India’s IT industry under threat, warns Nasscom, cites US H-1B visas, Brexit woes

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Opinion | Who needs Nasscom’s guidance, IT is on the fast track

Restrictions on H-1B visas in the US and the impact of Brexit are threatening to disrupt the growth trajectory of India’s information technology sector. The industry will clock single-digit growth for the first time ever, after posting a rise of 12.3% in FY16, industry association Nasscom said on Wednesday. In an indication of how uncertain the outlook is, the trade body said it would offer a forecast for FY18 only three months down the line after meeting with stakeholders.

Nasscom had earlier pruned revenue guidance for FY17 to 8-10% from 10-12%. The sector is now expected to grow to $155.5 billion this fiscal, inclusive of exports and domestic business, registering a growth of 8.7% in constant currency terms.

A slowing IT sector with a greater orientation towards automation could mean fewer jobs. Already, hiring at top firms is slowing down — in the current year, the increase in employment is estimated at 5% compared with 6% in FY16. “Gentle deceleration continues as industry focuses on productivity and automation,” is how Nasscom chose to put it.

Speaking at the trade body’s annual leadership forum, president R Chandrashekhar noted that while there was some uncertainty in the short term, initial data from global analysts on tech spending in 2018 was promising.

Despite headwinds from Brexit and currency fluctuations, revenue growth in the three months to December 2016 was reasonably good. Revenues at Infosys, Tata Consultancy Services, Tech Mahindra and HCL Technologies grew 7.3%, 8.6%, 12% and 13.8%, respectively, over the December 2015 quarter on a constant currency basis.

As such, the top three players are likely to close the current fiscal with a revenue rise of below 10%. Cognizant, which closed 2016 with a growth rate of 8.6%, has projected a revenue growth of 8-10% for 2017.

Already, while Indian IT has seen an increased quantum of large deal wins, this has not contributed to higher incremental revenues or revenue growth. According to analysts at Kotak Institutional Equities, this is due to two factors. The first is a slowdown in the normal flow of business, which formed a meaty chunk of incremental revenues for companies. “This is on account of the shift of business to digital where the share of consulting firms is higher for early-stage opportunities,” analysts at the brokerage wrote. The second reason is the increasing consolidation even among tier-1 vendors.

Nasscom chairman CP Gurnani said on Wednesday that the digital tsunami was reshaping the industry and the priority is to re-imagine businesses and unlock new opportunities. “The Indian IT-BPM sector is emerging as a digital solutions partner for global corporations,” Gurnani said.

The problems relating to visa rules in the US — the biggest market for Indian IT players — could hurt their market share and margins.

Along with the changed visa policies, the Indian IT industry is also likely to be affected by any changes in the US Affordable Healthcare Act, Nasscom believes.

The Indian IT industry is also expecting to position itself as digital transformation partners for global businesses. This is expected to open up multiple areas of work for the industry and will have a significant impact on existing service lines, Nasscom said.

“To brace the impact, one of the most important imperatives for the industry will be to skill/reskill the talent to gear them up for the digital opportunity. It is also important to build an industry-wide collaborative model and shape a learning ecosystem that is primed for the future,” Nasscom said.

Nasscom in partnership with BCG has embarked on a two-pronged approach to enhance the skills ecosystem — skills vs ‘job-specific’ curriculum and tech-enabled learning ecosystem. The initiative aims to skill/reskill 1.5-2 million people over the next four to five years.