Reinventing digital world

India's IT sector has to meet technology challenge

India's information technology (IT) world, going by the buzz at the recently concluded meeting of the National Association of Software and Services Companies (Nasscom), appears to have gone "digital". This is intriguing - leaving aside esoteric analog computers, the ubiquitous IT devices have always handled data digitally. What it means, however, is that Accenture, by creating its digital platform last year, and Tata Consultancy Services (TCS), by setting up its digital business unit last month, are signalling that computer-aided digital business is becoming more central to the corporate world. IT firms have to handle together, in one continuum, new technologies like social media (Twitter, Facebook), mobility (wireless telephony), analytics (crunching business data) and cloud computing (working through hosted computers) - or SMAC - to address the emerging needs of individuals and firms. In order to rise to the occasion and retain India's pole position, market leaders are reinventing themselves into "digital" animals.

Game-changing action is needed for two reasons. One, the world is emerging from the post-2008 financial trauma and Indian IT exports can look forward to export growth of 13 per cent to 15 per cent in the coming year (2014-15) after touching 10.2 per cent in 2012-13. Two, India's IT industry will have to change its act in a most challenging manner if it is going to tap this opportunity ahead. The global delivery model of India's IT sector, based on Indian engineers willing to work for low salaries, is heading for a sunset. It is challenged by automation, which doesn't require humans to write routine codes and political imperatives in client geographies, mostly the United States, thereby making it difficult to both outsource work overseas and bring in knowledge workers for onshore work. With routine work going out of the window, it is becoming increasingly necessary to help customers re-engineer their systems (which means understanding their businesses) and offer imaginative pricing models under which margins come not out of volumes per se but out of technological innovations.

The problem with this scenario is that cutting-edge technology will be needed to offer services integrated across the different arms of SMAC and the research-and-development (R&D) spending of Indian IT leaders is low compared to the global incumbents. The problem is that if you spend more on R&D, in the short run it will mean foregoing profits - which the markets will not like. Infosys spends twice the proportion of revenue on R&D that TCS does, but it's the latter that is fancied more by the markets. How these firms will remain on top while living with the tyranny of quarterly results remains to be seen. The good news is that technology-based Indian start-ups are getting noticed. Many e-commerce ventures are being funded. Hopefully, the same ecosystem that exists in Silicon Valley is slowly emerging in India. The future for Indian IT is, thus, as exciting as it is challenging.