China to be serious competitor in software: Murthy

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India's neighbour and economic powerhouse China is building on its English-language skills and will emerge as a serious competitor to the Indian software industry, believes Infosys mentor NR Narayana Murthy. "Today, US and India are clear leaders in software. This will continue at least for the next year or two. However, China has done a very good job of improving their speaking skills in English," he said.

"In terms of infrastructure China is about 100 years ahead of ours. So give another two years and China will become another serious competitor," he said.

Even as debate rages on over the off-shoring model, with various countries talking about the loss of jobs to lower-wage countries, Murthy said Indian IT companies will now have to be more aggressive in markets abroad and hiring there.

"They will have to be much more aggressive in training them and absorbing them, and creating a universal culture. They have to be much more aggressive in making sure that they live in harmony with those societies."

Murthy was speaking to CNBC-TV18 before the ceremony to felicitate laureates of the Infosys Prize 2009. The prize was given by the Infosys Science Foundation, a non-profit trust to promote research in science in India.

Excerpts from a verbatim transcript of the exclusive interview with NR Narayana Murthy on CNBC-TV18. Also watch the accompanying video.

Q: 2009 was a year of tentative recovery. As we start 2010 how optimistic or confident are you feeling about the state of the economy?

 

A: I am optimistic because last quarter India grew about 7.9%. It looks like the fundamentals are strong and we are well set to grow anywhere between 7-8%. The very positive ones amongst us talk about 8% but realistic ones talk about 7%. Even if we reach 7% growth rate for 2010 it's not bad.

 

Q: If you could identity the key business risk at this point in time because there is that uncertainty over when the government will actually withdraw its stimulus measures. If I were to ask you to identify the key business risks what would those be to your mind for 2010?

 

A: The global market has still not recovered. Hence, our exports are still iffy because it's gone down. It has to pickup and come back to the old growth rates. That is one risk that we carry. Agriculture is still a very iffy business in India. It depends upon monsoon and how the agriculture response to the standard fertiliser that we have been using unless we do something very quickly about it that again could be an issue. They are all basic issues in terms of agriculture, exports and liquidity in the market place, banking, and finance has still not picked up.

 

Q: You sit on a lot of international, on the boards of several international and multinational companies. What is the sense that you are actually getting about the state of the recovery as far as the Western countries or the Western economies are concerned?

A: I sit on the HSBC Board and I sit on the Unilever board. But in both cases the US market for both of them is flat, the European markets are not growing and there has been deflation in some of the markets. It is really the emerging markets that have shown growth rates and considering that the emerging markets contribute between 45% and 50% from both these, there is so much weighing on the performance of India, China, Brazil and a few other countries.

So emerging markets have indeed become extremely important players in determining the success of large multinational companies.

Q: In terms of deals going through we saw a period where India Inc was in a very aggressive acquisition drive. Do you think that 2010 could be the turnaround India? Could we see a lot of that activity coming back?

 

A: It's a bit early to talk about it. My personal feeling is that it would probably take another year before we can get back to faster growth in some of the kind of deal making that you talk about, the number of initial public offerings, size of these IPOs, etc. I am perhaps pessimistic from this issue but I think it will take about a year.

 

Q: What about the approach that various governments have actually taken because there was a sort of coordinated approach with regards to the stimulus packages? We also saw then governments becoming not just facilitators but interventionist. We saw the whole the protectionist sort of wave especially as far as the developed economies are concerned. Are you seeing that ebbing just a bit?

 

A: There was a lot of talk about protectionism but the reality is the US did not ratchet up its protectionism. A lot of these banks are ready to give back the money, the troubled asset relief program (TARP) money. In that sense while it did help stabilise the financial system they have not seen the kind of results that they wanted. There has really been no job lead recovery, right and the whole purpose of all of this was to create more and more jobs has not yet happened. We have not been as successful as we thought we would be after the government supports huge amounts.