New Delhi: Nasscom chairman Rishad Premji and president Debjani Ghosh sat down with journalists at Mint’s newsroom in Delhi earlier this month and spoke on a range of issues. According to Nasscom, rising protectionism in the US is an uncertainty that the $167-billion information technology (IT) sector has to live with. The Donald Trump administration’s ‘hire American’ policy has not hurt the growth of Indian IT firms, but has led to higher operational expenses for home-grown IT companies. Besides, growth in hiring should no longer be a relevant metric in two-three years while evaluating the health of an Indian IT company. Edited excerpts:
On demand outlook in 2018-19
I’m optimistic. Just based on the commentary you are hearing, it’s like a good year. Economies of the world are doing good. Digital spend is industrializing a little bit, moving from pilots and PoC (proof of concepts) to big spends. That should look well, overall for the industry. The other interesting thing is, again at a broad basis, the return of larger deals. And it’s not just large companies that are necessarily giving those larger deals.
Key themes in 2019
Talent is the biggest emerging theme. That’s where the next battleground is going to be defined. Re-skilling is job one. Over ₹ 10,000 crore is being invested by this industry to re-skill. After re-skilling, it will be pipeline development. We have a huge challenge in hand on that front. How do we work with the academia, how do we work with schools, governments, etc., to build the pipeline.
Third, is innovation because business models are moving from in-house or closed innovations to open innovations, and towards co-creation.
Growth for fiscal 2018-19. Will you be improving upon the current annual guidance of 7-9%?
Am I reworking? No.
We are not (reworking on the current annual growth guidance).
What about introducing new metrics to help Nasscom improve its growth forecast?
We are re-looking at the entire model of guidance.
Having a conversation on that will be premature for now. The clear appreciation is that everyone tends to get a bit hung up on this guidance that we give, which is, to a large extent, IT services-centric. The metrics for IT services success are also changing as a part of overall growth. For example, can digital growth rate be relevant? What is relevant to demonstrate in terms of the start-up space? Is it the size, is it exits, is it the amount of capital that they are able to raise? These are all components of success in terms of the ecosystem that we represent, but they are very disconnected from each other in terms of measure.
So, for one, it will not be possible for us to come up with one or two metrics that holistically represent all our stakeholders. To a great extent the metric we have shared, which everybody seems to resonate with, is very IT services-centric and very revenue-centric.
So, the spirit of the comment back in April (Nasscom looking at both qualitative and quantitative metrics), was about having metrics that represent more holistically our constituents and reflect relevantly how they are progressing and moving forward.
On the Srikrishna committee report.
The intent in that report is good. Protection and security is very important and it is going to manifest itself in a number of different ways. The fact that India is not leading, but at least ahead, in terms of taking through a pretty comprehensive protection framework is a good thing.
It will help not just consumers, but also businesses. To some extent, it has been a fairly consultative process. There were areas such as like data localization where they focused a lot. Whether it’s the best tactic, and whether it is the most secure tactic, it has to be debated. The problem they are trying to solve is a good one: Access to data.
Data is going to start having an effect on our ability to drive trade negotiations in the future, our ability to form strategic partnerships with other countries, like how robust data protection is, how robust India’s control on data is.
On corporate governance
It’s extremely important. There are best practices that companies have and there are some excellent best practices in this industry. What we do is to get those best practices out so that small companies, start-ups, etc., can learn from those.
The reality is that the magic of Nasscom has been built on the magic of its members. One nice thing that has worked for the industry is there are certain set of values, certain set of playing by the rules, which have become the poster child for the country.
We had an incident many years ago (Satyam scam in 2009), and Nasscom played a very active role.
Having said that, we are not the gatekeeper or police person for each individual company. That’s not our role. But we do care about it immensely, to the extent that, it hurts the industry and the brand of the industry and, as a consequence, Nasscom overall.
Do you think technology is becoming staple? Is there a decoupling between IT spend and economic growth?
Clearly, if the economies of the world are going to suddenly change in terms of their performance, it will certainly have a bearing on enterprises and, as a consequence, on technology companies. I can see that correlation translate at some level. If the question is: ‘Is digital becoming keep-the-lights-on kind of spend that you cannot not afford to invest in?’ I would submit that perhaps that’s not the case yet today. It (digital) is still a spend for the future. Many companies are still very much, despite all the noise, despite all the rhetoric and excitement, are still at the infancy. So, if the question is ‘If economies of the word are not doing well, will corporations continue to spend on digital?’, I would submit no. So, for now, there’s no decoupling.
On the macroeconomic outlook for 2019-20?
