Don’t write off Indian software yet

Subir Roy | Updated on January 11, 2018

Ready to enter: A new world of opportunities   -  Reuters

Digital India can throw up dramatic opportunities for its software sector. The companies must rise to the challenge

Despite the tumultuous happenings all across the world, India’s information technology sector is not condemned to a pedestrian existence henceforth. It has a good chance to return to its earlier stellar status, which is dependent on two factors.

Of these, one is in its own hands – transforming itself into a digital and innovative fighting machine. But the oxygen that it needs to sustain itself while it reinvents itself has to come in good part from the Indian economy by way of domestic demand, unlike the story so far in which it is global demand that powered the growth of this export driven industry.

There are takers

It is not as if global demand is doing badly right now. According to Gartner, global IT spending is likely to return to positive territory in the current year (2017) by recording a growth of 2.7 per cent. This, in itself, is heartening, particularly because IT spending fell by 0.6 per cent (2016) and a sharp 5.5 per cent (2015) in the two previous years.

The catch is that this rise in spending will be powered by the move towards digital, cloud and artificial intelligence. To take advantage of this Indian IT vendors will have to technologically transform themselves into deliverers of digital and innovative solutions for clients.

In post fourth quarter (2016-17) results, TCS’s new chief executive officer, Rajesh Gopinathan, said it remained focused on digital and themes like agile, cloud and automation, increasing its digital revenues sharply by an annual 29 per cent.

Infosys CEO, Vishal Sikka, brought together both the short term pain and the long term gain by pointing out that while artificial intelligence was taking away the jobs of the past, it was creating the opportunity for the jobs of the future.

This has several implications. Top IT firms will (they already are doing so) drastically reduce their hiring and look only for a higher order of skills, far different from the coding hands that till now brought in bread and butter revenue through time and material development and maintenance contracts.

Undistinguished middle order firms will find it difficult to survive. For the nation as a whole, IT will cease to be the great job provider for the middle class that it had been for a decade and more.

But even as the top IT firms expend great effort to get a share of the rise in global spending, it is the domestic market that has the chance to offer a game changing opportunity. The government is set to take the entire country cashless and digital. Public policy is being geared to enabling this.

Data opportunity

The great bonanza that will emerge from this will be a mountain of data. With the government pushing digital payments, an exponential growth is likely to take place in transactions through e-wallets and apps based on the Unified Payments System, leaving debit card payments far behind.

What large and even medium sized companies can do by analysing the caches of digital data that they are able to generate is well understood, but what is not so well know is the tremendous opportunities that will emerge from this at the bottom of the pyramid by enabling what is called “flow based lending” to bring credit and finance to micro and small businesses.

For example, a small shop owner can use his weekly digital revenue flow data to get a weekly unsecured working capital loan which can be continuously rolled over.

The lender’s security will be the borrower’s need to maintain a good credit record as otherwise he will lose his working capital finance.

This has the potential to transform the economic scene among India’s poor and is highlighted by the dramatic assertion by Nandan Nilekani that India will become data rich before it becomes economically rich.

Uniquely in the world, economic transformation at the bottom of the pyramid will be driven by data, not capital.

Sharad Sharma, a fellow of iSPIRT, the advocacy group for the software products industry, captures the possible change thus. “People who have the highest default rate have so far secured the lowest interest rate. We gave 70 years to the regulators to solve this problem. All we are saying is, give technologists seven years to find a solution. Because ultimately it is an information asymmetry problem which will get solved not only in India but in other parts of the world as well.”

Need to innovate

A new and dramatic space will be opened up to Indian information technology as a result of the whole nation going digital.

But to use this space Indian IT will have to innovate, come up with innumerable applications (the payment app Bhim is just the beginning) and solutions.

With these it will analyse the digital data and devise solutions for both individuals and businesses. Exit the world of coders and programmers, enter the world of solutions developers working with automation and artificial intelligence tools.

Seen in this light, the restrictions on issue of visas to software professionals likely to emerge in not just the US but also countries like Singapore, Australia and New Zealand will hurt but not by all that much.

The impact will be partially offset by greater offshoring. More of local hiring in clients’ countries will add to costs and impact margins but will be manageable. The market has already discounted it.

The price-earnings ratio of IT stocks is at a nine-year low now. What the market has not yet taken into account is the dramatic opportunities that a digital India can open up for its software sector.

The writer is a senior journalist and the author of Made in India: A Study of Emerging Competitiveness

Published on May 01, 2017

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