The December quarter numbers of Indian software firms confirm that IT is one of the few sectors to have emerged stronger from the economy-wide turbulence. Leading IT firms are expected to close this fiscal with a profit growth of 30 per cent as against about 7 per cent for other Nifty companies. Other industries, particularly those used to blaming policy paralysis for all their woes, may do well to learn from their IT peers about being nimble-footed in a changing business environment.
The software sector’s recent run is not just the offshoot of a weak rupee. Many IT companies, by using hedging contracts to lock into fixed exchange rates for their revenues, have chosen predictability over windfall gains from depreciation for several quarters now. Also, it is not as if IT firms have been insulated from the economic downturn. They have faced varied challenges — the implosion in the global banking, financial services and insurance (BFSI) space, sharp cutbacks in global IT spends, debt ceiling worries in the US and looming bankruptcies in Europe, and more. They have met these without having to drastically re-invent their basic outsourcing model; rather, they have made tactical changes to their operations to keep clients interested. So, when global belt-tightening robbed them of pricing power, Indian IT firms sacrificed profit margins while reworking internal cost structures and wage bills. When the North America-BFSI focus proved risky, they bid aggressively for new manufacturing, social media and infrastructure deals and diversified into Europe. This diversification is now paying off, with a new wave of outsourcing deals being won. Even as India Inc in general has clamoured for tax sops to tide over the current slowdown, IT companies have quietly taken the withdrawal of export tax exemptions in their stride.
Of course, there are still worries — notably the proposed US Immigration Bill that seeks to restrict H1B visas and mandate higher pay for immigrant staff. The legislation, if implemented in full, could pose a fundamental threat to the low-cost offshoring model that has worked well for Indian IT firms. But they seem prepared for this too: many companies are cutting back on entry-level hires and engaging overseas-only specialised staff capable of delivering better productivity. This trend is something that should worry our policymakers more than the software firms. For too long, the government has looked to IT firms to create jobs in organised sector. But with these companies now increasingly hiring globally, the Indian engineering graduate has to earn the coveted software job on the basis of his skill-sets rather than currency arbitrage. All the more reason why the government needs to work together with the IT industry in creating a domestic talent pool that could power the latter’s second coming.