In an exclusive interview with SME Times, Som Mittal, President, The National Association of Software and Services Companies (NASSCOM) said that the RBI guidelines on access to working capital for the SMEs in the IT industry are not well implemented and there is a constant need for access to working capital finance from the banks.

Excerpts of the interview...

How much exports have picked up after the impact of the global meltdown in the Indian IT-space?
Som Mittal: The IT services segment aggregated export revenues of USD 27.3 billion, accounting for 55 percent of total exports. The total Indian exports (merchandise plus services) increased from less than 4 percent in FY1998 to almost 26 percent in FY2010. Export revenues are estimated to gross USD 50.1 billion in FY2010, growing by 5.4 percent over FY2009, and contributing 69 percent of the total IT-BPO revenues. Software and services exports (including BPO) are expected to account for over 99 percent of total exports.

Can we expect the India's IT industry growing in double-digit, when the country's economy expects to touch 8 percent or more in future?
Som Mittal: The sector aggregated revenues of USD 73.1 billion in FY2010, a growth of 5.4 percent over FY2009, and generated direct employment for 2.3 million people. NASSCOM will continue to facilitate and collaborate to support the industry’s growth, as it embarks in the next decade. IT services is expected to grow by 2.4 percent in 2010, and 4.2 percent in 2011 as companies coming out of recession harness the need for information technology to create competitive advantage. Development of newer opportunities (like core vertical and geographic segments of BFSI and US, and emerging geographies and vertical markets such as Asia Pacific, retail, healthcare and government respectively) can triple the current addressable market, and can lead to Indian IT-BPO revenues of USD 225 billion by 2020.

India manufacturing enterprises that acquired global companies and turned multinational have been early in the increased scale of adoption cycle, while smaller entrepreneurial operations are still very nascent in IT adoption. What is your take on this?
Som Mittal: Indian manufacturing firms face challenges across several dimensions, which impede their efforts to increase ICT adoption levels. The various firm level challenges are:

a) Internal IT expertise with very few employees of a typical manufacturing firm having relevant expertise in IT during their education (largely vocational training) and nor have they undergone IT training during the course of their employment.

b) Business process expertise -The employees at many of the manufacturing firms lack detailed understanding of a firm’s business and manufacturing processes.

c) ICT budget: Most SME firms do not have a formal IT budgeting process and hence don’t plan for ICT investments.

d) Affordable solutions: While hardware prices have been declining recently, software and IT service costs have not shown any downward bias.

e) Customization of ICT solutions: Currently available applications especially in the area of core manufacturing processes often require extensive customization before deployment and involve significant changes to the existing business process of the firm.

f) Qualified ICT service providers: The large technology service providers who possess a national coverage capability typically do not service the smaller manufacturing firm market segment directly, as it increases their cost of sales.

g) Awareness of ICT benefits: The management in most SME firms possesses a manufacturing background and is often without a good understanding of ICT and its benefits.

h) Local language software: Most of the manufacturing work-force in smaller firms is composed of rural migrants who are predominantly non-English speaking.

Rural penetration can help IT stalwarts to increase profit margins, still things are dull in the Indian domestic IT market. Why?
Som Mittal: A key indicator for technology adoption is the penetration of PCs and internet subscribers in the country. Rural India has 19 million connections and 309 million users while Urban India has 195 million connections and 396 million users. 3G and WiMax license auctions will have significant potential in providing broadband access in rural India at a low cost. The use of IT in telemedicine and remote diagnosis for rural areas is an area of emerging interest. BFSI and telecom accounting for almost 50 per cent of the domestic revenues are key drivers of growth as mobile penetration and mobile banking services increase in rural India.

IT modernization is the need of the hour both for SMEs and rural India. What is your opinion?
Som Mittal: With many millions of Indian Small and Medium-sized Enterprises (SMEs) struggling with low ICT penetration, it is imperative that suitable interventions are architected to remove the impediments which constrain SME firms to adopt ICT. Most SME firms do not have a formal IT budgeting process and hence don’t plan for ICT investments. They also lack formal ICT decision making structures and in majority of the firms the responsibility for ICT decision making is often with the firm’s owner. Small Industry Development Organization (SIDO) and National Small Industries Corporation Ltd. (NSIC) are two organizations that focus on improving the SME ecosystem in India. SIDO focuses on providing advice to the government in promotion and development of SME, providing support for technology up-gradation, modernization, quality improvement and infrastructure facilities, assisting the SME in human resource development through training and skill up-gradation and providing economic information services to the SME. NSIC focuses on the commercial aspects of SME operations: raw material procurement, product marketing, credit rating, acquisition of technologies, adoption of improved management practices.

Bank finance is another major hurdle which SMEs in IT industry usually face. In fact, bank exposure is an immediate need to this sector. Isn't it?
Som Mittal: While the IT industry does not have large requirements for funding as a start-up, there is constant need for access to working capital finance from the banks. There do exist RBI guidelines on access to working capital for SMEs, however these are not well implemented, as banks relate to collateral requirements against loans and IT companies only assets are its people or technology that is not yet commercialized.  Most SME use their own funding or access through angel funding etc.

How is the job market picking up in the IT space as of now?
Som Mittal: The job market is picking up with growth. Direct employment within the IT-BPO sector is expected to grow by 4 per cent reaching almost 2.3 million, with over 90,000 jobs being added in FY2010.

While IT services exports continues to be the largest employer within the industry with 43 per cent of total direct employment, BPO exports generates about 34 per cent of total industry employment, and remaining 23 per cent is accounted for by the domestic IT-BPO sector.

The industry has invested heavily in manpower development and training with an average training period of three to four months for fresh recruits (that involves a spend of up to 40 per cent of a fresh recruit’s salary) and additional training spread over the entire employee life cycle.

IT sector have already been hit by a sluggish offshore market, and at present the constant rupee appreciation might have created further problems. What do you think needs to be done to control rupee appreciation?
Som Mittal: Currency appreciation is always matter of concern as companies hedge position is not known. Re-movement is a part of day to day volatility and we need a stable currency for that. And, NASSCOM’s focus is solely on the top-line and overall business, and we are very sure the industry will be able to balance the bottom-lines and margins.

What according to you the pertinent measures government should implement by ways of scheme and policies for nurturing Indian IT sector in the global market?
Som Mittal: a) BPOs In tier II/Tier III cities can really come up if govt supports them  in the communications and transport infrastructure.

b) Investments in IT education.

c) Introduce measures to simplify the tax administration procedures, pertinently to bring in greater clarity in the direct and indirect taxes.

As we know India has been constantly busy developing bilateral relationship with other nations across the globe. How fruitful can be the IT sector in markets like Latin America, CIS region, Asean, Africa etc?
Som Mittal: The above mentioned regions opens the opportunities on two accounts 'markets and newer shore destination'. While Latin America is in the same timezone as US and can serve as 'newer shore destination'. At the same time countries like Argentina and Brazil are good opportunities for Indian IT – BPO companies to expand.

The Free Trade Agreement (FTA) signed with ASEAN has opened a new window to expand trade ties. India is also in the process of signing FTA with Japan, EU, etc. Will such kind of move help the IT sector in the long run?
Som Mittal: NASSCOM has always been in the forefront of promoting free trade across the world which will help reduce bureaucracy and increase globalization.