There are a lot of headwinds coming in, starting with our elections. We have the Brexit, the rupee volatility. We are entering the next year with a lot of headwinds. But there is also a positive impact that every time there’s a challenge, business models reinvent. As that happens, there will be some opportunity for technology.
On the disconnect between digital revenue and R&D spend.
R&D is not the line to look at in terms of where investments are happening. Investments are happening through mergers and acquisitions, through partnerships, and you may not see it in the R&D line. Over time, all of the revenue will become pervasive in digital. There will not be any sort of old piece or new piece because all of it will come together more and more. If you are working in a classic DevOps manner, you have continuous testing, (but now) you will not have a separate testing practice that will be a traditional piece of work. So, over time, a lot of it will become all pervasive, all digital. So, I would not read too much into the fact. Given that these numbers are growing so aggressively, why is it that the growth is not matching the overall aggressive growth? Investments are happening as a mainstay in the organization as opposed to certain innovation activity or certain activity that’s sitting out of the core organization.
What are the two metrics that are no longer relevant? What paints a better picture of the health of a company?
I don’t think people addition (hiring) is a relevant metric anymore. I think your models are becoming more and more non-linear. So, just purely looking at addition of people to me is not going to be a relevant metric two or three years down the line. The metrics that should be and can be relevant are things like order booking. Order booking should give you good flavour for the potential of growth of the businesses as you move forward. I think digital revenue is going to be an important metric and is becoming a mainstay.
On protectionism in the US
So far, we’ve been dealing with a lot of these executive orders and, thankfully, they haven’t yet got converted into legal ruling or action. Is it an uncertainty? Of course, it is an uncertainty. There’s definitely a strong feeling of protectionism that’s building up. I think the biggest concern that we at Nasscom have is that there really isn’t availability of right talent in the US today, and that’s a fact. If you look at the numbers in terms of job openings versus people available, one of the biggest challenges in the US today is that there’s severe lack or severe gap in talent availability, especially for high-skill roles. If you break down visas (H1-B), and see who takes what, one of the biggest secrets about H1-B visas is that the Indian companies account for less than 13% of the total H1-B visas. The biggest or the largest takers of H1-Bs are the largest tech companies in the US. And this has been so for a very long time because Indian companies’ visa intake in the past two years has gone down by around 40% and it’s growing on the other side.
One good news is that there’s no discrimination between Indian companies and non-Indian companies at the visa level. So, it affects anybody who is a user of H1-B visa. So, the good part about that is the conversation we are having as Nasscom, the conversations individual companies are having, are all moving towards the same agenda. And that same agenda tries to address one fundamental problem: Major shortage of skill, talent available in the US today. There’s a shortage of roughly two million people in the ICT (Information and communications technology) space even by the statistics that are produced by the US Department of Labor and Department of State. Because of the unavailability of talent, companies are now looking to build talent organically, hiring from the campuses in the US.
Legislatively, nothing has changed and administratively, these are things that are being talked about. Many of the things that are being talked about or you read about over the weekend are the things where there’s no complete clarity yet, either in terms of what will be applied for the April cycle or not applied for the April cycle.
Has it (protectionism in the US) added a little bit to the administrative cost? The answer is, yes. Broadly, it is manageable today at some level, but it’s also affecting across the border, it’s not uniquely affecting just Indian companies. I think that’s a very important thing for the Indian industry—to have a level playing field. We certainly have to be taking very aggressively the actions that are happening, or certain things that can happen, going forward. To take that up at the highest levels with the Indian government, and for the Indian government to take it up with their counterparts, and also what we as Nasscom are doing, are huge efforts over the last 12 to 18 months, to fundamentally change the narrative by presenting facts—the kind of value we add, the requirement of capabilities and the value those capabilities add to US enterprises and how they make them more competitive. We are making efforts to fundamentally change the narrative and the perception that exists around these visas because the callous, misunderstood statement is that all visas go to Indian companies. Only 13% visas come to Indian companies and 70% of visas go to Indians.
How has protectionism in the US impacted Indian IT firms?
It’s very difficult for us to comment on behalf of all our members. Still, has it (protectionism) added to the administrative overburden and the efforts that the organizations have to put in? Yes. Has it added to the spends that organizations have to face? The answer is Yes. Is it fundamentally changing the course of growth this year because of the visas? The answer is No.
Why has it been so hard to change this perception about Indian IT firms taking jobs in the US?
Our dependency on visas, as an industry, was much higher—that 13% was not 13% three or four years ago. And perception is a hard thing to break. And that’s exactly where we are putting all our efforts. We are trying to tell a very unemotional fact-based story about the kind of value and capabilities we (Indians) add to US enterprises and how they make them more competitive as opposed to the story based on sentiment. We have been at it for 12-18 months and we’ll be at it for as long as we need to help change that perception.