Hope Immigration Bill is passed without negatives: Nasscom

There is better understanding in the White House and the administration and also among US corporations because the work that is done is really for them, ensuring that they become competitive, says Som Mittal, president of National Association of Software and Services Companies (Nasscom). He says, currently the House Bill is a clean bill, it doesn’t put the same restrictions, it has all the positives that the Immigration Bill has. So, he hopes that when the conferencing happens which will probably happen early next year - people would not insist on those negative clauses.

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He feels the White House will weigh in how important the IT sector is for India before taking a decision.
Concerns surrounding the proposed Immigration Bill and its adverse impact on visas for highly skilled non-immigrant workers have been an overhang for the Indian IT companies for quite some time now. In July, the US Senate had passed an Immigration Bill that changed rules governing H-1B and L-1 employment visas intended for high-skilled workers. The Bill is yet to be approved by the House of Representatives. Below is the verbatim transcript of Som Mittal's interview on CNBC-TV18 Q: Let me start by asking you about your trip to Washington? Currently the shutdown is in effect but you accompanied the Prime Minister along with another business delegation. The joint communiqué that has been put out by India and Washington seems to suggest that the IT and the ITES industry is important for both countries. Is that a signal that perhaps there could be a better understanding of India's problems with the immigration bill and that the US is actually willing to take some of those apprehensions on board?
A: We are seeing increasingly there is a better understanding in the White House and the administration and also among US corporations because the work that we do is really for them, ensuring that they become competitive. So, we are seeing traction. Right now the house bill is a clean bill, it doesn’t put the same restrictions, has all the positives that the immigration bill has. So, we do hope that when the conferencing happens and this could be likely early next year - no longer this year - that people would not insist on those negative clauses. Q: Did you get any sense that, that is perhaps going to be the route that will be taken? Did you get a sense of assurance that if push comes to shove the White House will weigh-in and look after India's considerations.
A: The indications are that they will weigh-in because when it becomes of strategic nature I think everybody realizes how important this industry is for India. Q: But it is also about give and take. So, will India need to give as far as the IPR issues are concerned if Washington were to play ball on India's IT concerns?
A: We have solved a lot of other issues. We had issues around transfer pricing, Rangachary Committee recommendations have been accepted, preferential market access (PMA) issue has been resolved. We had this time things on compulsory testing and that got solved and there will be some sticky issues which are around IP which is largely related to pharmaceuticals. Q: Are they going to hold the IP which is the big bug bear as far as large pharma companies are concerned. You must have seen those hoardings that were put up around the US as well talking about India's IP policy, our IPR regime and the problems that the US has with that. Will the give and take amount to India giving in on the IP issue for the IT industry to benefit?
A: I don’t think so. I think those are unrelated issues. We have our own case. We need to resolve any issue that India has to make business easier, removing the friction that we have and similarly US has to do that for us where we see that it is going to harm. So, I don’t think this is really a barter. I think the Indian government has moved quite a lot in terms of many changes that have been made in the last six months and I think it is getting noticed. Q: Are you getting support from large American corporations, IBM, and the Accenture's of the world, are they coming in and lobbying on your behalf as well?
A: They had a different stance because the negative provisions need not impact. There were many positive provisions which they want the bill to go through with. But there is a change in mind. We are seeing companies like IBM they have written a letter to chairman Goodlatte supporting the house bill saying they do not want to see the negative provisions that are in the senate bill, in the house bill. So, there is momentum there under USIBC, I think we are seeing a number of US corporations and customers now weighing-in because the impact on them is as large as it is on us. So, we are on the right track right now. Q: Realistically when should we be ready whether the best case scenario or the worst case scenario but when should we be ready or when should industry be ready for the transition?
