Over the last few days we have talked, debated and discussed the various opportunities for India under a new American president. In less than a week now we will know whether it’s going to be Barack Obama or John McCain. Well all the polls indicating clearly that it could be Barack Obama but we are not here to hazard a guess but to look at the kind of engagement Indian companies and specially INFOTECH companies, in IT, ITES, BPO, Software will have .
Each element of IT industry is crucially linked to the US economy. We are talking about billions of dollars over the next few years to make sure that we will able to harness that potential that India has managed to export into the US, it being a big market.
NDTV: Two of the very special guests who can tell us what it could be and what could be the downside of the entire thing- is Som Mittal, President of NASSCOM, the body which looks after the entire interests of Indian IT companies; and also one man who had changed the face of outsourcing in India and across the world is Pramod Bhasin of GenPact who also joins us from New Delhi. Thank you both for joining us. Let’s just go across and highlight what we’re actually looking at on today’s show because you both are such industry experts. Of course, one is the downside that everybody talks of, the rhetoric, but we are asking- will the new president be able to enhance the scope for Indian IT companies? When I say that we are talking about the billions of dollars of targets. Also will the rhetoric on VISAS and outsourcing turn into real action? There could be a possibility of doing that when you are governed by huge labour unions and the kind of problem that come up. Also how real is the opportunity? Everybody tells us that recession will be an opportunity – how real is that opportunity in a recession hit economy?
First let’s focus on the scope of work. We are looking at a target in the IT, ITES space- about 50 billion dollars and much more going ahead; also will that scope get bigger? What are the road blocks at present for Indian IT companies? And will a cut in discretionary spending affect growth of Indian companies? Som Mittal- first to you- how would you react to all those questions?
Som Mittal: Well, you know, I think the events that have happened more recently are pretty significant and hence they are impacting and this is not linked to the elections; irrespective of whether it is President Obama or President…I’m almost calling him President already…it wouldn’t matter because I think the economic policies would really drive the way US would work. In terms of our growth rate, we’ve had a 30 per cent growth, US is a very important market; so I think that the most important part is the new President, whoever it is, what kind of economic policies does he bring in to change and get US back on track, I think that’ll be the key. In terms of our growth rates, well- we do think that we might have impacted the short term and in three to four quarters all the points that you mentioned which are the positives of this downturn would become an opportunity for us.
NDTV: Everybody says that- Pramod Bhasin, you’ve seen American companies very up and close; also at a time when we saw the GDP data showing that the US economy has shrunk by about 0.3 per cent in the latest quarter. Tell me where is that opportunity? Everybody says there is the opportunity, but at this time would they be cutting down on discretionary spending or looking at India saying, please help us cut costs, and that’s where the opportunity is…how real is that?
Pramod Bhasin: I think they will do both. I think companies would be looking to cutting down on discretionary spending, no question; but we will be looking to accelerate that drive for cost and productivity. There is no better way to get efficiencies and productivity than to do a lot more of the outsourcing that they have already done. So I think it may happen in different areas within a company. Initiatives may change from more discretionary projects to more non-discretionary projects but it doesn’t mean that the business is going away. I also agree with Som totally; economics, not politics, as always is going to drive the demand for an industry and this is going to be driven not just again, we must remember, not just in the US, but also in Europe, and in other countries such as China and India itself which are major growing markets. So in overall terms, there are lots of balances that the industry will go through to, one, see in the medium to long term how do US companies take advantage of the fact that we can offer terrific service at a significantly lower cost. But also in terms of geographical diversity; people will look for other geographies to move to- they will look for other products and services to deliver. So I think the economics of it, of course, today are very tough for everyone. don’t think that’s going to be different in US or Europe or frankly even in India. But our industry is probably better poised to achieve that and will probably show better growth than almost any other industry I can think of over the next two years.
NDTV: Interesting when you say that, but then if it is all going to be about economics, Pramod Bhasin, first to you, what are the current road blocks? If he or whoever it is were to address the scope of work as I said, that will the scope of work go up or not…tell me on two counts, if the scope of work goes up- by how much, where do you see a bright shining light, and second, what are the problems right which you would like to be addressed if the Indian IT companies are to be benefitting?
Pramod Bhasin: I think there is a bunch of things that we have to do; ourselves, one within India and the countries we’ll serve from; two with our customers. So, if you think about the hurdles, you know, customers are going through considerable turmoil; there will be short term hurdles we will all see- road blocks, short term hurdles, potential delays, potential postponement, potentially asking for better credit terms – all of those things you will see. At the same time you will see companies who are nimbler and faster accelerating outsourcing because they know what they are facing and they know the economic recession climate that they face and know that they have to do something about it. In India itself I think this is the time when we should all relook and say what do we need to be able to deliver our services far more cheaply; how do we change our business model to some extent so that we can withstand what will, there’s no question, pricing will be under pressure all over the world, but I think we have many levers within India to make sure that our margins still remain intact in terms of taking cost out, hopefully lower cost of real estate- lots of things like that- hopefully on the tax side also. These are things we’ll talk to the government about and therefore within those two prongs of action- one, how do customers respond, and understanding what their pain is, and helping them driving cost out as well what we can do to reduce our own cost; I think those two elements will have to play out very well over the next few years.
