How Will the New Indian Government Impact Tech?

On 26 May 2014 Narendra Modi was sworn in as Indian prime minister – what will this mean for tech business?

The Indian economy hasn’t been doing too well of late. There were high hopes on the government led by economist-turned politician, Dr. Manmohan Singh, who went to Cambridge and Oxford before he served as the Chairman of the Planning Commission of India, Finance Minister (1991-1996), and eventually the Prime Minister (2004-2014). The economy was growing at 8.5% in 2009. But it had already gone down to 4.6% when he left office in 2014 - that’s the lowest in two decades - industrial growth is at its lowest in the last 25 years; and there’s hardly any fresh domestic or international investment.

This has had a negative impact not just on the economy at large, but also on the tech sector. Contrary to what most people think in the West, and even a lot of Indians, the tech businesses in the country depend a lot on the domestic economic condition, yes, even with outsourcing and BPO. Take for instance Tata Consultancy Services, which is India's biggest outsourcer. Close to 10% of TCS’s revenue comes from domestic projects. There has hardly been any growth here in the last few years.

But that’s just one side of the story. A lot of small and mid-sized tech firms depend on government projects, or on private jobs that come in only when the economy is doing well or when there are fresh investments. All that hasn’t really happened in recent times. And it’s showing in the bottom lines.

Modi – A Man of Technology

The new Narendra Modi-led BJP government is expected to change all that. The man is India’s most tech-friendly politician anyway. He has advocated the use of technology even in government. In his home state, Gujarat, where he was the Chief Minister for more than 10 years, farmers in the most remote areas, are seen walking with GPS devices to plot their fields. That’s quite unthinkable in most other parts of the country.

In fact, Modi even used technology to good effect in his election campaigns. The use of 3D hologram projection, SMS campaigns and social media had a significant impact. There was hint of this in BJP’s election manifesto. This is what it said: “Technology enabled eGovernance – Minimizing the discretion in the citizen-government interface. Reviewing and reviving MSME sector and enabling it with better access to formal credit and technology for modernization.”

eGovernance is important in India. It is likely to reduce corruption, which has been an important election issue this time. So Modi will want to be seen doing something on this front.

With Modi as the Prime Minister now, we can expect a push towards a more technology-driven India. And it’s likely to have a positive impact on the entire tech industry. Quick decision making and a pro-business approach is also expected to drive the economy, which again will impact tech positively.

A Serious Domestic Push

India’s IT industry is valued at more than $100 billion now. It took the industry 15 years to reach this milestone. But now, with Modi leading the show, the industry is expected to reach the $200 billion milestone within the next five years. One key factor behind this is of course the improving global economic outlook.

But the real fuel is going to come from within. With increased investments in infrastructure, agriculture, water management, energy generation, eGovernance, health and education, there are going to be a lot more domestic jobs for tech players of all sizes. So there’s every possibility that while businesses will be trying to get jobs from the international market, the focus is going to shift to getting domestic projects.

There’s another reason for this changed preference.

The Impact of the Dollar Price

Most IT firms have witnessed rising margins in the last year because of the falling rupee. At one time, the rupee reached 70 per dollar as well. However with Modi in place, the rupee is expected to make a comeback. It has already come down to 58, because of Reserve Bank of India (RBI) interventions and the market expectation of Modi coming to power. Adam Gilmour of Citigroup says that with Modi leading the show, the rupee might reach between 40 and 45 per dollar.

This might very well happen because according to reports, millions of dollars are about to be pumped into the Indian market by FIIs (Foreign Institutional Investors) and other investors. This is going to go up even more with sectoral reforms and policies such as FDI (Foreign Direct Investment) in retail.

Sunil Prasad, who is the Secretary General of Europe India Chamber of Commerce (EICC), is saying that investors everywhere are extremely bullish on India, in spite of the recent slowdown. That’s because the Indian story is fundamentally strong.

The Modi government has also declared already that reforms and investments are going to be a priority from now on. A separate ministry has been set up for “Entrepreneurship”.

The increasing value of the rupee of course means falling revenues for the tech firms. In fact, this might seriously impact their bottom lines.

That’s one more reason why tech businesses might increasingly look inwards to offset this loss. And with more jobs available, they should be able to do this as well.

Kalyan Kar, Co-Founder & Managing Director of Infinity Knowledge Ventures, a mid-sized tech firm, isn’t worried about the rising rupee. He doesn’t believe that the rupee is going to be between 40 and 45 per dollar. It might be $52 max, he says. Kar sees a revenue growth between 20% and 30% in the next two to three years, as the firm is likely to pick up a chunk of the domestic projects.

This is a popular sentiment with many tech firms these days.

A New Focus on Education

The Modi government has already announced that they are going to focus on education, and rightly so, because India spends a mere 0.5% of its annual budget on educating the masses. India has the highest number of illiterates in the world.

This is going to be good for the tech sector too. With a larger educated base, and more people going for higher studies, the Indian tech businesses might finally begin to aim for high-end projects in actuarial services, legal and data analytics, instead of low-importance processes such as data entry and call center work. Indian companies will be aiming for premium skill sets for providing value-added services.

Tech firms like TCS, WIPRO, Infosys, Cognizant, and Tech Mahindra have been making foreign acquisitions in the last decade. This drive is going to intensify with Modi as Prime Minister. They want to have a global presence because of renewed business confidence. And of course, high-end jobs are going to pay more as well. So that’s one more way to negate the falling revenue because of rising rupee value.

R. Chandrasekhar, President of NASSCOM, says that more tech businesses are going to spring up everywhere because of the availability of a better-educated work force, and the availability of more domestic projects. There are currently 2.3 million tech workers in India. He sees this number crossing the 3 million mark within five years. Of course the larger businesses are going to do very well. But Chandrasekhar feels that the real growth is going to come from SMEs and start-ups. They are going to drive the next-generation of innovation with solutions that are tailored to Indian and global needs.

Chandrasekhar says that India’s tech revolution has been amazing. But it has remained largely an urban thing. With more investments in education and a better investment climate, the rural-urban divide might finally be broken. And that’s going to be wonderful.


Niladri Bose is a Post Graduate in Mass Communication and former journalist. Niladri writes on economic issue, and also on social, political and Internet trends.