The phenomenal success in IT is the result primarily of the enterprise and innovativeness of our entrepreneurs and young professionals, and of private firms that have spread computer literacy to millions. Government initiatives and incentives have also played a major role. By count there are almost three dozen fiscal incentives the Government has given to the software industry — the very ones the industry itself has urged would help it the most.
Similarly, the Government has set up 39 software parks. In these, IT firms get all the infrastructure and services they require at one go. About 3,500 firms operating from these parks export Rs 37,000 crore worth of IT products and services — that is, about 80 per cent of IT exports.
In a word, the sector is a model of government-private partnership. Some of the things the Government has to do in the coming months are implicit in the foregoing — for instance, our embassies and chanceries in the US and Europe must continue to work together with NASSCOM and other organisations to staunch the backlash.
The Government has to continue to, and is continuing to, improve the infrastructure the industry requires. Work along other coordinates is also proceeding apace. Attitudes too have changed: government personnel do realise their task is to enable entrepreneurs and technicians to do even better. But every other week I come across some facet that reminds me this is one area in which the governmental structure can be more forthcoming.
•IT professionals do not make much distinction between night and day: in part because they are young, in part because they get seized by the problem on which they are working, in part because when at night they are home it is day for their client in, say, the US.
Each time I go to Bangalore, they tell me that to attend to a conference call from their client at night they have to go back to their office. The telecom people say they do not connect company-leased lines to the telecom network as this becomes the channel for illegal, grey traffic. But can we not work out some arrangement for these world-class firms? I ask. Negotiations are still on!
• Clients from Europe are loath to spend extra hours, sometimes a day changing flights in Mumbai, to get to Bangalore; they require daily direct flights to Bangalore.
• Firms that operate from multiple locations have complained of problems with local customs officials about soft-bonding of components.
• For persons in this industry, as for many others, a laptop is as much of an accessory as a pen, as a mobile phone. But our regulations require that, each time we go abroad, we have particulars of our laptop stamped on our travel documents.
A while ago, one of the icons of the industry was held up as he did not have the requisite forms. Passengers in the queue behind him had to intervene.
Such examples can be multiplied. Many of them are minor. Governments must attend to them nevertheless — in part because they are irritants; even more so, to convince those who are doing so much for the country that the governmental structure is sensitive to their needs — I would hope, to an extent even to their whims.
Self-denial as policy
That we are assisting someone to do his job often leads to the presumption we are also best equipped to tell him what he should be doing and how! Governments are prone to that temptation even more than we are in our personal lives.
One of the reasons the IT and cable industry have grown so rapidly in India is that governments were, in a sense, not looking — or that the growth and mutation were so rapid that governmental structures were not able to decide what to regulate and restrict.
But now that these sectors are so conspicuous, many see features in them that should be regulated! Many miasmas occur to us — ‘‘What if…? Should we not tighten pass law ‘X’ to prevent possible misuse? Are the employers all they are made out to be? Are you sure some of them are not exploiting the youngsters employed in this sector?…You just don’t see — so many of them have become so arrogant. They just have to be brought down a peg or two…’’
I have been accosted with each of these questions. An example in the public domain will illustrate the apprehension.
The other day newspapers reported a proposal to extend provisions of the Contract Labour Act to the IT industry. The consequences will be apparent from an analogous case.
In the film industry producers do not keep stars and technicians on their payrolls as permanent staff. A film is conceived. A writer writes up the script. Some songster has some songs he has already composed, or conjures up some new ones. Actors, actresses, film crew, sound personnel, film editors come together — each on a contract.
The moment the task is finished, they disperse — only to re-form in some other constellation for some other film.
Much of the IT industry is of the same nature — as and when tasks are secured, professionals are brought together, and they disperse when the job is done.
The industry is also very prone to cycles. This is all the more so in the case of small firms. Even a modest-sized job for them requires a major enlargement of their personnel. Asking the firms to keep this staff on after the job has been done will be the surest way to kill them.
And such laws never work. Look at the result of the Working Journalists Act and the successive ‘‘Wage Boards’’ that have been set up in the newspaper industry. It is well known that the overwhelming majority of newspapers just do not implement the Awards of the Boards.
Not just that. As governments, not wanting to fall afoul of journalists, started making noises about prosecuting papers that were not implementing the Awards, the papers induced, some would say compelled, the journalists to opt for signing fixed term-contracts — a practice that put the journalists beyond the purview of those Wage Boards on the one hand, and made them even more nervous of the employer on the other.
Should we subject the IT industry and the professionals in it to sequences such as this? Does the basic rationale of laws such as the Contract Labour Act hold at all for industries like IT? The rationale has always been that workers engaged on contracts — like construction workers — are lowly paid, and therefore there is a need to protect them through legislation. But professionals in the IT industry are among the highest paid in the country.
So, the first rule for governmental intervention should be self-denial. But there also are things governments should be doing.
My young friend Vedanta Jhaver, who runs an up and coming IT firm, Prodapt, out of Chennai and San Francisco, reminds me of two areas in which governments need to do more. He points out that the largest 20 companies — they constitute 0.6 per cent of the number of companies in the industry — account for almost 60 per cent of the industry’s revenues. The per cent contribution of small- and medium-sized companies has been falling in the past five-six years.