NDTV: Som Mittal, when you talk to companies do you see that kind of scope still there so in some ways, the onus is on India for it to be an opportunity to cut cost, protect their margin and yet be so competitive that you come across to the American companies saying that yes, come to us, we have the solution for you. Do you think Indian companies have that much of leeway right now?
Som Mittal: Yes, I think they have, and you know, while I think they remain competitive anyway, but I think there is a big opportunity that we have right now when you are growing at 30 per cent every year, then you don’t have time to look back and see what you’re doing- I think this is a time for companies to reflect back to improve their productivity, efficiency, utilization. As Pramod said, you know, looking at how we can get better efficiencies out of the assets that we have and once we have done this then I think this is an opportunity not to miss. As everybody is saying crisis is an opportunity which we should not miss. And I think in six to eight months as the Indian IT industry themselves transform, I think I will come out only stronger out of this.
NDTV: Alright let me just focus on that; I mean two of the other road blocks- and I know both of you have given public comments on that, the rhetoric versus the reality, and there is some clarification needed and which I am sure both of you can give. Firstly, is Obama’s threat of withdrawing tax breaks for American companies a real worry because lot of companies tell us that they don’t really get any tax breaks if they outsource work- so this could be just a misnomer. Also has the traditional line of democrats against outsourcing ever caused real damage? Pramod Bhasin, in the last 8 years we haven’t really seen a democrat in power, and hence affecting the scope of work. The last instance that we had was Richard Durban writing letters directly to companies. Pramod, in your assessment do we really seen any kind of a bite in this or this is just a bark?
Pramod Bhasin: I think there is going to be a lot of election rhetoric, before elections, as you would expect. Happens all over the world, happens there, happens here. So I think we frankly should ignore that. As far as the tax breaks question is concerned, I don’t think companies take so many tax breaks in the US that you can use that as a lever to penalize them for outsourcing. We must also remember how much of the profits these companies who are outsourcing to us today make from international operations; therefore, you know you can’t have your cake and eat it too. You can’t say yes I want to make money , but then I don’t want to do business overseas and other areas. I think lastly I would just add, that the bigger issue that we must all be very sensitive to is rising unemployment, as and when that happens in the US. That to me will be a stronger driver – communities will be concerned, companies will be concerned, there are social pressures that increase as a result of it, and we as an industry must be extraordinarily sensitive to the pain people may be going through in the US and we must demonstrate that we are sensitive and not, you know, blaze about it. And therefore I don’t worry about the election rhetoric; I do think that economics and unemployment would have a far larger impact than all the noise that we’ve heard in the system today.
NDTV: But Som Mittal how is that possible? For Indian companies in going and buying American companies, the whole idea is to go get the orders but ship the jobs back home. So while Pramod’s point is valid that you can’t come across as being rash and aggressive, (I’m taking your job away), the whole idea of Indian companies trying to look at opportunities is because they can ship some of the work home…where will this policy, kind of, go through?
Som Mittal: You know, I think we should get this right; the moment we mention outsourcing we tend to think it’s about software. I think it’s outsourcing and the unemployment that Pramod spoke about is far far higher in manufacturing. In fact in the US there is a shortage of tech resources- US is looking at changing its entire immigration policies so that they can actually take foreign students who are studying in US or even hire from outside and bring them in. There are thousands of jobs that are open right now with the tech company so its very clear that there’s a shortage of tech. To the question that you talked about , why Indian companies are buying , they are not doing this to ship jobs. I think as we get closer , we get up the value chain, we need domain expertise. Domain expertise cannot be built it needs to get acquired and I think the Indian IT companies are really doing acquisitions whether in Europe or US or anywhere else is to get domain expertise. In fact every place that they have actually done an acquisition, the strength of that unit which they actually require has gone up. So I think we should get this right in terms of shortage of tech resources that is driving the outsourcing and improving the competitiveness. I entirely agree with Pramod for many of these companies 50 per cent of the revenues come outside US from Asia Pacific and Europe and a lot of work that we do out of India or any other place is actually not only for the US but for Europe and Asia Pacific.
NDTV: Right, alright so a valid point there. I wanted to come across as a bit more sensitive to the cause because the new president will be under tremendous pressure of labour unions, of companies which do make a lot of noise about this entire controversy. Our focus today is India’s IT Industry and how they are going to be effected by the new president will it be Obama or John McCain, we don’t know but all that one is hoping for is that the scope of work increases. we were talking about the opportunity for India . The quick two points that are guests have highlighted that recession will force US companies to cut cost and outsource more in the short term of course we will feel a bit of a pinch also the question we are asking is , while we come across as bit of a sensitive lot in terms of unemployment rising in the US , how will Indian companies get effected if discretionary spending its cut. Pramod Bhasin let me go back to you. When you raised the point that you have to come across as being sensitive, tell me if you were the policy maker, won’t you at least in the first few weeks or months make a noise that look I want to protect the American jobs. Where do Indian IT companies feature on that Radar screen according to you?
