Home / Opinion / A challenging time for the Indian IT sector

PayPal co-founder Peter Thiel, a major backer of US President Donald Trump during the election campaign, had this to say on the latter’s campaign trail rhetoric: The “media always is taking Trump literally. It never takes him seriously… I think a lot of the voters who vote for Trump take Trump seriously, but not literally." This “seriously but not literally" formulation has been the basis of wishful thinking among some of his domestic critics and foreign observers. After he became president-elect, they said that the more belligerent rhetoric he deployed while stumping would be too difficult to operationalize. But he has proceeded to do just that with regard to refugees and Mexican immigrants. With the speculation surrounding the draft of the executive order pertaining to H-1B visas, it is now the turn of India’s information technology (IT) sector to find out if he should be taken literally.

It should not be a surprise if the answer turns out to be in the affirmative. Trump’s perspective on the H-1B programme—perhaps most clearly stated in an interview in November 2015—has always been that it is welcome if used as a tool to keep talented job creators in the country. This distinction between job creators and other immigrants is important. Last December, speaking at a campaign rally, he had lashed out at the alleged misuse of work visas by companies to undercut American workers. And Stephen Bannon, his campaign chief and now perhaps his closest adviser—as well as the interviewer in 2015, as it happens—has always been strongly opposed to the H-1B programme. It’s also worth bearing in mind that this is a bipartisan issue. There have been rumblings in the past from the Democratic Party as well. There is little doubt, after all, that Indian IT companies do use the programme to save on costs even when American workers with the required skills are available.

This political pushback comes at a time when the Indian IT sector finds itself approaching a period of necessary change. Its growth has been sterling by any objective standard. In FY10, it had a market size of $74 billion, with $50 billion coming from exports. In FY16, this has more than doubled to an estimated $160 billion with $108 billion from exports. But there are hints that growth is starting to plateau. And IT spending shows little signs of recovery in Europe. Prospects in the US, accounting for approximately 62% of Indian companies’ exports, were somewhat better. But a Trump presidency now stands to change the dynamics there as well.

If the sector is to retain its health, it will have to deal with challenges on two fronts. The first is the changing nature of the business. A sector-wise break-up of export revenue for FY16 shows that 56.59% has come from IT services, 20.78% from software products and engineering services and 22.63% from business process management. But future demand is shaping up differently.

For instance, the banking and financial services industry and telecom together account for half or thereabouts of Indian companies’ revenue. But the drivers of future demand are likely to be segments like retail and healthcare. Foreign companies already have a strong presence here; Indian companies will have to invest more and play catch-up. It also shows in the fundamental nature of the services demanded. The cloud, software as a service, automation, artificial intelligence, data analytics—these will be the drivers of future growth. The mainstays of Indian IT companies—application creation and management, for instance—are concurrently likely to see diminishing returns.

The second challenge is one of perception. This may be an intangible, but given the rise of protectionist politicians and parties in the developed world, it is crucial, as the current will-he-won’t-he flap over Trump’s executive order shows. In 2015, Tata Consultancy Services (TCS) and Infosys faced probes for H-1B visa violations in the US. Both were cleared by year’s end—but this was not the first such instance. In 2013, Infosys had agreed to pay the US $34 million to settle allegations in another immigration case, admitting it had violated record-keeping requirements. And last year, a US court slapped an initial penalty of $940 million on TCS (and Tata America International Corp.) for intellectual property violation. In other times, these might have passed for the usual hazards of doing business in other countries. Given the popular resentment that brought the Trump administration to power and continues to fuel it, these are not normal times.

Taken together, both challenges point to future changes in the way the Indian IT sector does business in the US. A possible rise in local recruitment instead of exporting Indian professionals may be on the cards, as N.R. Narayana Murthy has suggested. This is likely to be coupled with a decline in demand for lower-level jobs that can be automated and a rise in demand for more high-skilled jobs related to the new growth areas. In turn, this will cut into both profit margins and India’s cost arbitrage advantage, necessitating an increase in high-value products and services, and creation of intellectual property. Now factor in the skilling challenges that will pose domestically—and also the opportunities for nimble Indian start-ups that can capitalize.

At that rally back in December, Trump said, “My administration will follow two simple rules—buy American, and hire American." It’s time to start considering the direction of future growth if he is taken literally.

How can Indian IT companies adapt to new immigration challenges? Tell us at

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Recommended For You

Edit Profile
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout