India’s IT/BPM Industry Needs To Shift From Scale To Skill: NASSCOM Chairman Raman Roy

The National Association of Software and Services Companies, or NASSCOM, a trade association, recently appointed Raman Roy as its chairman for 2017-2018. Roy seems to be the right person at this time, given he has played a pivotal role in building the Indian BPM/BPO industry.

He’s had to face significant challenges, change deep-rooted mindsets and open up his early customers to realise the benefits from outsourcing back-end processes to India. Challenges bring the best out of Roy, and nothing is impossible for the Indian IT/BPM industry, he says.

Sangram Aglave from BW Businessworld met Roy, founder of Quatrro, a global services firm, at his Gurugram office to understand his plans and recommendations for the Indian IT/BPM industry and how could one tackle the headwinds of deglobalisation.

Edited excerpts:

First of all, thank you for your time and congratulations on your appointment to NASSCOM. What are the broad areas you want to focus on? What’s on top of your mind?
The Indian IT industry is a $145-150 billion industry and that’s a significant size and scale. But, this is a different world; there are challenges, headwinds and as industry, we have the wherewithal to be able to tackle that.

There are some very fundamental changes that are taking place. The global economy is sluggish, and our customers are facing this slow economy. Therefore, their allocation to IT gets impacted by that. On the other hand, there is a realisation that IT plays a much bigger role than ever before. So, there are both challenges and opportunities due to this automation, analytics, big data, AI and machine learning. There are multiple variables at play here.

Let me give you a perspective of those changes — if you look at the growth numbers we released last year, the industry actually grew by 5.4 per cent. We also said that the headcount grew by 4.2 per cent. If you analyse the history of this industry, you will find that we are heading towards a non-linear growth. The growth in headcount is slower than the growth in revenue and non-linearity is actually a very basic fundamental change that is happening. This shows that the revenue per head is going up, which means that the content of the job is undergoing a change as it is not that our customers are paying a higher per head revenue than they were paying before. They are some of the world’s most effective negotiators and they understand, but the content of what they are seeking from the industry in India is undergoing a change with this digitisation and big data. We are seeing that the contracts are 25-50 per cent higher on a per head basis because the skills that are required to be able to execute those contracts are very different.

I see a very fundamental move from scale to skills, and that move is not a one-year change. We will initiate that and it’s my responsibility to carry it further.
We employ about 3.85 million people, and a large part of that workforce needs to be retrained. As an industry, we never retrained so many people ever. This is a five-seven year plan.

One has to work with the government and the academia. The content is global and that’s the extent of work we must do.

Take the goods and services tax (GST) for instance. The technology required for GST is done by domestic companies out of India. Today, you must be in Haryana, and I might be designing a software out of Uttar Pradesh, Karnataka or Maharashtra and creating a product that I am selling to a customer overseas that does not pay GST.

Our most formidable challenge at NASSCOM is to create an architecture by which we create people who are future ready and not educated unemployable people that we churn out today.

The government of India is planning to reach out to the US regarding the recent policy changes in H1-B visas. What will these talks focus on? What do you think these talks will focus on?
We would respect and appreciate all the support we can get. During the first travel ban by the new US administration, a lot of US companies who are our customers protested as it impacts business. 

Nobody created the H1-B visa scheme as a favour to anyone. Some of the top 10 global companies have innovation centres operating out of India, and they have Indian companies as partners, who are also NASSCOM members.

The H1-B visa program was created to fulfill a need the industry had and it was created by the people who wanted that to be fulfilled. There was a demand for it. Whatever changes are rolled out are unlikely to affect this year’s visa process.

What happens in the long run? Can you recommend a risk mitigation plan for the long term growth prospects of the Indian IT/BPM industry?
We need to be able to bridge that gap for this common understanding so that the the new administration understands the value addition this industry brings, a net creator of jobs. We as an industry hire thousands locally in the US and other countries we operate in. Beyond that, we make companies competitive, which allows them to hire thousands of more natives. If there is a bridge that needs to be created, that is where we want to work with the government. We must work with the administration, corporate heads.

In my earlier days, we ran a program, We had built an application for loans in which we had a column to say ‘tick here if you want it to go to India, and we will turn it around in 24 hours’, and another was ‘tick here and it will processed in the US but it will take more than 24 hours’. Over 90 per cent customers preferred India. That’s freedom of choice. Work is not sent to India by accident; there is a value add, there is a commercial logic to it.

How do we counter the political rhetoric in the US against ‘outsourcing’? That word seems to have developed a widely negative connotation. Is there a sentiment problem?
Majority of Americans don’t feel short-changed at all because of outsourcing. The President may feel that way but that doesn’t mean that majority of Americans feel the same.

And I don’t think President Donald Trump has made a single statement about India. He has sought for manufacturing out of China.