A: I think they should be in the first and second calendar quarter next year. Our estimate is that the house will pass the bill in October-November timeframe but that won't give them enough time to do the conferencing. So, I think it would be taken up again in February-March unless some other issue hijacks this. However, we think there is momentum. For the immigration bill there are many provisions which are positive for the industry as well as very important for the US in terms of undocumented workers. So, this is the first time we are seeing enough traction on that and I think next year is when we would see something happening. Q: If it is the worst case scenario and that ofcourse is going to be the biggest nightmare facing this industry at this point but incase of the worst case scenario what is going to be the impact, what is going to be the hit?
A; There is always a short-term impact that happens but then I think the business models will change as some people have forecast. There will be work that will move more offshore which will impact US economy even more. Q: Which pretty much will change the business model for Indian IT companies altogether.
A: Yes but the key point is that this is not an Indian IT company model. Even the large service companies, American, European use the same model. They do work here in India and they have to take people for short term there. We are increasingly hiring people in the United States and not just because of the Immigration Act. Q: So we transition from the offshore model to the hybrid model which was more the mix of offshore and onshore or offshore and onsite. What can we evolve to now if this bill does go through in the form that we don’t want it to go through?
A: The issue is only with some negative provisions. We are already hiring more people across the world for language reasons, for proximity and for being in the same time zone because the kind of work we do is closer to business right now. However, the work that is done on a temporary basis onsite for example installation work we would still need some. So, negative provisions are on Visa dependency, we will probably have to move there but I don’t think we have to get our plan B and plan C going. I think our plan A that the negative provisions would be taken off is the plan that we are really working on. Q: You have to be prepared though for a Plan B and a plan C as well. If plan B and plan C were to come into effect the pricing model of this business is going to change?
A: That is customer, they get an advantage. Q: What happens then to margins and what happens then to the low cost arbitrage? It is at the very heart of this business and the very heart of this business model?
A: We have a huge sustainable long term advantage. What we offer is just not price, I think it is access to resources. There is a worldwide shortage for technical resources including the United States. So, at the end of it the work has to be done and technology is at the centre of all transformations. There are very little choices that customers would have. So, if the price goes up so be it. I don’t think it will have a major impact but what we do today is optimum. So, we will be moving from what is optimum to a non-optimum which does not help United States in any manner.
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So the feeling in the United States is those negative provisions do not help the US in anyway, so why have them? Q: Have you been able to convince senator Grassley? Did you try and reach out to him?
A: There will be enough people there who will do this. We do keep meeting their staff and they understand our position. We just had a very good debate where it was established that those negative provisions do not help and that there is a shortage of skilled resources in the US. By the time they try and sort it out if they disrupted our business model it will be United States and the corporations there who will suffer. So, that tells the message which is clear. Q: FY14 was expected to be or is expected to be a better year in comparison to the previous one but besides the immigration related uncertainty what else do you see as the big challenges facing the Indian IT industry?
A: I think we are on a good track. The vector looks good. We are looking at economies across the world getting out of the negatives and we are seeing growth there. We have seen industry getting to newer verticals and also getting into newer territories and geographies. Q: So there is a possibility that you may revise upwards the guidance that you have held because some would say the likes of Tata Consultancy Services (TCS) of the world would say that you have been fairly conservative?
A: Yes, that is true. So in our industry we would probably find heterogeneous growth. There will be some companies which will grow faster, some slower. We do hope that the changes that have been made in the tax rules would open up doors again for companies that were sitting on the fence in terms of establishing their R&D centers. Q: Have you seen sort of perceptible difference in the way that multinationals are looking at India given the fact that we have moved on transfer pricing all of that. Has there been a significant at least a mood change as far as MNCs are concerned?
A: I would think so because day after day we were only sending out negative messages and I think they have had a series of positive messages so I think the vector for them is positive. At the end of it, let us face it, India is the market, this is where the growth is. We have talent that is useful for the rest of the world.
So while we had seen some business friction in the past, I think both as an industry and as government, we should be committed to make those changes. I see the vector being positive and that making an impact on companies. How soon will they start changing their decisions? I think this is a board decisions but this message is going back, we are ensuring it reaches them too. Q: Speaking of other trends that we have seen in the market now and this is a big one which is the mid-sized IT companies being virtually on the block and being picked up, we have just seen the deal go through with Hexaware, there is a lot of talk about Polaris, there has been a lot of talk for several years about the future of Geometric, do you see a lot of these deals now going through?
