'The next five years will be as good'

Q&A/ Lakshmi Narayanan

Lakshmi Narayanan has recently taken over as chairman of NASSCOM, the Indian apex body for software and services companies. He has been in the IT industry for nearly three decades and is currently vice-chairman of Cognizant.

As a founding member, he has played a key role in building up the firm to the fourth largest in India and the youngest to reach the milestone of $1 billion revenue. Excerpts from a conversation with Subir Roy:

Where will Indian IT and BPO be five years from now?

While the companies and the industry are maturing in terms of capability, the market itself is still in the early stages. So the opportunities for the industry and the ability of both the existing players as well as new players to come in and tap newer processes are very high. I would say the next five years will be as good as the last five ones. However, in the last five years the industry has reached a certain size which is very large. It'd be unreasonable to expect it to grow at the same pace but we will still maintain a very high growth rate which will be better than other industries'.

What does the industry need to do to keep growing fast?

We have to innovate newer business models and stay one step ahead of the competition. More and more captives are coming in which is an indication of both the size of the opportunity as well as the confidence that some of these end user organisations have.

How do you rate current industry capabilities?

The earlier focus was on standards, certification, accreditation, processes and benchmarking with global players. Today, the priority is setting those benchmarks for others to follow.

For example?

Look at the initiative for an SRO (self-regulatory organisation) that has been announced. It is the first of its kind in the world""the industry taking this initiative to provide a very-very secure environment.

An SRO does a bit of self-policing typically done by the regulator.

It is somewhat of that nature, an independent initiative. It draws its strength from member companies of NASSCOM in order to understand what the industry is all about. But it also plays the role of a regulator because it is independent and has certain powers in terms of enforcing regulation, in fact, going to the extent of handing out punitive measures. Not direct punishment but implied punishment like the loss of opportunities for non-compliant companies.

Complying with what?

It will try to enforce IP protection, data protection and security.

Does the Indian legal environment protect intellectual property?

Intellectual property protection is fine but as far as data security is concerned, it is not strong enough. I am sure you are aware of the IT Act amendment.

Many have said that for data protection, you need a separate legislation but the government has insisted on amending the IT Act.

I think the amendment to the IT Act would itself be sufficient because it includes some punitive measures which are good enough for taking action. It will also bring in discipline among players.

Is the industry satisfied with the changes taking place?

The industry will be happy with the amendment to the IT Act being passed as well as the functioning of the SRO so that we can confidently say we have a secure environment.

After this, will the Indian law be as good as the US and European ones in terms of data security ?

It will be as good as some of the rules available elsewhere in the world.

How does NASSCOM help the small guys when they are disappearing?

NASSCOM has several initiatives to help small and medium establishments. Consolidation is a market phenomenon which cannot be controlled by NASSCOM. What it does is to educate, make information available and provide opportunities to small, medium and large companies to participate in events so that all of them can prosper. There is an innovation forum in which both big and small companies participate. Two, there is a separate forum for what we call emerging companies which addresses some of their specific needs.

Silicon Valley is said to provide the best environment for innovation. What are the deficits of the Indian environment and what is NASSCOM doing about them?

NASSCOM cannot promote a Silicon Valley type of culture because that's a collaborative effort in which the funding, VCs, academia and industry have to participate. For that kind of an environment to be created, we need two things. One is an innovative eco-system. It is not about money but the tolerance of failure. There will be failures at both academic institutions and the industry; the VC funds have to accept this and continue to fund. That has to be encouraged.

Second, we have to increase the level of original research in the country. A lot is being said about how few PhDs come up, how few people pursue research programmes at the universities.

Does NASSCOM have an action plan for that?

NASSCOM has been educating the industry and academia by saying that this is something we have to focus on, but not a specific action plan.

On innovation, Israel is seen as a great example. What do they have which we lack?

My view is somewhat different. Probably the most quoted success in Israel is Intel's research lab. So many different countries have carried out the Silicon Valley experiment but that has not yielded a Silicon Valley anywhere else in the world.

Any lessons we can learn from Israel?

Yes, we need a directed, focused effort at attracting some of these large companies to do their research in India. If we can do that, clearly one kind of innovation""product innovation""will happen. But innovations of other kinds keep happening here constantly like business model innovations, specific things which are very unique to India. The matrimony sites, property sites, the global Indian sites are all innovative ideas where companies are trying to educate and do match making in a commercial manner.

Can you address the traditional point that we are strong in services but low on products?

I would probably reiterate that point but add that it's not a bad thing. As more and more global revenue move towards services, being an innovator in services, coming up with newer services and newer service delivery models are not a bad thing at all.

What are your thoughts on making the funding of innovation easier?

If there is a good original idea the funding is available. But having said that, the creation of a separate venture capital fund with the participation of the government, industry and individuals would certainly help. The risk appetite is something that has to go up several fold.