The Indian Economy Blog

April 21, 2007

Indian IT Industry

Filed under: Business — Neelakantan @ 7:44 pm

There has been a lot of discussion on how the IT industry should do more for India. There are some out of touch views and some sane views. It is nothing short of a miracle that we are talking about an industry today, which was almost not an industry. The IT industry would not have happened had it not been for the foresight of some of those who laid the foundation of what is today a billion dollar industry.

My comparison here stems from the supply of Indian “skilled” labour supply to the Middle East in parallel to the bodyshopper mode, which was the way the IT industry began.

The Gulf boom was a labour market. Companies would operate through recruiters in India – some good, many shady – and work in supplying people to the foreign companies. Here, the companies had no interest in their people succeeding and to a certain extent, the people also couldn’t care less beyond the money. Result, engineers were sent as plumbers, drivers – the agent would get his cut on a per person basis if the person served his contract. Almost all assignments were on contract – nothing like being a permanent employee with strong legalities if someone broke the contract. Some came back, some stayed, but nobody could protest or do anything, since it was a choice that most of them made. At the lower end, this has resulted in exploitation – but thats a different story.

The so called IT industry in India started exactly the same way as the demand for labour in the Middle East. It was not even an industry when it began. Companies, fly by night agents, would hire people and send them out on lucrative assignments to the US, UK or even the Middle East. They would send out people, “trained” (usually for not more than a few days and the rest of it would be picked up by the person themselves. Many people were trained in no more than house or a second hand desktop. The luckier ones found themselves going through organized training shops like NIIT etc. If it continued in this way, it would have been another story of missed opportunities, like the Gulf boom.

Fortunately, some companies, notably TCS, Infosys saw a way to make this work. By creating a company organizing people, skills, training they were able to create a lucrative business model out of IT outsourcing. Even then, when they began, most of these companies worked on a staff augmentation mode. Over time, they realized, very smartly, that their margins on a per person basis is much lower than their margin on a per project or assignment. Using the time difference to our advantage, using people here, using onsite coordinators they created a skillset, a repository of skills of their employees which they used to bid for projects. Try talking to an Indian IT biggie for “staff augmentation” today and you will be shooed away by the security guard at the gate itself. They bid for projects and usually are not interested in tidbits unless they see an opportunity beyond that.

The Gulf boom, could have led to Indian companies becoming infrastructure giants, could have led to the creation of atleast one good infrastructure consulting company or an architecture firm or an engineering firm or an accounting firm or if not anything else, a good human resource placement bureau. Did it result in anything? It did not.

The IT industry, likewise, could have become your friendly neighbourhood recruiting agent, sending people out of the country to become coders. Yet it grew from nothing. From unfriendly laws, difficult regulations to become Indians defining norm, otherwise we would still be known only for elephants and (paper) tigers.

Those who talk of or question social contribution of the IT industry might do well to remember this – and this, without the multiplier effect of the industry in India and the economy. Where the industry is today is a matter of pride, reached after overcoming a fair share of obstacles and there is no easy money here. This industry almost never made it. The returns for India are huge even at this level. And we all know the multiplier effect of the gulf boom in India – except for large houses for those who went there, we have precious little to show.

9 Comments »

  1. Sure, major percentage of Indian economy is highly dependent on the IT Industry. But the industry still lacks innovation. We are known to do a better job when it comes to IT maintainence and innovation hardly figures in our investment. Innovation may be a risk, but risk has its returns.

    Comment by Harish Babu — April 21, 2007 @ 10:15 pm

  2. No issues with the IT industries progress,but I think for the all round development of the country we need to look ahead.

    Even in IT we are not the best.What our companies like Infosys,TCS,Wipro is doing is software services outsourcing which is a small part of the IT industry which is worth about 2trillion dollars if we include even hardware.

    The day we stop praising Narayan Murthy ,Infosys,Wipro,Azim Premji we will realise that China is exporting 10 times more semiconductor hardware than our total IT exports.

    It will be a sorry thing for the country if we keep on praising this low cost,less innovative industry till 2020 and then realise that even Pakistan and Bangladesh have moved ahead of US in the field of Hardware,biotechnology and nano technology.

    Comment by Brijesh Joshi — April 22, 2007 @ 3:46 am

  3. Any industry has to start somewhere. Japan was known for cheap toys. Now it is China. In IT we have started here, and I am sure we will move up.

    The direction of Indian IT is via private minds, moving up will surely happen, but in the meantime, we need to accept this business model as a business model. This business model is an innovation – and these are the fruits of that risk.

    Comment by neelakantan.b — April 22, 2007 @ 6:13 am

  4. Oh Brijesh, that’s typical commie talk. Or should i say a classic case of sour grapes? What the author was talking was about how in spite of bureaucratic red tapes, the Indian IT industry has manged to flourish. Whether you like it or not, its the truth.

    As an Indian who has lived outside India for more than 6 years, i can vouch for that fact. Even in Singapore, a cabbie would want to know how come India is such a software powerhouse and how come there are so many IT guys that India churns out every year. The truth is India is talked about in the world today simply because of its software power. Else, India would have been nothing else than a supplier of cheap labour.

    Of course, to really scale up, the Indian IT industry should concentrate more on products than services that they are doing now. But honestly, we started off as a body shopping country and today the Indian companies are picking up orders worth at least 300-400 million dollars. Have you heard of products called icube, finacle etc. These are products made by Indian companies that are used exclusively by thousands of companies worldwide.

