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The real reason behind Infy’s Russia exit

Akshata, wife of UK’s Chancellor of the Exchequer Rishi Sunak – widely tipped as the man to succeed Boris Johnson as UK Prime Minister – owns a 0.91% stake in Infosys (AFP)Premium
Akshata, wife of UK’s Chancellor of the Exchequer Rishi Sunak – widely tipped as the man to succeed Boris Johnson as UK Prime Minister – owns a 0.91% stake in Infosys (AFP)

Infosys’s decision to pull out of Russia, announced along with the software giant’s quarterly results, has been quickly seized upon as another ‘win’ for the NATO-led sanctions against Putin’s Russia, particularly since Sunak had earlier been accused of ‘profiteering from Putin’ by British media.

Infosys founder N.R. Narayana Murthy’s daughter Akshata Murthy has just announced that she will be paying her taxes in Britain. Akshata, wife of UK’s Chancellor of the Exchequer Rishi Sunak – widely tipped as the man to succeed Boris Johnson as UK Prime Minister – owns a 0.91% stake in Infosys. This had earned her an estimated $1.5 million in dividend income last year but Akshata had not paid any UK taxes on the income, under a Colonial-era provision exempting non-domiciled residents. This had brought down much media heat on Sunak. Sunak was also called out for calling on British businesses to pull out from Russia, even as Infosys continued to do business in Russia and his wife benefitted tax-free from it.

Akshata’s decision might now damp down some of the media criticism. Infosys’s decision to pull out of Russia, announced along with the software giant’s quarterly results earlier this month, has also been quickly seized upon as another ‘win’ for the NATO-led sanctions against Putin’s Russia, particularly since Sunak had earlier been accused of “profiteering from Putin" by British media.

However, Akshata’s tax troubles and Infosys’s Russia exit are two separate things. A company in which just under half the shares are held by foreign and domestic institutional investors and mutual funds is unlikely to be swayed in its commercial decisions by the political problems of a 0.91% stakeholder.

The real reason becomes clear if we look at Infosys’s revenues broken up by region. In 2021, Infosys earned a staggering 61.6% of revenues from North America, predominantly the USA. Add to that the 24.4% revenues from the EU region and India’s second-biggest software company’s critical dependence on the two regions – which also constitute the main powers behind the NATO alliance – is clear.

When 85% of your paying customers make it clear that they do not wish to see you doing business with Putin’s Russia, you do not do business with Putin’s Russia. Ergo, exit Moscow. A far cry from December 2004, when Putin visited Infy’s Bengaluru campus and an effusive Narayana Murthy, then chairman and chief mentor, Infosys, said, "Mr. Putin's visit to India is an affirmation of the special relationship between our two countries. India and Russia share several common values and have already successfully leveraged each other's strengths across various industry sectors," adding, “As our bilateral relations expand in scope and depth, surely Information Technology will be one of the areas in which both countries can collaborate for talent and knowledge."

The proxy war between the US and Russia is a true 21st-century war. Russian and Ukrainian forces slugging it out in Ukraine form only a small part of the theatre of conflict, which extends from economics to trade to cyberspace and social media. Again, governmental sanctions, which played such a key role in the conflicts with Afghanistan, Iraq, or Syria, form only part of the economic offensive mounted by the US and NATO powers against Russia. From seizing superyachts and private jets owned by his oligarch funds to freezing Russia’s legitimate dollar reserves in western banks to arm-twisting western companies to wear their patriotism on their sleeves by marching out of Moscow, the US has leveraged its enormous power as the home of most of the world’s biggest corporations, as well as its clout as the biggest market for most non-American global businesses, to try and economically squeeze Russia.

It is also a war being fought as much on social media as it is on the ground. And social pressure on western companies in general and American companies in particular to boycott Russia and Russian money has been intense. This is why companies as diverse as Apple and Netflix, or Coca-Cola and KPMG, have exited Russia.

This is understandable, but Infosys is not an American company. In fact, Infy’s Russia pull-out is in direct conflict with India’s official position, which is of studied neutrality and continued business with Russia. India is buying Russian oil and selling it everything from clothes to tea to basmati rice. So why is Infosys dancing to Biden’s, rather than Modi’s tune?

The importance of the US market, obviously. But then, that begs the question: Is Infosys an ‘Indian’ company, or an ‘American’ one? The answer to that question is even simpler. As companies from countries unrelated to the conflict; like Korean phone makers, Japanese carmakers and Swedish furniture makers have discovered, he who pays the piper is the one who calls the tune.

Of course, this only works if the market is small enough to be sacrificed for brownie points. Russia is a giant country with a small population. So, while it is a significant producer and exporter of a number of things, the loss of the Russian market is not catastrophic for most companies that have exited Russia under political pressure. Even Infosys had just 100 employees and was servicing a handful of clients there.

But a big producer and consumer market like China is a different story. The US’s ongoing battle for global dominance with China has in no way impacted the hunger for Chinese goods among American consumers, or the dependence of American companies on Chinese manufacturing. India too found this out the hard way. After the border intrusions and territory grab by China in Ladakh, all India could do was ban some Chinese apps. India’s imports from China have actually gone up after the conflict. Clearly, patriotism stops at the balance sheet!

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