Challenges for Indian IT

Of India's three leading information technology (IT) companies, the top two, Tata Consultancy Services (TCS) and Infosys, have been able to meet market expectations on their 2015-16 fourth-quarter performance. This is in sharp contrast to the performance of the third, Wipro, which has disappointed markets and suffered downgrades. Among the rest, mid-sized company Mindtree has turned in robust results, indicating that the smart can outpace the rest even in trying global times. (HCL Technologies, another large company, is yet to announce results.) This is more or less par for the course for India's export-driven information technology sector at a time when overall exports for the economy have severely underperformed. If the $150-billion IT sector had not been around, then overall export performance would have been absolutely disastrous.

While the foregoing can give legitimate comfort to the IT sector, it should not create any kind of complacency. This is because once the numbers are examined a little more closely, they do not give much cause for cheer. Nasscom, the industry association, had earlier revised its projection for export growth for 2015-16 downwards to 12.3 per cent from the earlier indicated range of 12-14 per cent. In the event, the top two, with dollar revenue growth in the seven to nine per cent range, have missed even the revised target by a wide margin. The only silver lining is that Infosys, which has lately been on a high, has issued a sharply higher guidance for revenue growth in the current year of 2016-17 at 11.8-13.8 per cent in dollar terms. As for the bottomline, both the leaders have in the last few years coasted along at the same range of 21-23 per cent, which is steady for TCS - but, for Infosys, below the peak that it reached at the turn of the last decade. The improved guidance from Infosys does not mean that the entire industry expects to do better in the current year. Cognizant, another robust industry leader, has turned quite subdued in its expectations for the current year. In fact, the focus for the immediate future should be on the challenges being faced by the industry, a national winner, and how they can be overcome. The major challenge is for the industry to take care of its image in its key markets, the US and Europe. The massive fine imposed by a jury in the US on TCS on charges of stealing a business associate's intellectual property gives a measure of the popular attitude (jurors are non-technical citizens) towards India's IT companies. Infosys had also been fined earlier for breaking visa and immigration rules.

The solution to this, outlined by industry father figure N R Narayana Murthy and echoed in spirit by current Infosys leader Vishal Sikka, is to increase local recruitment. This will reduce the scope for posting Indian engineers abroad at client sites and sharply lower expected earnings. Major IT companies have also lately been reducing their rate of net hiring. Additionally, as routine IT jobs get automated, these companies are having to shift their focus of recruitment to higher skill levels. The sum total of all this is that IT firms will increasingly be hiring fewer people with higher skills - but their prospective earnings, with lower chances of stints overseas, may not be as attractive as in the past. Thus IT, instead of being a provider of many middle-class jobs, will turn into a provider of fewer high-skill jobs.

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