'Global IT scenario may look brighter in the second half'

BRAVING rough weather, the global IT market is likely to look up in the second half of 2003, so feels Mr. Kiran Karnik, President of Indian IT industry's national platform, National Association of Software and Service Companies popularly known as Nasscom. In an exclusive interview with Amitabha Sen, the Nasscom President says that future will be largely decided by the US economy trend.

Back home, to ensure a larger share of the cake, Nasscom is formulating strategies to build up a strong India Inc. brand. Indian industry, Mr. Karnik feels, needs greater presence and visibility in various international IT forums. So far as China is concerned, the Nasscom President maintains that in the short term, both India and China should play a complimentary role to emerge as a force to reckon with not only in Asia but also in other parts of the globe. "We are thinking beyond IT and looking at consumerable goods area where both India and China can take up joint initiatives", he says.

Immediately after taking over the Presidentship of Nasscom you said that your primary objective would be to promote India Inc. brand so that India and IT become as synonymous as France and wine or Switzerland and watches. What is the brand promotional strategy the Nasscom as the industry platform have already formulated and implemented or is being thought of?

Indian IT industry has a strong presence in the global map today but to build up India Inc. brand, Indian industry needs greater presence and visibility in various international IT forums. It's an on-going process. To ensure greater involvement of the Indian IT in globalisation process taking place in other parts of the world, Nasscom is intensely interacting with its counterparts in other countries. They know Indian IT industry but to get a better understanding of what's happening in the world, emphasis is being given on more and more participation in international IT exhibitions, seminars etc . India is now a regular participant in the Hanover and Milan international IT exhibitions. Our Information Technology minister, Mr. Pramod Mahajan's keen and active interest in almost every step of promotional activities of the country's IT industry has given added speed and momentum to the entire process. In last Milan IT fair Mr. Mahajan himself was present which shows how serious the Indian government is to build up a strong India Inc brand in the international IT sector.

Many industry leaders are of the view that instead of treating the country as its competitor, India should play a complimentary role and build up a strong tie with China to emerge as a force to reckon with not only in Asia, but in many other regions of the globe. Don't you think that may clash with your basic objective of building up India Inc brand in IT? How the Indian and Chinese IT industry can play complimentary role without compromising their individual brand promotional activities? What could be the probable areas where such complimentary role could be more effective?

I feel in the short term, both India and China should play a complimentary role to emerge as a force to reckon with not only in the whole of Asia but also in other parts of the globe. There is no denying fact, that in hardware, China is far superior to many other nations. Similarly, India is far ahead of other countries in software development. If both these two giants in hardware and software join hands to build up a strong marketing base, it simply can outshine the performance of many a leading countries.

But there is also no denying the fact that in the long term, as India would be trying to emerge as a power to reckon with in hardware, so also China in software. I am quite aware of that still in the short term, if IT industries in both countries work together that would yield benefits to both India and China. I find no conflict in such approaches. Rather, that would be the natural process in the long run. There are many comparable and competing majors in many other non-IT segments but that does not mean that one should not explore its latent potential. But all said and done every country in the race for growth has its own domain areas, has its exclusivity. If one looks at the issue from that perspective, one should not find any clash or conflict despite being in the same international market. Indian IT industry is being developed, grown up in that direction only.

In fact, we are thinking beyond IT and looking at consumerable goods area where both India and China can take up joint initiatives. Intelligence chips are used to manufacture these consumer goods. With the expanding market for such goods, the software requirement is increasing more and more and there lies massive scope for Indian software industry to chip in their efforts to have a sizeable share in the Chinese goods manufacturing sector.

Indian IT scenario has changed a lot and is changing every now and then. Various studies being published in the past by Nasscom and other bodies have focused on that. Newer areas like BPO are emerging as a key player in country's foreign exchange earnings. How would you like to roll up the year 2002 for the Indian IT and what prospects do you feel awaits 2003 specially when the international market is yet to recover fully from the post-World Trade disaster impact?

Yes. It is emerging as a major, influencing contributor in the foreign exchange basket of India. It is expected that within next six years time, ITES business would grow about 15 times from US$ 1.5 billion in 2001-02 to US$ 17 bn in 2008. Yes, if one looks at the IT exports scenario (including ITES), the share of IT services have decreased. Nasscom estimates the current year’s share of IT Services industry in exports would be around 76 percent (86 percent in 2000-01) and ITES would account for 24 percent compared with 14.5 percent in 2000-01.

But it would be absolutely wrong to presume that ITES is growing at the cost of IT Services. Certainly not. One has to keep in mind that growth in IT Services is comparatively slow because of the nature of the business. IT Services is largely development process based unlike many other industries. The Indian IT industry despite a world economic slow down, had performed reasonably good and maintains the tempo more or less at 2001 level.