I am not one for reserving things for some segment of industry, nor for propping it up with artificial planks. Cases such as that of small-scale units, of locating units in backward districts, remind us that such assistance almost always backfires: unsustainable units come to be established; they get to be established at unviable locations; in the end governments are neither able to sustain the ‘‘incentives’’ — tax breaks, price and purchase preferences, reservation of products — nor to terminate them.
Nor am I much awed by that 60-per cent figure. In several other industries the figure will be similar. As has been well said, you don’t want to penalise the village cobbler for being the only cobbler in a radius of five miles: the larger firms are big by our standards, but they are small when compared to the ones they have to compete against — the turnover of our entire IT industry is $16 billion; that of a single firm like Microsoft — with just 55,000 employees — is $32 billion, that of IBM is $81 billion.
So I am not for artificial props. But Vedanta draws attention to the sheer size of the target at which we have to aim. We are told our IT exports have to reach around $50 billion by 2008. If the large Indian firms keep growing even by 20 per cent a year, he says, such targets will not be realised unless the small and medium firms in this sector grow by 40-50 per cent a year. At present they are growing at just 10-15 per cent.
My apprehension centres on another point. Innovation often comes from inconspicuous, small units, often from isolated, eccentric individuals. Our structures — for instance, our banks and financial institutions — are not attuned to nurturing and supporting such firms and individuals.
The collapse of so many tiny IT units three/four years ago has made bankers all the more wary of extending help to such firms and individuals. But the consequence is even the more robust units are now fighting for survival.
Vedanta Jhaver points out that, ‘‘Very few SME software services companies receive bank limits, and if they are lucky to have one, the interest rates are almost always above 16 per cent. The (IT) services sector is viewed by the banking industry as ‘high risk’ and the latter requires collaterals of 100 per cent for even small bank limits.’’
The Government is encouraging financial institutions to support such a high-risk industry as films — and for good reason: in part to cut the hold of the underworld. The small and medium IT units deserve similar attention — for at least two reasons.
First, as mentioned above, this is the lot that is liable to contribute many innovations. The other reason is one all who remember their Ibn Khaldun would recognise! In the Muqadimah, that perceptive seer taught dynasties lose their vigour by the third generation. Firms — even very powerful ones — go up and down at a much faster pace.
As this is a young industry, the great pioneers who have set up the principal firms in India are still directing them. A few years from now they will be handing over to others. Will the firms sustain their dynamism and resilience when that happens?
In any event, it is always dangerous to rely on only a few — all sorts of meteors can strike even the best. That is all the more so in spheres where change is at lightning speed. Sheer prudence, therefore, dictates that the country nurture hosts of innovative firms — so that they can take over should some of the leaders flag, as wave merges into and takes over from wave.
A host of small things can be done to help them along. For instance, certifications by recognised authorities are vital: potential customers require assurance of excellence, and most often do not have the time to evaluate on their own the worth of a group of professionals.
Governmental help takes the form of assisting SMEs to ramp up their facilities and standards to, say, CMM Quality level V. The Government could set up a body for these firms to parallel R.A. Mashelkar’s National Innovation Foundation. It could set up an incubation-cum-innovation fund.
It could prod banks and financial institutions to be more forthcoming in assisting SMEs in this sector. It could initiate some pooling of risks by them as insurance firms do in regard to extraordinary events. Could it spur a special effort by the major purchasers — IOC, ONGC, BSNL, MTNL — to reach beyond the half a dozen established vendors?
Are the latter really better at designing billing systems, say, or are they better at persuading these major clients that they are better? At least in Telecom and Posts, I have seen software and hardware supplied by the best known vendors even for standard tasks — BSNL’s billing in north India, MTNL’s Dolphin and Garuda services, elementary operations of the Postal Department — to go woefully wrong so often that I am convinced the mere fact the task has been handed over to some big name is little guarantee it will get done.
Thus: severe penalties in contracts on the one hand and looking beyond the established names on the other.
The Inter-operability Imperative
There is another area that deserves attention of our governments. Indeed, it concerns what governments are themselves doing in this sector. Several departments of central and state governments are installing software for a variety of operations.
And there have been notable improvements as a result: 80 per cent of the forms of the Directorate General of Foreign Trade, accounting for 90 per cent of total value, for instance, are now filed online; as a result, the processing time of these, which used to be 45 days, has come down to six hours.
Now software is obtained by departments and governments from varied sources — often the choice is determined by no more than the fact that some provider is the lowest bidder in a tender! But the systems must be inter-operable.
In the US when, in the wake of 9/11, terrorists and their financial transactions and those of their front organisations had to be tracked down, one of the problems was the systems of different agencies of the Government — FBI, Internal Revenue, Immigration and Naturalisation Service — could not ‘‘talk’’ to each other. The systems being installed in our departments are also stand alone systems. To take a simple instance, systems housing data relating to passports, visas, immigration and applications for them cannot at present communicate with each other.
In the US, in the UK, in Germany, governments are having to spend billions to make their systems inter-operable. In a sense, we have the advantage — such systems are just being installed. Ensuring inter-operability at this stage will be much less expensive than vaulting over the silos will be five to 10 years from now.
Therefore, ensuring inter-operability — at least of the critical systems — should be one of the priorities in the coming year.
(Tomorrow, Part IV: Stimulating investment, generating demand)