It is a question that shareholders asked repeatedly at the Infosys annual general meeting over the weekend. It is a question that is likely to haunt India's second-largest software exporter this week, as it prepares to meet officials from India's Finance Ministry on June 22.
Why are there so many technical glitches in the new income tax e-filing portal, and, more importantly, why does an IT company that works for some of the world's biggest corporations and countries struggle to execute a project at home?
While Infosys has assured shareholders that several glitches raised initially have been resolved and as new features are being introduced, they will address more concerns in the next few weeks, the episode has put the spotlight once again on one of Indian IT’s biggest bugbears: executing Indian government projects.
Govt projects: Indian IT’s Achilles’ heel
To be sure, this is not the first time Infosys has been pulled up for a government project and neither is it the only company that has faced an issue.
While Infosys faced similar problems when it was working on the MCA21 (Ministry of Corporate Affairs) and the GSTN (Ministry of Finance) projects, Wipro has had its fair share of troubles with projects such as Employee State Insurance Corporation (ESIC) and the National Register of Citizens (NRC) project. TCS, which runs India's passport project, the Indian Railways’ IRCTC site, and India Post’s digital project, is an outlier and has had relatively better success here.
Industry executives Moneycontrol spoke to said a combination of factors like undefined scope, inflexible milestones, delay in payment, and lack of ownership from the government on the projects are some of the reasons.
Lack of flexibility
“Government procurement is straitjacketed but an IT project is complex, because you need to make changes as you go along. The GST project, for example, saw changes with every council meeting, not just the rate but the structure, the role of the Centre and the states,” said R Chandrasekhar, former Nasscom president, who also served as IT secretary and telecom secretary.
Various executives, on condition of anonymity, said IT companies have been increasingly wary of taking up government projects, resulting in smaller, lesser-known firms bidding for key e-governance projects.
Random scope changes
“Suppose you are an artist. They ask you for a detailed sketch of a monkey. Then when you are about to submit it, they change the subject to a donkey,” an analyst tracking the space for a decade outlined the almost arbitrary way scope and milestones are defined in critical projects.
TCS’ secret sauce
TCS has a very different approach because they tend to use Indian government projects as a training ground to see how they can learn from the complexity and replicate this in the way they architect projects for various countries.
“They want understanding and scale, not necessarily a profit margin,” a former top executive of an IT firm said.
A second executive who used to lead the public services division for a top IT company said: “TCS does a very good job of going back to the government and asking for scope changes regularly.”
Another former executive of a Bengaluru-based IT firm said these projects are awarded on a fixed price basis to the lowest bidder, on the assumption that requirements don't change and the initial requests stay as it is.
“It is not like building a bridge. Milestones and requirements in tech projects are always changing and evolving, especially in complex projects such as the ESIC or tax e-filing portal, as these are accessed by lakhs of people,” he said.
Lack of govt ownership
The other factor is a lack of ownership as bureaucrats get transferred regularly. “The government has no clearly defined executive sponsor or ownership. In the US, even counties have CIOs. Here we don't have an understanding of what can be done.”
Industry executives acknowledge that they also don't deploy their best resources for these projects. “The contract is awarded to the lowest bidder. Hence, the profit companies earn is already less. Plus, employees find projects abroad more attractive,” one of the executives quoted above said.
Why govt projects don't make business sense
The India market contributes to less than 5 percent of revenues for top software exporters. In FY21, revenues from the country for TCS was 5.1 percent, and Infosys' stood at 3 percent. Wipro's business from state-run enterprises was $121.8 million, barely 2 percent of the company's $8.1 billion annual revenue number.
HCL Tech does not share India revenues separately. However, revenues from the rest of the world, which includes all countries, barring Americas and Europe, account only for about 8.9 percent.
IT companies have also had a poor experience when it comes to payments. There have been instances where delays have stretched to days and months or didn't come at all. A few years ago, Nasscom said payments to the tune of Rs 5,000 crore that was due from the government to companies were stuck.
Poor payment experience
“There is not a single (govt) project Infosys has done where the company has not lost money. That’s a reality when dealing with governments," Infosys founder NR Narayana Murthy said six years ago.
He had further said that the government needs to solve pain points such as low price, delayed payments, changing requirements mid-stream, and not allocating enough time. These efforts would go a long way in making Digital India a success.
For instance, in 2009, Wipro won a Rs 1,182-crore project, ESIC’s Project Panchdeep, aimed at automating healthcare services to over 6 crore beneficiaries across the country. In 2011, ESIC, in a public announcement, said that the portal was facing glitches. Wipro responded, stating that the company’s best resources are working on the project to restore the portal.
Wipro completed the project in February 2012, and maintained it till 2016. One of the key issues the company faced was collection. Media reports from 2016 note that Wipro was mulling legal action to recover payment from the government for the completion of the project.
Again, in 2019, Wipro terminated its National Register of Citizens project for Assam over non-payment of dues. The project expired in October 2019, and it was not renewed.
“Large companies can survive this blow to liquidity but smaller companies can get wiped out. We need to have standard contracts based on outcome and a good dispute- settlement mechanism," Chandrasekhar said.
Will a UIDAI-like model help?
There are a couple of things the government and companies can do. Experts point to the UIDAI model, led by Infosys co-founder and chairman Nandan Nilekani, which has issued 124 crore Aadhaar cards and is easily one of the world’s biggest technology projects. The government now relies heavily on Aadhaar to implement its welfare schemes.
Mindtree co-founder Krishnakumar Natarajan said the company's experience of working on Aadhaar was very smooth because it was manned by technocrats who understood what needed to be done.
Mindtree was chosen by UIDAI as the primary application development partner and its solutions include a data warehouse to capture all enrolment-related information of over 1.2 billion Indian residents, a data management system to handle over 100 million transactions a day, and a design to manage 8 petabytes of raw data.
“The maturity of IT usage is just picking up. We need to try and get industry expertise. People are willing to volunteer,” Natarajan said.
Roping in tech architects
For the Aadhaar project, some of the best technology architects, handpicked from top IT companies and consulting firms such as McKinsey, took a one-year sabbatical to work on the world's biggest identity project. Some found the work so fulfilling that they even extended their sabbatical.
“Projects of national importance can be jeopardised because of weak systems. The government needs to form a core committee with public and private sector experts for crucial projects that have a huge economic impact. The program management needs to be run like corporations,” the first executive quoted above said.
Interestingly, there were many suggestions that IT firms can work with startups which have enabled seamless transactions for millions. A user on Twitter said: "If offered, ClearTax could have developed a much better income tax and GST portal than Infosys.” Several users backed this view.
Archit Gupta, founder & CEO, Clear Tax, a financial services firm focused on taxation, said in a tweet, “We are ready to provide a version of ClearTax for the National Portal and serve. We have a scalable, ready solution for all taxes.”
Can startups do better than IT firms?
There are mixed opinions on whether startups can really do better than large IT firms.
“Startups can take up parts of the solution, but they do not have the scale, insights into government functioning, capability to build such a massive and complex system end-to-end. They can definitely partner with larger service providers,” said Everest Group Vice President Yugal Joshi.
Mrinal Rai, Principal Analyst, ISG, believes the solution is not to consider startups or smaller niche firms. “The idea is to have a startup mindset while executing such projects that includes considering the future state of customer experience as the core criteria of service delivery," Rai said.
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