    Give them some time, they will be there. Meanwhile, speaking of biotechnology, have you heard of the Genome valley in Hyderabad and its outskirts? Its spread over 600sq kms. Some of the best companies in the world have setup offices out there and do R&D. Those include Indian pharma companies too. Have you heard of Moser Baer? Bharat Forge?

    Yes, India has missed the hardware bus, but its nothing to do with the industry. The fault lies at the doorstep of the Indian govt which has stifled the industry with its stupid laws. Please raise your concerns there.

    The Indian IT industry is well alive and thriving. Rather than lionising Amitabh Bachan (not taking away anything from his stupendous acting talent), i will rather have Narayan Murthy, Azim Premji as my demi gods.

    Cheers.

    Comment by Full2njoy — April 22, 2007 @ 6:52 am

  5. Impact of Gulf boom on India is true but not fair. It is true that Gulf laws were not fair to employees. It is true that folks went for jobs that required far lesser skill than they have. It is true that there was exploitation. At the lower end. Is it true that giant corporations did not evolve as a result? Not true. Sobha is a fine example of how a samll gulf business grew to be a $ 1 billion giant in the real estate development space. Today most buildings of Infosys are built by Sobha. They evolved in the Gulf and still have big operations there. So did Shapoorji Pallonji (the owners of TCS). So did Khimji enterprises. So did Allieds. So did Jumbo Electronics. Mohammed Ali of Kerala went on to build Galfar, a big ticket infrastructure business in Asia. Am an IT entrepreneur today and was a Gulf expatriate in the past. Am proud of both the avatars. And think both had a great role in India’s evolution.

    Comment by Vikram — April 22, 2007 @ 10:57 pm

  6. The IT industry definitely has made a lot of progress. There are laws to protect this industry. But are there are any laws to protect the interests of its employees? Software engineers (or programmers), the bottom of the pyramid, are mostly forced to work offshore-time as well as onsite-time. I agree that software engineers are paid pretty well. But in return, they spend 10-15 hrs everyday in office, sometimes even on weekends. These companies are able to execute large and complex project only because their employees are made to work long hours and weekends. Therefore employees make a huge compromise on their health and family-life for a good salary. And there are few project managers who stand up against this. In the long run I believe that three-fourths of a software engineer’s savings will be spent in his own healthcare once he retires!!!!

    I don’t know whether there are any laws to protect the software engineer’s interests, but I know that even if there are any, they are not being adhered to and the company and top management can force employees to do anything be it working in locations far from home, to working late hours and weekends without being paid overtime. My previous employer, one of the top 3 Indian IT companies, used to bill the customer for overtime (in foreign currency, of course) but would not pay the employee any overtime. Yes, I agree they make arrangements to drop you home and probably provide you food. But I do not think any employee would want to do overtime for food and transport. When software engineers are sent onsite, they do not get paid the actual salary mentioned in the work-permit. This is the case in most software companies.

    I believe its high time that the govt or NASSCOM steps in to protect the employees. There should be unions (defintely not affiliated to any political party) that should be allowed to function. In most developed countries, there exist unions and forums to protect employee interests.

    Comment by Rakesh — April 23, 2007 @ 12:47 am

  7. I totally agree with Rakesh, However I believe that both software companies and employees are collectively responsible. It is in best interest of employees as well as companies that some kind of unions come into picture. I personally have seen many instances were employees working overseas on contract thru major software companies are paid bare minimum wages (even less than 8$/hr which is less than minimum mandated pay by many states in US). Most of these guys live in shared accomodations like pigeon holes. The onsite/offshore model is very much dependant on guys onsite who work more than 18 hrs a day managing customer interaction during day and their offshore counterparts during night (to get the work done). Companies shuttle people back and forth in order to avoid risk that onsite guys will get too comfortable and switch on to better companies locally. If someone goes that path, they end up being bullied by HR for money in USD to let them go gracefully (because they get contracts signed when people leave india which prevent people from switching companies with huge penalties to break them). If somebody is suffering its the grassroot software engineers who make the most of the bottomline profits.

    Comment by Raja — April 27, 2007 @ 7:24 pm

  8. The industry employs just 1Million people and contributes to less than 5% of nominal and less than 1% of PPP adjusted GDP. To expect it to work wonders of social re-engineering or deliver some miracles of process or product innovation is similar to expecting Angelina Jolie to solve the unwanted orphans problem in the world, just because of a high profile.

    What the industry can do, like Jolie, is raise awareness of some important issues on the socio-political agenda, may be even help raise funding but on its own, it can only employ people who are really capable (just like Jolie adopts only the kids she ‘falls in love with’), and it can only grow at a rate of growth which can be sustained (just like Jolie can only outsource so many kids to Pitt while she is saving the world).

    When it comes to expectations from the IT industry, as a country, we are behaving a bit like a family where there is only one star performer, who despite obstacles, makes a good life and living. And now everyone in his family wants him, using emotional blackmail or other similar tool ‘beta, tujhe yaad hai…’, to bankroll their unproductive lives although they have never made any effort of their own, always blaming circumstances and others for their lot.

    Comment by Shefaly — April 28, 2007 @ 12:12 pm

  9. Just one nitpick: One crucial factor that enabled IT industry to grow out of staff augmentation to project delivery model was the nature of its work – it was possible to develop code here and deliver it over the wire. That is not really possible with construction industry, is it? So to compare IT industry with Gulf and suggest that they were somehow smart enough to make the transition is not really fair. If it were possible to build buildings here and deliver it over the wire to Gulf, even those enterpreneurs would have evolved into project delivery model.

    Comment by Mohan — May 2, 2007 @ 7:37 am

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