A: We have multiple layers here. We have very large companies, midsized and the small sized companies and India is getting onto the private equity area. So many of the acquisitions that have happened are not consolidation, they are private equity deals. I think this is the nature of our business. Q: You think it will be driven more by private equity as opposed to large multinationals or perhaps even some domestic consolidation?
A: I think that is happening and we have seen that happening, we have seen three-four companies, which were India based having been acquired by Japan who did not have a base here which is a positive sign in a lot of ways because we would have more and more companies to invest, countries to invest. So Japan for example there are companies where they had zero resources two years back and have 10,000 now. So I think that opens up a door for Japan. It augurs well but you would see more and more of that happening across and we do hope it happens because we are now seeing the big trend of smaller companies coming out and their exits are going to be largely through consolidation and integration with others. Q: Do you believe it is getting increasingly harder for smaller, standalone businesses to survive in this market?
A: If they have a specific niche in which they were working and I think there are many many success stories where they have a niche product and by the way, the large companies run the big infrastructure but a lot of innovation is happening in small companies which is getting integrated. We ourselves have started a very major initiative on 10,000 start-ups and we are seeing enormous amount of entrepreneurship coming in now. We need to encourage that because a combination of large companies and innovation coming through small companies is what is going to decide our future in the coming years. Q: Often we have this discussion about the state of the domestic IT industry and whether this offers a big enough opportunity for IT companies in India, do you experience that Indian IT companies have had whether it is the passport business or is it any of the e-governance sort of stuff, painful, do you really see the domestic IT opportunity opening up significantly, the UID apart because that is the repeated example that everybody give but that apart is it going to be easy to capitalize on the Indian IT opportunity and is it really going to be that big?
A: We should segment it into three categories. Large corporations, they are growing and there is an IT spend, they are as good and as current as any other company across the world. So if you look at banks, if you look at our telecom companies, manufacturing, they will continue to invest significantly.
The second group is the small and medium, that is the big opportunity, they are not yet integrated in it and with the cloud services coming in, I think that is a big opportunity, but you don’t need to invest in the same knowhow.
The third which is the one that you are referring to is e-governance, right? It’s quite clear to everyone that if the government has to run its schemes, whichever government it is, technology will be at the central piece. It has had some issues but they made good progress as well. I think passport is a success. We have to build on it and with the plan that we have now 250,000 villages getting connected because earlier we had dial-up connectivity and so on and two-three years is basic infrastructure be it of connectivity, be it of UID as a platform, I think these are big changes that are happening.
The growth in India is the fastest in the world today. So people are getting logged on. So you would probably see more applications coming for India, more language based solutions coming in here. I am quite optimistic about the time ahead. Surely when the government shifts and changes its business processes to use technology, it takes time. There are hiccups that happen but I think they are on the right track.
_PAGEBREAK_ Q: The immigration bill is going to coincide with a regime change in India as well. What would you really like to see if indeed it is the worst case scenario as far as the immigration bill is concerned - how can the government alleviate some of the pain? Do you expect the government to come in and compensate in some fashion. In terms of incentives what would the pitch be to Indian government if the worst case scenario were to play out in the US?
A: The incentives are really required by small companies. Large companies still have SEZs they are kicking very well in terms of their model. What we need to do is to be helping promote the small companies and provide them market places. Ensure that we are developing things in tier-II, tier-III cities because 90 percent of the work still happens in six top cities and our costs there are going up. So, what we need from the government is indirect help.
