The Indian IT sector lost out on 250,000 jobs in 2010 to China and Philippines disclosed TV Mohandas Pai, Director, Human Resources and member of Infosys board.
In a candid chat with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy, Pai said, the pain factor in doing business in India is long. “The government has just taken the eye off the ball and doesn’t seem to care anymore,” he pointed out.
Pai said the government needs to view IT industry differently with rising competition. The budget, he said, needs to focus on sops for employment generation. "The skill development commission and the Government of India should give training grants to many small companies," he added.
According to him, India stands to lose the most, and not the big IT companies, if the government does not act fast. “This is going to have an impact on the current account deficit because if exports don’t take place, growth doesn’t take place at same pace from India, it will be impacted,” he said.
Below is a verbatim transcript of the interview.
Q: What are you expecting from the budget? Do you think in the situation that the IT sector is now, and the way it is crucial in terms of software exports and dollar needs of the country, some fillip is needed in term of taxes?
A: I would look at the IT sector from a different point of view. For example, next year there is a possibility that IT sector could hire gross 400,000 to 450,000 people. So from the government point of view, I look at the IT sector as an employment generator. If I were in the government or the finance minister (FM), I would give them all that they want, so they can increase the employment.
I think because of bad policies for the last three years, India has lost between 250,000 and 300,000 jobs to other countries like Philippines and China. The Philippines has overtaken India in the customer contact centre business in the BPO and China is expanding rapidly because of good infrastructure. We are also in China.
So I would say that the government needs to look at the industry very differently. The tax issue is something that the government needs to focus on. The government looks at companies like Infosys, TCS and says, “You are making profits.” but I think many other companies don’t make that kind of profits. So the STPI should be extended for the next five years. The SEZ should be made simpler because many income tax offices are denying the benefit of SEZ to companies. The refunds due to the IT industry of Rs 2,500 crore on service tax should be given. Money is being held up for very flimsy reasons.
The harassment to companies undergo in terms of transfer pricing and in terms of tax assessment should be done away with because all of us are going through a very bad time because the tax authorities are passing orders without any basis. Then the process of appease in the tax administration should be improved because these are some of the things we need from the budget in terms of tax area.
In terms of other areas, we do need inputs for training. The skill development commission and the government of India should give training grants to many small companies. So they could help retrain and train the people to face competitive pressures.
Q: You said that India lost a lot of jobs — about 250,000 to Philippines and China — but what was the specific reason for the job losses? Was there tax reasons at all?
A: It was the lack of a policy on STPI because the STPI went on getting extended one-year at a time for about three years. All this talk about the government about the tax policy not being good etc — the government forgets, this industry has created 2.5 million jobs and these jobs have not come easy. It is difficult to operate in India. Infrastructure is very bad. We have to put up power plants. We have to transport our own people. We have to help build roads in this country. We have to train people. There is enormous amount of cost.
While companies like us have become large enough to bear the cost, there are many small companies, which are unable to bear the cost and the cost become high. About 35 per cent of India’s IT is captive and MNCs want a lower cost. So they shut it down and go to some other country where they can do much better and that is how the Philippines has grown in the contact centre because the Indian government slept over it.
Looking at it from the tax point of view to say, “We are giving a tax benefit and estimate that benefit to be maybe $ 1.5 billion this year.” For $ 1.5 billion, if I go and get 400,000 high quality jobs, any government in the world will say, “Yes, take it and give me the jobs.” The government just doesn’t understand.
This is going to have an impact on the current account deficit because if exports don’t take place, growth doesn’t take place at same pace from India, it will be impacted.
We will grow. We will grow in China and Philippines. We will grow in Brazil. We will go out and we will grow all the places and create employment. Possibly maybe four years later, more employment outside India than India. But India will lose. India is a domain of the FM and the government. The government has just taken the eye off the ball and doesn’t seem to care anymore. They are not responsive when you talk to them. They just don’t want to listen. They think we are coming and asking for some crumbs — some kind of a subsidy and they’re saying, “We giving you so much of a subsidy.” But look at the extra cost that you bear in this country. The pain factor in doing business in India is long.
Q: To be fair all sectors face the same problem of poor infrastructure.
A: I understand but we are creating 450,000 jobs. Other sectors are not creating 450,000 jobs.
Q: Just to get a little more perspective on this STPI because the industry has been voicing this for a while now — the requirement of the extension of the STPI. If in case this is extended, how much of an impact do you this could do on, overall, the IT earnings for the industry and for you per se, as a company, what proportion of your revenues comes under the STPI window?