Pramod Bhasin: I think the point about protecting American jobs is very valid and every president it does not matter if its McCain or Obama will make that point and should make that point. But the way to protect many jobs is to make sure that the economy works better. You know, that they get out of this recession faster. That they take all the actions they can, pull out of the current economic problems that not just they but the rest of the world is facing, to pull out of this financial mess. If you look at any statistics and I suspect all of them have these statistics and will be very familiar with them the actual number of jobs lost to outsourcing per say is actually tiny. Its very small proportion of total job loss. More jobs are lost because people are not buying things and consumers are not spending money. That’s one piece. Two, the point ill make is that as Indian companies globalize we are all increasing our presence on sight. And therefore our ability to take on our employees who may otherwise be displaced from our customers, our ability to retrain them, is increasing everyday. I think we have to highlight these issues and think about them when we got to customers to alleviate their pain and allow them to cut cost more effectively but also more humanely. So every company that I am aware of has frankly increased its presence and the number of employees it has in America and in the developed world. I know its true for us and I’m sure its true for the larger IT companies as well. But we cant stray away from the central fact that jobs are protected through economic growth and that is what I think any president will focus on first and foremost before turning their eyes to outsourcing which anyway is a small fragment of the total job losses, if any there are created.
NDTV: Right that of course when you speak from a company perspective for someone making noise just comes across for a better selling line for a politician. But again one is hoping there would be a more mature line taken in the US. Som Mittal you must have dealt as an Industry lobbying body with democrats republicans share with us the kind of line of thought that comes across when you talk to them, be the democrats, specially actually when it comes to being a democrat. Also as Pramod was saying increasing presence, protecting American jobs. Do you think Indian companies will deliver on that expectation?
Som Mittal: Well I think so and you know you are right. As Nasscom or any industry body our job is to provide perspective, provide right information so that policy makers take the right decision and its very interesting when you look at the machinery of decision and policy making . We meet senators an congress men both from democrats and republican and I think you’ll find as many democrats who support the fact that outsourcing is part of globalization , US cannot be isolated from it and it has proven that it has improved the competitiveness of US organizations and has in fact helped in create jobs rather than lose jobs. Research done by think tanks by analysts which keep taking turns in the senate and congress have conclusively proved that it has happened , that the jobs have actually been saved and the competitiveness has improved. Mind you there is one important factor that we must consider today, countries like India and IT companies in India are part of the delivery chain. Its not about outsourcing. If we shut down our shops today then a lot of disruption would happen in those companies. So now we are part of the delivery chain. Secondly I think technology plays a large role. Its getting more complex and no single company can afford to have them so share services model, which is what the Indian IT industry offers is a given now and I think is an irreversible trend.
NDTV: Alright. Interesting that you say that. Heading towards the conclusion and obviously the point coming across is that do you expect a better rule of engagement or terms of engagement as the scope of work is growing except for the fact that nobody is denying that the slowdown will be a bit of a problem in the short term. Pramod firstly let me put it across to you. First tell me, in about 30 seconds your direct assessment of the slowdown effect because if America is in a recession how severely will Indian IT companies get effected in tangible terms, one, and secondly what will be your list of priority items if you were to meet president Obama or president McCain, starting next week.
Pramod Bhasin: Sure! Happy to. I think one, I’m very convinced about this. The slowdown is not severe, it is all relative. This industry has been growing and Nasscom has put out numbers you know, 30-35 per cent, 25-30 per cent for years, so if you know long term the industry flows down to 15-20 per cent let us all just keep it in perspective that, that is still higher and most industries are likely to grow over the next two years. So I think it will still be a superlative performance. There will be many pressures which we must fight by changing our cost model by working with the government to reduce infrastructure cost, to reduce taxes, to do a lot of other things that the industry labours are done today and have to pay for by itself. So I think that one equation I just want to make sure we position it. Its not severe. It’s easy to use that word and its inaccurate.
NDTV: You made your point. Som Mittal, I was reading between both Obama and Mittal on the H1-B visa issue. They pretty much have a convergence but again as Nasscom as a body what would be your wish list starting this week for the new American president, keeping in mind the interest of Indian IT.
Som Mittal: Well first thing is that US is a very large part of our business and it’s a very important economy . Our first hope is that the new president can fix the economy as fast as he can and I think then would be issues about H1-B visas and so on and I think its about full reforms , and I think just not H1-B, I think they need comprehensive reforms there so that the issue of H1-B doesn’t keep coming up. The third thing would be the fundamentals of why the Indian IT Industry grew in a competitiveness . Also we’ll tell the president that we’re part of the solution for him and not the problem. And we hope as India has done in the past would help to improve the competitiveness of the US companies.
NDTV: Interesting that you say that. On that note I would like to thank you both. Som Mittal, the president of Nasscom and Pramod Bhasin, president of Genpact. One key line that came across, India is a part of the solution , not the problem. That the message for the new American president from the Indian IT Industry. Look at comprehensive reforms and not just bits and pieces of H1-B but look at Indian IT as someone who can solve the problem of high cost, recession, of low growth and that what the key message is from the Indian IT players. The scope of work is huge. It’s for the American policy makers and the Indian IT companies to offer that value proposition.