As things stand today, it is expected that the international market would look up in the second part of this year (2003), though issues like US war threats to Iraq are there. But despite 11th September's World Trade Centre's disaster, Indian IT industry could not only stay afloat but clocked 30 percent growth and the achievement is commendable, if placed with many other comparable nations. Year 2002 also closed around that growth percentage. Till 2008, Nasscom estimate annual average growth of Indian IT industry at 32-33 percent. Barring unforeseen situation which may lead to economic downturn globally, I find no reason why we will not be able to clock that 32-33 percent growth. With a favourable market situation, the growth could be even higher but that would depend on many other factors which are beyond our control.

One must admit that US economy is the major driver in the up or downturn of global economy. Hence much would depend on how US economy behaves in coming years. Yes, US-Iraq war threats are causing some concern but we at Nasscom are closely monitoring the development, exercising on various options to ensure bare minimum impact on the Indian IT industry in the event such development (US-Iraq war) takes place. There are some smaller and newer countries we are trying to focus on but all said and done, if US is involved in any kind of controversial international issues, the rest of the world gets involved either way. Hence upturn in US economy is a crucial factor in deciding the future of not only of Indian IT industry, possibly of all the global players in the field.

What, according to you, is greatest and most powerful motivator behind Indian IT industry's rapid strides in recent years?

Of course the changing attitude and industry-friendly role of the Indian government, Besides industries' own initiatives. This has to a great extent motivated the IT industry. In fact, with every bit of development that takes place in the Indian IT sector and that has international bearings, the government is trying to provide the back-up support. The IT industry is today recognized as not only a major source of employment (of technically skilled and quality people), but also an important source of foreign exchange earnings. But this does not in any way mean that government's job is over. No. there are still many more areas like tax incentives that have to be addressed by the govt.

For example, the proposed withdrawal of Tax incentives u/s 10 A / 10 B of the Kelkar Committee. The alternatives proposed in the revised report are a step forward from the initial consultation paper, and Nasscom is glad to note the committee's acknowledgement of some of the special circumstances facing the industry. However, Nasscom feels that neither alternative meets the needs of the industry, rather will be a setback. Nasscom has urged the government to retain the full Tax exemption under section 10 A/ 10 B as originally envisaged. While the committee's thrust towards simplification of the tax system and the extensive use of Information Technology in the administration is appreciated, Nasscom is strongly opposed to the withdrawal of the Tax incentives u/s 10 A/B. It is to be noted that the government had declared a "no tax" regime for software exports upto 2009 and it is expected that the government would stick to its commitment.

Almost everybody is talking about phenomenal growth of the Indian IT sector over last two-three years but at the same time Nasscom as well as industry leaders are cautioning themselves not to remain complacent about the performance. Could you identify areas that call for serious attention of industry itself and areas that require industry-govt. joint initiatives to take India IT to a greater height?

For any industrial development 'people' is focal point, the prime mover. In case of IT industry this is more appropriate. A strong human resource base is the deciding factor for any IT organization. By strong human resource, I do not mean resource in volume terms. I am talking in terms of quality and skill. Number of English speaking people in India is much more than many other countries. There India have an edge. But that alone would not do. We have to develop more skilled and quality manpower. To achieve that, industry-learning centers understanding and joint ventures are vital. Nasscom has taken up this issue very seriously and working in that direction. It has already initiated dialogue with the University Grants Commission (UGC) so that technical educational institutions could be provided required infrastructure to produce more and more highly skilled, quality professionals.

Even to sustain and expand the growth in ITES sector we need more and more skilled and quality manpower to match the international standard. One such area, for example, is Accounting. We feel that in Graduation, Post Graduation and Chartered Accountancy levels, studies relating to International Accounting Practices should be incorporated. We are talking of globalisation, we are sincerely trying to get assimilated in that process, but we are yet to follow international norms and practices. Power Infrastructure and Transportation could be other potential areas where IT enabled service providers could help the administrative authorities a lot to run the systems much more efficiently.

European Union has emerged as the largest single trading block in the world today and with the recent joining of ten more countries EU is set to become a giant in near next few years' time. What Nasscom expects of EU for greater share of its IT market by Indian industry or the existing EU imports policies are quite accommodative for Indian IT industry?

The importance of EU as world's largest trading bloc cannot be overlooked. Precisely that is the reason why Nasscom has initiated dialogues with the appropriate forums both at home and in EU. The India-EU IT Summit only reflects the importance Nasscom attaches to the market expanding trade bloc. While Indian IT industry's potential is known to some of the EU countries like UK, France or Germany, we would like to focus on other member-countries in coming years. We are yet to make any inroads into those countries.

What preventive steps Nasscom is contemplating to avoid Polaris like developments in future?

As such Nasscom is not a body to take preventive measures. It acts as a nodal body for interaction between industry and govt. To minimize the sufferings of the Indian companies, Nasscom has thought of building Market Intelligence Database for individual country so that it can provide advance information to its member-companies. Besides, we have taken up the issue with our counter parts meaning national level IT associations in other countries. Such joint initiatives, I hope, would help Indian IT industry in future.

February 11, 2003

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