Do you think we are not doing enough to convey the economic and social value add to the US from the Indian IT/BPM industry? Is it a communication gap or a marketing gap?
NASSCOM needs to bridge that gap and we are working on that. We are working with the US administration and our government, which is also working with the US administration. All efforts are being made to communicate with the US that we are job creators and that we are one of the most regulated and over observed industries globally.

I think we have been working hard in delivering projects and did not get distracted by some of the rhetoric. But now, we will have to also focus on communicating and addressing it.

The H1-B program was not created by you and me. It was created by the US government. They had identified skill shortages. Also, we need to understand the scope of these changes — are they just about bringing down the number of visas issued or to extend the qualifying criteria or to increase the processing fees? The market is going to exist, some buyers might choose to not outsource given the disincentives while some will still require to outsource because of their unique needs.

There is a new normal that will emerge out of it but by doing those legislative changes, legislative changes don’t teach information technology. IT still has to be taught.

India is blessed with talent, because it’s not only the talent, it’s also the trainability. The hunger for learning, the desire to get a job, the desire to work hard for getting that job is unparalleled because we are a third-world country.

Are you alluding that the basic fundamentals in India for the IT/BPM industry are very strong?
We cry about being a third-world country, about poverty. It has a flip side too. It creates a hunger for education and the desire to work hard, which you wouldn’t find in many Americans.

Do you expect a knee-jerk impact on NASSCOM’s projected growth of 8 per cent for the Indian IT/BPM industry? Would that number require a correction?
There are just variables such as a stronger rupee and other economic variables. There is a global softness, nearshoring as a secular trend. There is a need to digitise because our competitors are digitising. So, there are these headwinds and tailwinds and we are trying to assimilate that and see what the projection would be. 
Are we alarmed? No, we are not. We have tackled headwinds in the past and we will do it again. The point I am trying to make here is that there are some very fundamental changes that are happening. In the late 90s or 2000, we were seen as an industry that could only do Y2K, and it was predicted that beyond Y2K we would die. Fortunately for the industry, that turned out to be wrong because we graduated to the next level.

There is another fundamental change that is happening. There will be disruptive models for reskilling. I think the industry will overcome this challenge comfortably.

What’s the roadmap for National Skills Registry?
There are multiple benefits. A database that allows people to access it and be able to validate. Unfortunately, there is no real-time database of our colleges. We are trying to create a repository that allows our member companies to validate. It allows the talent in this country to geometrically expand job opportunities that exist, to be able to hone their skills and take it to the next level.

Skills are the future and these are the building blocks of those skills. And as NASSCOM, we have made investments in those building blocks so that our members can access this database.

What’s the role NASSCOM is playing in getting its small and medium enterprise (SME) members access to public sector opportunities in India?
We have an SME and a domestic council where we see the domestic market and SMEs as our member base; the public sector is a component of the domestic market. We are trying to bridge the communication gap between SMEs and the government. Some of the qualifying criteria rule out SMEs and don’t provide an even playing field. But sometimes a large company takes the project and subcontracts it to the SMEs. Tenure is an important qualifying criteria in India’s public procurement and SME gets disqualified significantly because of that.

Some other reasons for disqualification are that the payment terms —only a large company can wait for a year for the payment but a small company will die if you don’t pay them for a year. Filling this communication gap would require a lot of work, we need to do a root cause analysis to explain the public procurement practices in India.

As NASSCOM, we have created a ‘request for proposal’ (RFP) model and are taking it to various public sector organisations. NASSCOM’s RFP templates are balanced and take the needs of both public company and SME members into account. NASSCOM members execute contracts worth $150 billion a year, we understand what those contracts are. NASSCOM’s domestic and SME councils will work on it and hopefully we will be able to bridge that gap. One of the first tasks that I have is to appoint a chairman for all these councils. We will be able to announce that by the end of this week.

What is NASSCOM doing to improve the member base? There is huge scope for adding new members from where it stands today, just north of 2,000 out of a pool of over 16,000.
We have a lot of initiatives. We have to look at our council strategy. It disaggregates the needs of our member base, like I mentioned the SME council, the domestic council, the BPM council, the engineering council, the GIC council, there are multiple councils that now bring the understanding of that aspect to create a value add for this segment, with the intention of adding to our membership base. 
For example, the Data Security Council of India (DSCI) is a subsidiary of NASSCOM because we understood cyber security and what that means. We now have a lot of telcos and automotive companies that are members of DSCI because they understand the value add but technically they are not our members. So, the expansion is happening to meet the needs of the industry. If you study the list of executive committee members, Rana Kapoor of YES Bank is now a member of the committee.

This is not a one-year agenda. Understanding the needs, creating capabilities to meet those needs that will attract membership is our ongoing agenda. And as a chairman, I will be promoting that agenda.

Demonetisation (and you have been very unequivocal in your views on that) — what are the steps and initiatives at NASSCOM to partner with government to truly make digital payments the currency of choice?
Look, our member companies are the companies that are creating platforms that will allow digitisation. Whether it’s one e-wallet company or another, the underlying methodologies are being done by our member companies. Like I said, banks are now digital and we have a big role to play in this.

