A few months after he took over the reins at the National Association of Software and Service Companies (Nasscom), India’s main software lobby, the tech services industry was buffeted by the after-effects of the 9/11 terror attacks in the US, the biggest market for Indian software service vendors. The general feeling of unease was focused: will the $8 billion (Rs32,000 crore at today’s currency rates) Indian software service industry be able to ride the downturn in technology spending at its biggest clients?
But six years since, the outgoing president of the trade body, Kiran Karnik is a satisfied man. Under his stewardship at the Nasscom, among the most powerful industry lobbies in the country, the Indian software industry not just grew rapidly spawning billion dollar firms but also witnessed a change in perception in its largest market, the US, and has slowly won customers in Europe, traditionally a small market for outsourcing services.
“We have come a long way from those days of uncertainty post 9/11. Today we are at $40 billion and have seen a huge change in the way customers look at India. Till 2001, most customers came here only for cost. Today they are here for data security, intellectual property rights, quality of services, scalability and in some cases even time to market,” Karnik, a former space scientist and head of the Discovery channel in India, told Mint.
Karnik is of the opinion that though the Indian tech industry has grown in leaps and bounds in the past six years, contrary to perception, it is yet to reach its maturity.
While top Indian software companies such as Tata Consultancy Services Ltd, Infosys Technologies Ltd and Wipro Ltd, do face strong competition in the global market from established leaders International Business Machines Corp. and Accenture Inc., they are not far from building a strong and reliable brand globally and winning $1 billion mega deals. “Indian IT companies are very young. Winning large deals means that you are looking at overall system integration. These companies are slowly getting into that. What they lack is the experience of an IBM or Accenture that have been in this game for 30-40 years, but in another five years, there should be at par with these global giants,” predicts Karnik in an interview.
His other big forecast for the industry is that the next wave of growth in the information technology sector will be from the domestic market and from the convergence of communication, entertainment, media, animation and gaming. “The potential for growth in the domestic market is huge. If exports are growing at 30% a year, the domestic market should be growing at 35-40%, because the base is so low and the demand is so high. But there are issues such as infrastructure and connectivity that need to be addressed first,” he says.
As per Nasscom estimates, the Indian animation services industry, which stood at $354 million in 2006, will touch $869 million by 2010, growing at a compound annual growth rate of 25%. Entertainment contributes over 60% of the animation market in India. Experts suggest caution given the industry structure. “End-user demand is what will drive growth, but for that to happen smoothly, a huge industry-level convergence has to happen,” says Sivarama Krishnan, executive director at consultancy firm Pricewaterhouse Coopers.
Karnik admits challenges in software services with hurdles over the issue of work visas in the US and accusations of misuse of the widely-used H1B visas by Indian tech service providers. Both US and Indian companies have repeatedly stressed the need to raise the H1B visa cap, currently set at 65,000, back to the 195,000-level it was two years ago.
“H1B visas are a point of concern because of their number. But it is political rhetoric as (2008) is election year in the US. An amendment may come (of the Immigration Reform Legislation) but our concern is that the US government should not put any riders on it,” Karnik said. Nasscom had said earlier that constraining the supply of software workers when demand is high gives rise to problems for US firms as also Indian IT companies.
Karnik, who completed 60 in March, expects his successor to assume office in “in the next couple of months”. He expects to spend a few months showing this person the ropes before heading out for a month-long vacation by the end of the year. On return, he says, he will decide on what to do next.