A: For us, most of the units are out of the STPI. So it is not going to benefit us much. I don’t think it is going to benefit all the big companies but it will benefit the small companies. We are expanding in the SEZs and we are large players who can invest money in expansion SEZ. So big companies, the top five or six, are not going to see great benefit but it is going to benefit the smaller companies because of design issues in the SEZ.
Under the STPI, company can set up shop in an office in a house and they can be an STPI but they cannot go to SEZ, which is far away from the heart of the city. It creates transportation problem, logistic problems, the costs are higher and you cannot grow there. It is a design challenge. I am not asking for tax subsidies for the big companies. Let us restrict STPI to only companies with say $ 50 million of revenue. Beyond that, you don’t give the scheme, its okay. Give it to small companies or give it to the companies, which create 1,000-2,000 jobs for the first years. That is what we are asking.
Q: The new jobs figure of 400,000 odd that you mentioned, what is the scenario in terms of IT budgets?
A: It is very large in terms of numbers and in terms of incremental percentage there. So I don’t want to talk about growth for next year. I don’t want to talk about that because you know all the information. IT budgets are going up, spending is increasing, and many companies want to be competitive. We are seeing growth in the industry and I believe that good growth will continue next year. I don’t have the exact number but good growth will continue.
But I am talking from the budget point of view, from an employment point of view because I think that it is very crucial for India. The challenge for India is employment — employment employability. There is employment being created but there are no employable people. There is a challenge and we have to face this challenge.
Q: Would you expect therefore that more sops be given to education since you spoke about employability?
A: Yes, I would say sops should be given for employment generation — don’t give it for capital. India has been focusing on giving SOPs where you make capital investment — don’t do it for capital investment because our challenge is getting employment. We are a people surplus country and we have a lot of people who needs jobs. So for every job created, let us say, the government should give a tax break of three times the ESI or provident fund paid.
Three times whatever you pay as a contribution to provident fund and ESI you give you a tax break per job created, so you create more jobs in the organized sector. That is the best thing to do — don’t give it for investments.
Q:If we have to shift focus a little bit to another part of the business. There was talk about this whole multilayer organization revamp that Infosys was going to undertake. Now there is some buzz that perhaps it would be deferred as well. Could you give us any clarity on when that would happen? What would the structure be?
A: As far as Infosys is concerned, it is business as usual. There has been lot of talk in the media about all kind of stuff. We are focusing on customers. We are focusing on growing our business. We are focusing on the next year. We don’t see anything like this in the company.
Q: What about MAT? Your arguments were that you would rather have the STPI benefits for companies of a smaller size — 50 million was your cut off — what about MAT in that case? There are some people who are asking for it to be scaled down to 15per cent from 18per cent — are you in that group?
A: No, I am not in that. The big guys in the IT industry should pay the taxes. The big guys have become mature. They should pay the taxes. They make money. They have got large resources and each of them are 100,000 people. So they cannot be on crutches anymore. I am not asking for tax break for the big boys, except that improve the tax assessment process and don’t harass them. Give them the refund of service tax. You are holding up their money for no reason. For flimsy reason you are not giving their money back.
You want to create a culture in the country where people pay the taxes, which is legitimate and when they are due a tax refund. But please give it back to them, don’t hold on to the money and don’t harass them in the tax assessment. You cannot suddenly say you are not an exporter; you are not entitled for tax. Suddenly 10-15 years you are an exporter and this year you are not an exporter. And why you are not an exporter? It is because I think (income tax officials) you are not an exporter.
What does it mean? It means that transaction cost in the system are high and if you are honest and you don’t want to do certain things, you can harass and you can do all these kind of things. In this country, if somebody raises a wrong demand on you, because the government puts pressure on tax department to raise taxes, so they go and make wrong demands or excess demands — all kind of stuff. It takes three years to appease the commissioner, four years in the tribunal, eight years in the High Court. There is no justice at all.
Q: I asked you a previous question, which probably didn’t come across. You are speaking about employability being a problem that you look for people and you don’t find them good enough, which means, clearly there is some kind of a gap in the education system. The budget often addresses a lot but do you have any suggestions on that front?
A: There is only one policy change that needs to be given to address this. Let good institution expand freely without government interference. Brownfield expansion should be encouraged. It is a policy decision. It is not a tax issue. For example, the IITs give only 7,000 people — why cannot the IITs expand to give 100,000 good engineers? Why cannot good engineering colleges who have been there for 10-20 years expand to tab an intake of 5,000 students a year? Why restrict them to a small number?
Let Brownfield expansion take place. Let good institutions expand and you solve this problem because you got so many bad institutions with small intakes — this challenge is there — but good institutions will expand. That is the only thing. It is a very small issue — give freedom back. We need our freedom back in academies.
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