In an interview with ET Now, R Chandrashekhar, Nasscom , says the overall impact of the disruption would be positive but would vary from company to company and would certainly have some impact in terms of discouraging offshoring to India wherever it is possible.
Edited excerpts:
Would it be fair to say the demand outlook is somewhat looking better for Indian IT services than was the case three months back?
Yes, broadly that is indeed the case. In fact, we had said so several months ago when we had made our projections for the current fiscal year itself that 2018 was expected to be much better. There are several reasons why that expectation is panning out. We are seeing good recovery or uptick in the US economy. We are also seeing a slight uptick in the global economy and all the uncertainties that had bedevilled both the global economy as well as the Indian IT industry like Brexit and Trump ascendency and many other things protectionism, anti-globalisation and all that. All these issues have now pretty much played out and people have got used to the ambient level of uncertainty. They have begun to figure out how to deal with it.
It is important to understand the context in which these deal extensions are happening. While these are not new deals, but in a tough market being able to negotiate a deal pricing of that size and scale is also noteworthy. It highlights that while there may not be too much expansion in terms of order flow in the market, the orders which exist have demand and there is a significant demand still for the existing services?
Yes. There was a general perception that users of these services were holding back a little bit in terms of big investment decisions in technology because of all the uncertainties political, economic and technological. Now people are beginning to take those decisions which include the balance between continuing with the traditional spend and investing in new technologies, new solutions and new platforms. We are seeing the beginning of that return to investment, the return of discretionary spending and all of this augurs well and tends to demonstrate that the doubling of the growth rate in investment, in technology in 2018 which Gartner for example had indicated is actually beginning to happen.
Reading into the impact of the US tax reform as negative because of base erosion and anti-abuse for Indian IT companies which operate under the subsidiary model in the US like in the case of TCS, HCL Technology, Cognizant or positive as its impact is captive and an opportunity for Indian IT? How are you reading into the situation?
Actually, the impact of the tax cuts and jobs Act which President Trump passed on Friday is fairly complex and a very simplistic answer is perhaps not possible. The obvious thing of course is that the tax rate having been cut from 35% to 21%, any corporate which has a presence there — whether it is a subsidiary of an Indian company or an American company would actually derive the immense benefit from that. But having said that, there are provisions which impose tax on outsourcing and this tax has a significant impact and in effect has a negative impact on offshoring.
But given that this measure by itself does nothing to address the skill shortage which is the root cause of the offshoring, it will have a limited impact but it also has another kind of impact if you are looking at it. For example, some of the measures with regards to visas and further restrictions which are being contemplated could also have a differential impact.
You can compute the impact of all of these, depending on whether a company follows a subsidiary model or whether they are following a branch model. It also varies depending on if it is related party transaction. For example, if there is a global capability centre in India and the parent company is offshoring some work to the GCC here in India, that would certainly attract the punitive tax which has been contemplated over here whereas if it is outsourced to a third party, which is an unrelated party then it does not affect the transaction. So, there are different nuances to the impact. It is quite possible that the overall impact would be positive but would vary from company to company and would certainly have some impact in terms of discouraging offshoring to India wherever it is possible, to find other solutions.
Another factor that we have witnessed, at least in Accenture's performance and guidance, was that it was seeing growth in platforms within enterprise application services. This was one of the most adversely affected service offerings for Indian IT vendors because of the transition to cloud. Do you think that the disruption is over and we could now look at some growth in this particular vertical when it comes to it?
I do not think that disruption is over. Companies have begun to figure out how they can be a part of that disruption, how they can actually tap into that business as well and we are seeing companies — whether they are Indian companies or global — creating their platforms and providing services through that platform.
The kind of disruption that is happening and the changing nature of the business not just providing technology services but providing a digital transformation service, providing business value to the end customer being able to mix technology domain consulting often with a dash of innovation as a part of the offering, has increased the value proposition of the IT industry out of India.
We are seeing that because whatever has happened, the worst that could have happened in economic terms, in political terms, in technology terms has been thrown at the industry. It has still grown at 7% to 8% in face of such difficulties and it is growing at that rate and from here on, politics is settling into a certain equilibrium with whatever uncertainties are associated with that. There is a recovery in the economy globally. There is a recovery, technology that people have figured out what they need to do whether it is in terms of skill sets,
Whether it is in terms of platforms, whether it is in terms of preparing for the new opportunities ahead, the business models that lie ahead, the risk sharing involved in that, the transitions and the somewhat difficult period has also enabled the industry to figure out how it needs to transform itself. That is also partly the reason we are seeing the green shoots now and I definitely feel that the immediate future looks a little better than the immediate past. Time will only tell whether this is a part of a broader cyclical trend or the beginning of a much bigger opportunity that lies ahead.
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