We need to continue to work to reduce friction. We need more transparency, more visibility for example we are still struggling on getting our service tax refunds. We would rather focus all that energy in managing the outcomes, whichever way the immigration bill goes rather than spending it on things which are unproductive. That is where we need help. So, reduce the business friction and on the other hand help and support small companies. Q: We have had this conversation over a decade and I remember 7-8 years ago every time the Philippines for example came up and the Business Process Outsourcing (BPO) race was being talked about the response from the Indian side was we are way ahead in the game. Look at where we are today. Philippines has overtaken us as the BPO destination. While we can say conveniently that BPO is not where we really want to be in and we want to be higher up the value chain but do you believe that there was some degree of complacency as well that set in?
A: I don’t think so. The business has become much larger. There will be other countries that will grow. We continue to be growing and our market share continues to be growing up. The BPO and business process management (BPM) continues to be of importance. Voice based contact centers will be important for India but then places like Philippines do offer as good English or even better at times. Q: For a country with the demographic dividend and the requirements for the kinds of jobs that we need, I would have imagined that we would have tried to hold on to our leadership position in this space?
A:  You are right. Let’s look at what we today, when we are discussing current account deficits - this is one industry, this year we will deliver about USD 85 billion of exports. This is 70 percent value add. Almost everything comes to the foreign exchange earnings in a lot of manner. So, we need to be promoting exports.
A lot of things happen in messaging that we give out, we have to be much more careful as a country. We make an error, we reverse it but in the meanwhile you have given a negative message. So, we should worry about not only resolving issues but ensuring that the world gets the message that India is a country which is easy to do business with and in. We need to give that message and that is where we sometimes miss out.
So, we as an industry will do our work but then we collectively, whether it is the government, media, all of us need to give this message out that while we are going through certain humps which the rest of the world is – US the government has shutdown, so, we need to give a positive message. Q: Are you concerned about that? The immediate impact as far as the IT sector is concerned is minimal but if this were to be unfortunately a protracted shutdown – the last one in 1995 was 21 days, if this boils down to something like that should we be concerned?
A: Probably, it will impact the rest of the world much more. If it starts affecting macro economic factors and growth in the US corporations have an impact then we will surely have an impact. But there is too much at risk for the Congress not to let this thing prolong so long. I think they will get a resolution. You mentioned 21 days but 18 times there have been shutdown most of them for 1 or 3 days. So, I hope it is the same this time. Q: What has been harder lobbying in India or lobbying in the US?
A: In India it is still evolving. Lobbying is misunderstood here. The government needs associations like ours and many others to bring to them suggestions and ideas. I think there is need to build that trust. We are seeing gradually trust coming in between the industry and the government but we need to go to a much higher level. So, that when we come back with solutions, we have seen they are accepted. When industry starts understanding governments view point and find a compromise, I think things work.
In our case the issue is not only about policies, it is also about how they get implemented. I would say that most of the times, when we have presented our case internationally - it has been heard and the proof is that in the last five years we have had many protectionists - we have been able to fight them. Whereas, in India it took me four and a half years to get the Safe Harbour done. It requires more patience than normally you would need anywhere else in the world. Q: We are so used to this forecast for 2020 and all of that and world changes every six months. So, I am not going to ask you to forecast what the Indian IT industry is going to look like in 2020. For 2015, and especially given the fact that we do have this bugbear of the immigration bill, how do you really see this business changing? What will be the biggest most dramatic change that you envisage for the Indian IT industry?
A: I would think that instead of just talking about tech we will talk far more about business. So, we will become from a vendor to a business partner for our customers. That is the shift that we are seeing happening. So, if you look at all our companies they are verticalised because they need that domain expertise to talk next to our customers there.
So, these are only enablers; the issues of immigration bill and visa's. The fundamental is what value do we add to our customers? Do they see it and are we truly partners or just vendors?
We would see us becoming even more global not only in terms of the countries that we do but also in terms of our profile of our workforce because now we are getting into countries where English language is not the only solution. We will be servicing companies in Japan and China which is right now less than 3 percent of our business should also see a lot more growth. Q: So, global market share for Indian IT by 2015?
A: We are currently at about 55 percent. I would see it growing. Q: By how much?
A: With the whole pie increasing even a couple of percentage points is a big move.