According to the ratings agency, over the next 12 months, troubles for the Indian banking system are likely to increase due to slowdown in economic growth and sluggish fiscal reforms
Standard & Poor's (S&P) Ratings Services has said that the troubles for the Indian banking system are likely to increase over the next 12 months due to slow economic growth and sluggish fiscal reforms and the situation is likely to improve in the fiscal year ending March 2015.
According to the report, titled, "India Banking Outlook 2013: More Pain but Relief Might Be on the Way, performance of the Indian economy and corporate sector are likely to start improving in fiscal 2014.
S&P said, it assumes that the government will be able to carry forward its recent reform initiatives, which could improve operating conditions for the corporate sector and the benefits of these measures could also flow into the banking sector with a lag.
Talking about key factors that affects, the banking sector in India, the ratings agency said, while access to funding remains a strength for domestic banks, they are likely to need significant amounts of capital to meet Basel III norms.
While US, China, Israel and even smaller countries are busy in harnessing their youth to build something innovative, the Infosys, TCS, Wipro and others are just doing mundane tasks that the West thinks is not worth their time. That is fine, but are Indian IT companies then worthy of being entrusted with large and difficult domestic projects like Aadhaar and other government databases?
According to NASSCOM, the IT industry contributed about 7.5% of the GDP. For FY2012, the net revenues were $100 billion. It is also said to employ 2.8 million people directly and 8.9 million indirectly. Indian IT companies compete for deals along with global peers for outsourcing and our companies have the cost advantage. They would get the project executed in India and deliver the end product to the client. This is a win-win situation. The client can get the work done to his satisfaction for a low price. The IT companies earn profits by two means labour arbitrage and dollarrupee arbitrage. The software developer benefits by having a well paid cushy job with occasional overseas opportunities. This industry offers well paying jobs to a large number of young people. The career is also attractive as it provides overseas opportunities. All in all, this paints a very attractive picture. Our government is happy because it has got exports to cut the current account deficit and more jobs are being created. So everything should be all right with this industry. Right?
However, there is a different aspect to this glittering story – the core of which is what is being outsourced and how the country benefits. My issue is with how we have transformed outsourcing. Outsourcing is good as long as it is a level playing field for both the parties. Currently, outsourcing is being seen as doing the core work in-house and outsourcing the menial task to India. India is becoming a dumping ground for all the work that the West doesn’t want to do. The West thinks “I have developed this software but how do I test it?... Ok. Let’s outsource it to the offshore team”. “Calling our clients and reminding them of their mortgage? Let’s hand it over to the Indians.” When it comes to slightly value-added work, they say “We can’t trust the offshore team to do this task. They are not competent enough. Let’s get it done here and get the documentation done by them”
I feel that India shouldn’t be allowed to become a dumping ground. Yes, Indian labour is cheap. Pay them the market rate at India, no problem. But to say that Indian labour is incompetent and thus they should just do these sets of tasks is grossly wrong. Unfortunately, our IT companies are falling head over heels to grab more deals of this kind.
We suffered a brain drain in the ‘80s and ‘90s. We are facing a different kind of problem now. Every year lakhs of engineering graduates join these IT companies. Little do these graduates realise the kind of work that they are going to do. Most of them don’t ever get to do real engineering. They are run through a crash course of few months and then allocated to projects. Not everyone is able to learn it all in the training. Some of them understand this and then move on to better companies, which allow them to do use their skills well. Also their low cost model can’t retain a skilled employee as he is likely to find greener pastures soon. Although no one has ever thought about it, can we imagine a day that when this current set of engineers retires what is that they have to their credit? Did they build something significant? What use did they put to their education they learnt in college? To develop software which would hardly see the light of the day or one which would silently die as it doesn’t serve the intended purpose?
In fact, thanks to intense competition, Indian IT companies will just grab any contract. They don’t care as to what is the nature of the project. They are ready to do tasks like infrastructure management, website management etc. Now that since the pools are drying in the West, they are looking for similar contracts in India. Does by any means handling passport application look like a contract to brag about? Even our government blindly trusts the so-called leaders of this industry.
One should look at US and China. US houses some of the best technology companies. Search engine, social networking, e-commerce, cloud computing and mobile are all that have been brought to the masses by companies based in US. Can our IT companies boast of building something world class? Isn’t our government doing a grave mistake by entrusting the monitoring of UIDAI database to companies which lack the credibility to maintain such a system?
Even China, whose internet regulations are very tight, has its own search engine and social network. While we Indians have always joked saying that China has not adopted outsourcing due to language barrier I feel that it is more a matter of pride for the Chinese to not compromise. The Chairman of a large IT company keeps bragging about what we need to learn from China whenever he goes to a college to deliver a lecture. I wonder what he has learnt from China. The Chairman and the cofounder of the company are from a prestigious college. However the same college doesn’t allow this company for its campus interview because the students of this college realise that they deserve much better. Doesn’t that send a message to them?
Even smaller countries like Israel and a host of Eastern European countries are miles ahead of us in terms of technology. While these countries are busy in harnessing its youth to build something innovative, we Indians are just doing mundane tasks just because the West thinks it is not worth their time and the IT company sees a big dollarrupee arbitrage and labour arbitrage in this. In fact now, we are in the league of countries like Vietnam and Philippines which are proving to be low cost outsourcing destinations. Our IT companies instead of learning a lesson from this and adopting new technologies will open a shop in Vietnam and Philippines.
Indian labour is well-skilled. They just don’t have the right exposure. There is a disconnect between what we learn at our colleges and what actually happens in the industry. Most of the graduates dream of working for big companies but lack innovative thinking. It has become a rat race of sort where every corporate house wants to have a slice of the pie.
If coal, telecom spectrum etc are natural resources, then a country’s human resources are the most valuable assets that it possesses. They drive its economy. Using these resources for such menial tasks should be labelled as a grave crime. NASSCOM the voice of the industry is not any better. It is more a lobby as is FICCI. They raise a hue and cry over a visa restriction but have nothing to say when a ground-breaking technology is released. NASSCOM will organise a string of events to cater to the IT industry but has very few events for startups and product development. This is why a group of companies, which is focused on product development, has parted its way to create a separate group called ISPIRT (www.ispirt.in). Their focus is on innovation and product development.
This sector has created a vicious circle. There are many dependent sectors on it. Housing sector on metros depends on workforce of this industry. The same goes for the auto and consumer goods industry. An entire army of security guards, support and infrastructure staff is deployed in the offices of these companies. A host of mutual funds and insurance companies have invested in these companies. If there is a problem in the West the whole system comes to a halt. Do we plan to build an economy around this?
Our country has a young population. We should harness it to good use. We need to encourage innovation, adoption of new technologies and product development. Among the IT exports only 20% is constituted by products. The young graduates and the adults alike have to be taught that working for a big company is not the ultimate achievement rather building something disruptive is.
Having said this I would also say there are companies which take the outsourcing route but do very good engineering projects. Likewise, not all product companies are good. There are companies which are product-oriented but their engineering doesn’t live up to the mark.
I would like to reiterate that outsourcing is not the problem. The problem here is the greed to earn profits at the cost of quality (of both the software and developer). Some MNCs have tried to copy the outsourcing model by setting up shops in India. Initially the staff was doing mundane tasks at India, however of late the MNCs are offloading some real work to India. This is a welcome step but we need more of this to happen.
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