Bangalore: Software services company Wipro Ltd chairman Azim Premji spoke to CNBC-TV18 on the global economy and the future of the IT services business. Edited excerpts:
True speaking: Wipro Ltd chairman Azim Premji. Hemant Mishra / Mint
Would you agree that the worst is probably over for the sector?
That’s our judgement on the issue. Just looking at macro trends, revival and some confidence coming around the corner, and the fact that customers are now more settled. You know, I think they know more of what to expect, and the period of transition, the period of reorganization seems to be over.
We got the sense of quite a freeze in the October-February period. Has that thawed?
Yes, moderately. But the trend looks to be that it could improve further going forward.
Would that translate, you think, to budget spending going up immediately; or do you think that will happen only after a couple of quarters?
No, I don’t think we should be too optimistic. You know, let’s play it by the ear, quarter-to-quarter. I think we have learned one thing about this market: Let’s not get carried away. It then breaks your momentum in terms of all the work which you are doing to get leaner and more effective and closer to the customer.
So what would you say is a fair assessment of reality on the ground?
Well, I think almost certainly the US will start seeing some strong signs of revival by the last quarter of this calendar year. Europe will follow probably a little later. I think in India you are going to see revival happening quite quickly. Much before September, primarily because we have not been devastated by the financial crisis, with 70% of our banks being public sector banks, and our dependence on exports has been only 25%. Both these factors seem to indicate that the possibility of our revival seems to be much earlier than globally.
The first signs of recovery are visible in the US and India and elsewhere, but the bigger question is: Will it be a durable recovery?
You know, I suppose it depends on your definition of a recovery. I would put a definition of a recovery in terms of the world going back into positive GDP growth rates in real terms and that should be a reasonable definition of a recovery.
And what is your definition of a recovery for India?
I think we have ended the year with something like 7.1%, from what the RBI (Reserve Bank of India) governor said, and he is forecasting some figure like 6.5% for next year.
I think that’s realistic. It’s not unrealistic.
What’s the biggest risk to your assessment that things will slowly be on the mend in a couple of quarters’ time now?
My assessment is that things will be on the mend. My assessment is also all the rejuvenation packages of pumping money into the economy selectively will start to have some effect in terms of stimulating some demand.
So, it’s just a matter of time of things improving now?
I think the worst is over. That does not mean that they are going to have very attractive growth rates for the IT sector for ’09 or ’10. But I think certainly for 2010 or 2011 you will see a strong revival for the IT sector from India.
What do you term attractive in terms of growth for the sector?
You think this year could be slower in terms of growth?
Do you think by next year, once you go through the next four quarters, we will be able to get back to the FY08 kind of growth?
Unlikely. In terms of being realistic about the situation in a market with uncertainty, I think it is always best to approach opportunities with some amount of pessimism. So one is able to restructure or cost structure to meet more aggressive requirements of the customer. And if upsides happen quickly, the ability to respond to those upsides by not eating into any other muscle of the organization.
Sure, your point is taken that you are not betting on it from an organizational perspective. But why do you say it is unlikely that even after four quarters you will not get back to the kind of levels which existed a year back?
The base is larger. Competition is there; globally, customers have to recover from the devastation that they have gone through. The amount of money which has got lost to the circuit is over $2 trillion. Part of it will get recovered but that’s not a small sum; it’s an excess of 10% of the world’s money supply. It will be naive to expect that (its effect) can disappear overnight.
If you were to take the financial sector out of this equation, do you think the rest of the universe that you work with will recover? Or not even then?
No, I think you have to appreciate that the financial sector is the backbone of every economy. Parts of the economy divorced from the financial sector cannot operate as business as usual.
What impact does the slowdown in IT have on the Indian economy?
I think what the government should be aware of is that job creation in the next three years will be significantly less than the job creation in the past three years or the past five years, particularly in the services sector. So they have to be clear in terms of how much money they can pump into other parts of the sector which are less service-dependent to be able to create these jobs. And the most apparent sector seems to be infrastructure. I don’t think we have a situation in our country of trying to stimulate demand that will come on its own because of the nature of the spending habits and the nature of consumption, (and its) weightage of the GDP unlike China. But they (the government) have to stimulate demand and job employment through infrastructure and the country is woefully inadequate on infrastructure. So that is a priority anyway. It is not a stimulus package.
Given that necessity that you speak of, do you think the new disposition that comes into power in another month’s time or so will have a tough job on its hands? And do you think the nature of the combine that comes to power becomes even more important?
Combinations are always important. Of course it will have a tough job but...whichever government was there has been facing the tough job over the past six months. I don’t see the job getting any worse starting June.
What happens with salaries in the IT sector? Do you think there is a need for any kind of a reset to, say, 2006 levels, out there?
I don’t know whether they will go back to 2006 level but I think for lateral recruitment, salary price points are significantly less. It’s not the question of flat salaries any more. They are significantly less because the market’s supply-demand situation does not require you to pay premiums.
In fact, it requires you to pay discounts. Whether the industry will reduce salaries on campus when they go on campus in early 2010, is difficult to say...(but it) seems likely. And it seems practical to do that. Because we have outstripped salaries which exist in some of our competitors, particularly China.