India’s information technology companies are having what looks like one of their best years. In the nine months to December 2020, despite Covid and despite the movement restrictions that put a crimp on business development efforts, net profits of the four majors — Tata Consultancy Services (TCS), Infosys, HCL Tech and Wipro — have already topped Rs 57,000 crore in the nine months to December 2020.
By March 2021, the cumulative profits could soar to a range of Rs 77,000-80,000 crore through sheer momentum. The forecast is that this happy state will continue for the next two years at least.
The problem is this: while shareholders (including me) are obvious beneficiaries, it is doubtful if businesses built largely on labour arbitrage will help India’s strategic interests. The four majors, and the rest of the IT services industry, are actually working to make their clients in north America, Europe and elsewhere more powerful, not India.
This should be obvious from the Indian share of business for these four majors, which ranges from 2-5 per cent of total revenues. Quite clearly, applying the 80:20 rule of going for big margins, the IT majors are letting India down.
If the government does not change the incentive structure to use our IT manpower to develop our own cutting-edge technologies in areas like artificial intelligence, machine learning, quantum computing, etc, and that too to solve our own societal problems, we are essentially empowering our global competitors in these areas. This is a losing strategy.
When you serve only shareholder interests, you are essentially focused on short- and medium-term profits, and not nurturing your own home markets.
How can this change? Two suggestions:
One, the government should create a high-level institution to pump in government and private resources into areas like artificial intelligence, and this investment must be seen to be on a par with the efforts we have invested in atomic energy and space.
That is, a BARC or ISRO needs to be created through public-private participation to develop platforms, products and technology that are relevant to us and the world, and which can be patented by our companies. I owe this idea — or rather my interpretation of it — to Rajiv Malhotra, who has written a book on Artificial Intelligence and the Future of Power: 5 Battlegrounds. We ignore Malhotra at our own peril.
Two, money is not the problem; intent and ability to focus and scale efforts is. In her budget speech, Nirmala Sitharaman, proposed a Rs 50,000 crore funding for a National Research Foundation (NRF). The idea was mentioned in the 2019 budget, but has only now been detailed.
She said: “We have now worked out the modalities and the NRF outlay will be of Rs 50,000 crores, over 5 years. It will ensure that the overall research ecosystem of the country is strengthened with focus on identified national-priority thrust areas.”
If it takes 18 months for a government to merely announce the modalities, we can presume that this NRF will take its own time to deliver. The focus initially will be on finding space in buildings, hiring and allocations, rather than getting a move on with the research. Not that NRF won’t deliver, but it will amble on at the pace of a pachyderm.
The most motivated research is often done by commercial interests, who may see benefits in developing intellectual property (IP) or innovations. This is what needs to be incentivised.
Even today, we have useless provisions in the Companies Act that force companies to spend 2 per cent of their net profits on CSR (corporate social responsibility). While this seems like a good enough cause, the truth is companies ought to be focusing on what they do best, and not what ought to be someone else’s job.
Many companies are probably outsourcing CSR spends to dubious NGOs (non-government organisations), some of whom would be happy to work with India’s enemies abroad. The recent global social media support for the use of disruptive tactics in regard to the Delhi farmer protests show how the world is not about to do us any favour. Vested interests abroad will not cut us any slack, whether it is in developing our own economic power, or even dealing with Covid.
It would make far better sense for government to allow the investment of this 2 per cent, and that too as a charge on profits, to be invested in domestically-focused products, platforms and cutting-edge software and related technologies. This will not only allow companies to develop lower-margin products and platforms for the domestic market, but many of these products can well be used to upskill semi-urban and rural employees to develop their own intellectual property (IP). And subsidised by TCS, Infosys, HCL Tech and Wipro, among others.
We are wasting precious time and money trying to get companies to do CSR, when they can put their core competencies to better use. In fact, spends used to develop IPs by any Indian company in industry should be categorised as equivalent to CSR.
Two per cent of net profits of IT companies could yield upwards of Rs 7,000-8,000 crore this year — and every subsequent year — enough to fund this drive to boost Indian IPs. It is time to ask our IT and pharma wizards to practise their wizardry for the benefit of our country.
Specifically in the IT sector, we need to aim big, from remaining world’s digital coolies to IP-owning laat sahibs.
As you are no doubt aware, Swarajya is a media product that is directly dependent on support from its readers in the form of subscriptions. We do not have the muscle and backing of a large media conglomerate nor are we playing for the large advertisement sweep-stake.
Our business model is you and your subscription. And in challenging times like these, we need your support now more than ever.
We deliver over 10 - 15 high quality articles with expert insights and views. From 7AM in the morning to 10PM late night we operate to ensure you, the reader, get to see what is just right.
Becoming a Patron or a subscriber for as little as Rs 1200/year is the best way you can support our efforts.