360 Degree: Our IT sector and its future

The week gone by, saw  the quarterly results season for Indian enterprises. This is usually a time of confusion, going by the headlines in business dailies. They rarely agree on whether the balance sheets of leading Information Technology firms have been good or bad, a classic case of a glass seen as half full or half empty, depending on your vantage point and sympathies.

But this time around, there was near unanimity — as the companies left little room for doubt:  things were not too good for what the media in clichéd fashion calls  Indian infotech’s “bellwether” companies — TCS, Infosys and Wipro. All three had reported dull quarters. Their profits were down to low single digits, in the 3s and 5s and key customers overwhelmingly in the banking and financial sectors were apparently not renewing contracts for next year.  The naive might be tempted to ask: you’re all still profitable right? Nobody’s losing money?  

In fact, Infosys which scaled back growth targets, was simultaneously handing out pay hikes to  its top executives, eight of whom would now take home a combined total of over Rs 40 crore per annum. And Wipro, which was said to have disappointed markets with just 0-2 per cent growth in the last quarter, announced it was acquiring a cloud services provider for $500 million.

Read: India’s millions and the threats of automation

All this was enough to set off much wailing by industry pundits — at least one of whom thought it serious enough to start writing obituaries for the India  infotech model. True, the days when India’s top tech made obscene amounts of money by converting themselves into the world’s back office are gone with the wind. And there are multiple reasons for this.

Over the last decade, nations with similar demographics, from Sri Lanka to Philippines, learned the Business Process Outsourcing (BPO) game and competed aggressively dollar for dollar. A tech company owned by  Sri Lankan Kris Kanakaratne  — Virtusa — employs more people in India (Hyderabad and Chennai) than it employs in Colombo or the US. Filipinos, after years of contact with the Americans, are better at mimicking an American accent than Indians and soon, scooped up a big chunk of the voice -based call centre business.

But it is recent developments that are at the root of our IT woes. Brexit has raised doubts about London’s future as a financial capital with European enterprises waiting to see how it all pans out. American paranoia about Asians taking away jobs is a cyclical thing that happens every time the Land of the Free holds an election. Both leading parties milk the issue and rouse blue collar workers to righteous rage about “foreigners” snatching their pay cheques. This leads to a flurry of proposals to restrict visas or make them irrationally and selectively high priced.

Read: Trump, Clinton and Black Swan events worldwide

But this year, the somewhat bizarre world view of one of the two candidates has made banks and big biz press pause on fresh spending or renewal of outsourced contracts. This particular wait will be resolved, on November 9. But whipped together, these uncertainties are responsible in large measure for the temporary woes of our three bellwether beauties. By this time next year, it’s a safe bet they’ll be back to business as usual, albeit not to the halcyon levels just  before and after Y2K.

Writing off the Indian model of IT services at this point is slightly premature. Indeed, like Mark Twain’s oft-quoted quip after he read his own obituary in a newspaper, Indian IT might be tempted to say: “Rumours of my death are an exaggeration.”

But there is a grain of truth in what those readying graves are saying. The top Indian tech players (and one must widen the definition to include HCL, Cognizant and MindTree), have been content making cash the way it worked well for them — without investing sufficiently in product and process innovation. The old model harnesses India’s affordable manpower, but new tech is rapidly rendering this model irrelevant. Countries, not blessed with talent in large numbers, are motivated to find solutions within AI and Robotics. They’ll never make humans obsolete but they are already raising questions about the Indian BPO and services business and the Big Three or the Big Five Indian firms may have to deploy automated processes if their attractiveness is not to wear off — five years from now.

But this fixation with the biggies is questionable in an environment where innovation is alive and kicking in tens of thousands of small businesses. The late C.K. Prahlad’s prediction of “the fortune at the bottom of the pyramid” is proving prescient in unexpected ways, as thousands of small enterprises hit the product and process space. And never a day passes when the media does not report the launch of a service or a device which we embrace with our canny sense of what makes for paisa vasool.

Every big-budget start of a service is matched by a Lilliputian launch that testifies to the Indian embrace of jugaad or frugal innovation. Reliance Jio’s nationwide disruption of the mobile data services business made daily headlines. But Syed Khadar, a tea stall owner in Karnataka’s Bellary district, who invested in a a wireless router at his chai shop made the headlines too. If you buy a cup for '5, he gives you a free coupon for 30 minutes of free Internet. India is the only major geography where pre-paid mobile phone users exceed post-paid connections. And these small users in their millions have discovered free communication, using that very Indian tool, the missed call. Some years ago, another chaiwala in Bengaluru, saw a way to grow his business. He had the mobile numbers of all the cloth merchants in the vicinity. All a shop owner had to do was send a ‘missed call’ and hot tea would land up at their stores. Today, major banks advertise value-added services through the same missed call.

The Segway was a rage in the US five years ago — and can be had in India today for over Rs 1 lakh. Last week, at India Gadgetz Expo, I took a ride on a desi clone called Irrway. It sells for less than Rs 40,000 and it may be reverse engineering, rather than an invention. The question to ask is: Is it what India needs?

Also, large numbers of US credit card holders still use old-style swipe cards. When they do get chip cards, they find that many Point of Sale terminals are not equipped to scan newer cards. Contrast this with India, where within the space of one year, an RBI mandated change-over to 2-factor authentication for card payments was achieved by every single bank and card company — and chip cards are now the norm.

Last month, India leapfrogged into the next era of mobile payments when many banks rolled out cards using NFC — you could just “wave and pay” using a card or mobile phones. Only a handful of nations have moved to this new contactless payment era.

The Internet may not be a big deal to the West but here, it is a powerful tool. With Google’s help, Indian Railways have put in place free WiFi at 400 stations. Innovation? Maybe not. But a crucial infra achievement that will touch millions? Yes.

And with over 1 billion holders, Aadhaar is now the world’s largest digital personal ID archive. The challenge in such techno-rollouts, with a massive user base like India, is formidable but it happens on a bedrock of what one might call appropriate innovation.

No, the tech star that is Indian IT, is not dead. It has just shifted a little bit — from airconditioned captive R&D units of MNCs to the garage and shack operations of a million earthy, motivated startups — fueled by things like Internet and mobile payments.