IT, BPO employees, be prepared, before your employer tells you to go!

Employees will be the main sufferers as software, BPO firms evaluate their options following the government’s decision to end special status for these companies

Within hours of the finance minister announcing the end of the Software Technology Parks of India (STPI) scheme and the introduction of MAT (minimum alternative tax) for infotech companies even in special economic zones (SEZs), came news through the grapevine that more than a few "infotech companies" and others in the "infotech enabled services" were going to be doing their numbers again and then taking a judgement call on whether to continue or not. As simple as that. Hire and fire becomes loot and scoot. For a business that has been heavily dependent on all sorts of direct and indirect subsidies over the last decade and more, getting used to the idea that business was now going to be done for the sake of the business, was as alien as using slide-rules in engineering anymore.

While this will impact a large number of the vast number of Indian-origin technology companies which seem to be all over the place except in the marketplace, it will also impact even more the breed of companies known as "100% foreign subsidiaries" working on an EoU (export-oriented unit) basis, since in some cases they've been hit with countervailing taxes in their home countries on foreign operations too. Read US companies in India, to start with, as well as a few more.

To make a long story short, what with increased costs for body shopping, tighter visa regulations on "guest workers" who came in on visitor or business visas, and cheaper manpower available in their own countries-it looks as though there will be some rapid pullouts soon. In many cases it is going to be very simple for them because properties were on rent, equipment was on lease and critical senior employees were foreigners, the exit policy having been worked out long ago for just such eventualities.

At the Indian end, it seems as though they just haven't got the enormity of what is staring people in the face. Much of this does not reflect in the fundamentals on the Indian stock market, because the companies are not listed here, but it will impact reality. It is, simply put, probably cheaper and better for these foreign companies to run operations elsewhere now. Especially in their own countries.
This, for example, is what Nasscom had to say on the subject: "28 February 2011, New Delhi: Nasscom today expressed its disappointment on the Union Budget Proposals 2011-12 that chartered a roadmap on sustaining a high growth trajectory for the country, but missed the relevant thrust for business to enable this growth. The services sector was lauded for its double-digit growth rates, but the fastest-growing services industry, IT-BPO, faced double negatives-imposition of MAT on SEZ and withdrawal of tax exemption under Section 10A/10B. The SEZ scheme was announced as an act of Parliament and only last year it was clarified that under the Direct Tax Code (DTC), SEZ units set up till 2014 will continue to get profit-linked tax exemptions. Imposition of MAT at 18.5% with an effective rate of nearly 20%, nullifies the impact of any such incentive. This will be a deterrent for small companies in tier 2/3 cities that were looking at expanding in the SEZ scheme."

But the real impact will most certainly be felt by a generation of coders and developers who have, over the last decade or so, been totally dependent on this thin and fragile line of companies which existed for tax and subsidy benefits. With inefficiencies built in, like 30% on bench, and balance sheets dependant on government largesse-repeating again, the first to suffer will be the employees. What happened to those working in the jute companies in West Bengal, for example, would about sum it up.
So what should people who are likely to be impacted the most, the employees, do?

If you are an employee in a tech company, then you need to read and know this.

1) Trace out and bring forward the resident Indian directors. Addressing and getting letters that are put forward by people who are not fully authorised is like getting random signatures on pieces of paper. Since it is usually very difficult to track down the real beneficial ownership of many of these foreign companies, the only person who can be held responsible would be the resident Indian directors. Make sure you know who they are, and more importantly were-often the real directors will resign and be replaced by others, which simply does not help.

2) Get your appointment letter reviewed by legal people. Get a firm opinion on what it is really worth and then take a considered decision on how you may want to proceed with things. If possible, get your appointment letter re-issued or re-endorsed by the directors of the company. Get hold of as much documentation as you can get from your own file with the personnel or HR department.

3) Track down who pays your salary and how. With company evangelised bank accounts for employees, that is usually not a simple thing to do, because the bank (usually a foreign or private bank) will be loyal more to the company than the employee. Many foreign companies are used to the concept of attaching their employee's bank accounts for the least of things-make sure you move most of your funds into your own unrelated savings account, preferably with a nationalised Indian bank.

4) Consider the option of making a union, or at least a loose association of people, even though this may not really have any worthwhile effect. Expect the foreign employers to divide and rule, to whittle away staff in small numbers every now and then, leaving the rest hanging on like scared lambs waiting for the slaughter. Any signs of unity, therefore, will really make the foreign parent company think again.

5) Get in touch with ex-employees and bring them into the loop. Very often they will have insights as well as risk-taking abilities that existing employees won't. In addition, they will have from-the-outside-looking-in kind of experience, opinions and views that existing employees are often blind to-having escaped the frog-in-the-well tunnel vision kind of attitude that strikes many people who have been staring at the same computer monitor for far too long.
6) Move the specific paperwork on provident fund, pension scheme, and income tax. Demand that this be brought up to date. If required, write directly to the EPFO or the income tax department, on their websites. This is your own money you are talking about. You don't want to be in a position where your savings are stuck at the same time as when your income stops.

7) Encash all pending unused leave, and bring all dues up to date, especially petty cash related, if any. Reduce dependence on company provided perks like housing, vehicle and loan co-guarantees. Get hold of your medical insurance, and take out personal policies on your own for slightly enhanced amounts, so that there is continuity in case the company withdraws.
8) The most important piece of advice, however, is saved for the last. Consider the option of moving out of working for a pure information technology company, and moving into working for the companies that you made technology for, especially if they are in the manufacturing sector. It may not be as glamorous, the working hours may be longer, and the offices not as pretty, but at least they will be solid and stable and they are expected to grow over the next few years as India moves, hopefully, to become a manufacturing base for the rest of the world. And if you are good, believe me, they really need you today.
Let us not mince words. There is a great churn and turbulence expected in the software and technology-enabled (IT and ITES) sectors in India soon. In any case, salaries have not kept up with the reality of inflation, and much of the glamour as well as frills have been withdrawn. However, the upside is that if you have kept your eyes open, then there is a huge big world of real work out there, though it may not be in the middle of a big city like the infotech companies are. Many of the new manufacturing and service-related companies are emerging in cities and towns far away from the metros, go look for them. The air is cleaner and the opportunities vast, as well as the cost of living lower.
Good luck. But whatever you do, move. There is certainly great change in the air with the infotech subsidaries that don't have real roots in India.

1 decade ago
How can you be so negative?? You have written like most software companies are fly-by-night operators!!! Companies which existed only for tax benefits should have closed down in 2007 when MAT was imposed on STP units. I really dont understand why you would want to paint such a gloomy picture and advise people to move their money into a separate bank account!!
Replied to Ajay comment 1 decade ago
Thank you for writing in. This is not negative, this is as true as it gets. Employer lined bank accounts are potential minefields, since banks treat is as a joint fiefdom with the company, and in the fine print, the company often keeps the right to put a lien on it - like they do in other countries.

There are tough days ahead, and the foreign banks usualy evangelised by the software companies are NOT a safe bet, while our own PSU banks are. Simple as that. Think Cosmos, for example.
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