What demonetisation did is that it forced a lot of people to utilize, to be able to taste the digital aspects as they would not have done before and create it in a seamless manner, and NASSCOM will participate in the challenges that we have as a country. According to me, that digitization brings in the aspect of fraud is not understood by many. The understanding on that is very limited today.

We have already identified cyber security and have set up a taskforce. When the prime minister took office, he had said that digital security is a big issue. At NASSCOM’s silver jubilee celebrations, Rajinder Pawar of NIIT led that effort and we identified an opportunity for a $35 billion industry in which NASSCOM will play a big role and we have initiated steps to educate the industry and create those opportunities, train a future employee in cyber security.

Do you think the BPO industry is still young? Can we now call you the grandfather of the Indian BPO industry?
Father or grandfather will only bring out my age. What’s important is there is still a lot of potential. The structure of what we fulfill for our customers, how we fulfill will undergo a change. The platform-based delivery which is a combination of the skill set of this country of IT and services will be futuristic. You will see a decrease in per hour, per month businesses and you will see them more outcome based.

Around 90 per cent of Quatrro’s revenues are not based on hours. We believe what we do is what the future is going to be and there is a lot of learning that is to be done on how to create those business models and how to implement them because some models are very profitable and some are not as profitable.

There is a customer education challenge but futuristically, integration of IT and BPM is going to play a big role. Digitisation is going to play a huge role. AI will learn what you human beings will have to teach the machine and what roles the human beings will play; big data will play a big role.

All of these are components within the so-called BPM industry. We are the largest and number one choice and in the future, it will remain like that.

How does the Indian IT/ITeS industry compare with the rest of the world when it comes to equal work equal pay for women at work?
Our industry was the leader in giving equal pay. We don’t discriminate on the gender of our employees. Our women and men get paid the same. More than half of our employees are women and I dare say we have created an ecosystem where our women colleagues have financial independence and that is making a fundamental impact on the social fabric. As an industry we don’t discriminate, we pay for skills. Tell me one other sector in India where women account for more than half of the total employee base.

There is a talk about automation displacing a lot of jobs. How do we prepare for the challenges brought by automation?
Definitely. Anybody who thinks that this will not lead to a displacement does not have the full understanding. May be even up to 25 per cent of our workforce will get displaced but particularly in the BPM segment. But as I said, the early stages of non-linear growth are now visible. While there is a displacement by automation, it also leads to lesser errors; a whole lot of customer issues that have come up because of errors will dramatically go down. 
Digitisation requires a higher skill set and that is our biggest challenge. Reskilling of the new workforce is going to be imperative. This will not happen immediately but over a period of time. From scale to skill, that where we as an industry are headed.

The government has ceded its position to some extend on Angel Tax. At what front is the NASSCOM working with the government to ensure that startups are given an incentive to register in India and not have to go abroad?
It continues to be a challenge. The amended tax laws said that if you make an investment then the Income Tax Office can determine if your investment was at the right valuation. If it was not, then the income from it would be taxed. And a lot of our companies are right now contesting with the ITO that this is not the case. Unfortunately, the ITO valuation gives more weightage to assets and they do not value intellectual capital.

We as Indian angel network have been working with the government who said the Securities and Exchange Board of India has to come up with the rules.

When will we see global IT brands coming from India? There are very few global enterprise IT companies from India.
How old is Google? About 18 years old. If you say we are 18 years behind then yes, we are. The early signs of the products being created is happening. The startup culture promoted by the prime minister, the 10,000 startups initiative by NASSCOM, down to the ecosystem of angels, to the venture capital community, to the private equity community, all of that did not exist 20 years before. Will products happen now? Yes. Does it mean that is a substitution for the services that we do? No. It’s an addition. And that will happen.
Whether or not they want to go into products or not, products require a different mindset. If you come to me and say you have created a software product, I will tell you I don’t have skills to manage a software product. I am happy to partner with a company that does software products.

I understand service but I don’t understand what it takes to create a product and sell a product, to do version controls, help desk processes. That is a different ball game altogether. We have been a major services provider, the largest in the world. Some of the IoT, big data startups are doing very exciting work.

We are a largely agricultural economy and some of the startups are doing fantastic work in that space. India will see a technology revolution which will create productivity across the all levels. The challenge in front of NASSCOM and the government is to create a fertile ground.

NASSCOM has set its target for 2020. What do you think we should keep doing to pass the $200 billion revenue mark for the Indian IT/BPM industry by 2020?
We are looking at $350 billion by 2025. We have to do a lot as an industry to be relevant among our customers and reskilling is a component of it. The packaged capability, the IT and BPM capabilities coupled together with software, process as a service. 
Incremental growth from $100 billion to $350 billion, 80 per cent of that will come from newer areas. As an industry, we have to adapt to those newer areas and bring in that capability.