Gov’t change not likely to affect IT in India

The fall of Atal Bihari Vajpayee’s government in India surprised the IT industry there, particularly because most exit polls predicted that the prime minister’s Bharatiya Janata Party (BJP) and its allies would cobble together a majority in parliament.

However, Vajpayee’s resignation Thursday as the prime minister of the country and the likelihood of a coalition led by the Congress party coming to power with support from leftist parties, is not expected to dramatically change the business landscape in India or the IT industry, according to analysts.

“We are certain that the new government at the center will continue the excellent support to this sector that we have received in the past, both in terms of infrastructure and favourable policies,” said Kiran Karnik, president of the Delhi-based National Association of Software and Service Companies (NASSCOM).

India has emerged as a leading offshore location for outsourced software development and business process outsourcing (BPO) by multinational companies, and in the year to March 31, 2003, BPO revenue was US$9.5 billion. Some multinational companies have set up software development and BPO subsidiaries in the country.

“Although the results are contrary to what the exit polls suggested, I am confident that the next government will continue the good reforms and policies that are in force now,” said Mike Weston, chief executive for offshore services of LogicaCMG PLC in London. “LogicaCMG is extremely bullish on India and will continue to invest and expand our Indian operations, and we see no slackening in our growth rate.” LogicaCMG has a software development subsidiary in Bangalore.

Vajpayee’s six-year tenure as prime minister witnessed significant reforms in India’s economy, which helped the outsourcing industry. “The Vajpayee government gave a lot of push and motivation to the IT industry,” said Girish Paranjpe, president of the financial services sector business of the Wipro Technologies division of Wipro Ltd., a Bangalore-based software services and business process outsourcing company.

During the Vajpayee government’s tenure, there was a focus on improving the physical and social infrastructure, and the government took a number of measures that helped the IT industry, such as easing rules for companies wanting to list on stock exchanges abroad, liberalizing foreign exchange regulations, and allowing companies to invest abroad including in acquiring companies, Paranjpe added.

“The Vajpayee government also built a good image for India, which made customers comfortable about doing business in India,” he said.

The folly of Vajpayee’s government was that its economic policies did not trickle down to India’s poor. “The reality is that 70 per cent of India’s population is in the rural areas, and they didn’t see any dramatic changes in their condition,” said Prakash Gurbaxani, chief executive officer of TransWorks Information Services Pvt. Ltd., a Mumbai-based BPO company.

The confidence in the Indian IT industry that a change in government will not affect business comes from the size to which the business has grown over the last decade or so.

“Both the IT and BPO industries in India generate large employment and foreign exchange for the country, and no government would want to spoil the party,” Gurbaxani said.

Although the Vajpayee government did help the industry, India’s IT and BPO industry has largely grown on its own strength. “Clearly the core value proposition that our industry can offer, which is high-quality service at a lower cost, continues,” Gurbaxani said.

Even before the Vajpayee government came to power, a large number of multinationals like Oracle Corp. in Redwood Shores, Calif., and Texas Instruments Inc. in Dallas had set up their software and product design operations in India. A number of U.S. and European multinationals were already outsourcing work to Indian software services companies.

“The IT industry in India has been growing on its own steam, many years before the government realized its potential,” Paranjpe said. “The IT industry has since then achieved strong momentum and a large base and stability, and there is very little at the government policy level at this point that can affect this industry.”

The IT industry however expects the new government to continue the reform process. “There has been consensus on economic policy amongst all political parties in India,” Paranjpe said. Even the left parties in India advocate reform. A number of multinationals have their development centers in West Bengal, a state that has been ruled by the leftists. “There is always a wide gap between political rhetoric and action,” Paranjpe said.

Welcoming the Congress party’s victory in the elections, Karnik added that it is noteworthy “that amongst the important milestones of India’s progress in the IT industry was Rajiv Gandhi’s enthusiasm and promotion of the sector.” Rajiv Gandhi, a Congress prime minister, initiated a number of economic reforms, and tried to reform India’s telecom and IT sectors, before his assassination in 1991. His widow, Sonia Gandhi, now heads the Congress party, and is tipped to be the next prime minister of the country.

“What the new government needs to do is to make sure that as a country we remain competitive, by lowering the cost of telecom, introduce data protection legislation that is pending, and project an image of general stability,” Gurbaxani said.

“What we have proven by these elections is that we are a mature democracy and we can make a smooth transition from one government to another,” Gurbaxani said. “That in itself will send a positive image to the world, including our customers, who are primarily concerned about stability within the country.”

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