an issue, said Girish Trivedi, deputy director, information and communication technology practice, South Asia and Middle East, at research and consulting firm Frost and Sullivan.
“Net margins could be in very high single digits to even low teens and are attractive,” Trivedi said.
“We see a huge opportunity not just in IT services but also providing hardware and software,” said Puneet Gupta, vice-president, public sector, International Business Machines Corp., or IBM, India and South Asia. But a big handicap in working in this sector is that the “contracts, sometimes, are just decided on L1” (or the lowest bid), Gupta added.
US-headquartered IBM, which always had a strong focus on the Indian domestic market, has also won a few government projects, including a five-year contract to modernize systems at the Central Board of Direct Taxes.
IBM has also partnered with the Centre for Railway Information Systems to provide centralized access to information to 68,000 East Coast Railway employees.
Recently, when corporate affairs minister Salman Khursheed said the MCA-21 contract that the government awarded to TCS would be reviewed after 2013 when it ends, and a lot of the execution brought in-house, it raised eyebrows within the industry.
The MCA-21 project is to enable companies to talk to the ministry on a single, seamless IT platform.
“Do they even have the in-house expertise? Not just the corporate affairs ministry, the entire process of awarding government contracts needs to be relooked” at, said Trivedi of Frost and Sullivan.
IT firms, too, have to upgrade their services for the domestic market, experts said.
Karthik Ananth, engagement manager with Zinnov Management Consulting Pvt. Ltd, an outsourcing and offshore advisory, said India’s top IT companies have not been able to build significant domain expertise in the defence vertical.
“Except for a few focused players (companies) like Quest Global and Infotech Enterprises Ltd, most Indian IT companies have not been able to build deep domain expertise,” said Ananth. “While some of them have a play in engineering services and outsourced R&D (research and development), in order to emerge as substantial players they will need to augment skill sets.”