We are focusing only on three verticals

IIT Kharagpur alumni Arvind Thakur was utterly exhausted in 1985 when trying to import a computer for his newly-started data processing company Comptech International. By the time the computer came, the technology had become obsolete. During these turbulent times, he met another IITian Rajendra Pawar (Raji) who had just started NIIT, at a milk bar at the Delhi Palam Airport, on a summer afternoon. Raji convinced him to join NIIT the same year and Thakur has been with it since then. In an interview , NIIT Technologies CEO Arvind Thakur recounts the journey and shares challenges before NIIT and the Indian IT industry. Excerpts:

NIIT started in 1981. But NIIT Technologies is still very small compared to other IT companies?

NIIT started as a training and software company. Over the years, we acquired solid technical expertise. We wanted to leverage that in IT services. We decided to build NIIT Technologies as a niche software company. The demerger of NIIT and NIIT Technologies happened in 2004. We started concentrating on untapped areas and geographies. Thus, most (50%) of our revenues comes from UK and lesser (33%) from the US, unlike others. We have decided to focus on only three verticals — retail, transportation and financial services. In insurance, we are among the top three IT service providers in India. We don’t want to be the biggest and good enough like others. Instead, we want to be the best and bigger enough.Is inorganic growth the way forward?

Yes, we are looking at acquisitions. Last year we acquired Room Solutions which gave us insurance domain expertise. We have a four member team dedicated to scout for buyouts. The acquisitions if any, will happen only in retail, transportation or BFSI verticals.

How do you view some of the recent policy announcements? Will the IT minister’s sudden exit impact the IT environment?

The fringe benefit tax on employee stock option plans (Esops) came as a rude shock. The IT industry is facing a talent crunch. Bigger brands offer 50-60% more and lure employees away. Esops were an effective tool for smaller companies in retaining and attracting employees. But at least the FM has softened the blow by passing on the FBT to the employee. MAT (minimum alternate tax) was again disruptive as nobody expected tax resumption before 2009. I think the government should extend the STP scheme beyond 2009.

The bias of SEZ policy towards large IT players is another major problem. Small IT companies cannot afford to set up an SEZ which leaves them at the whims of the SEZ owner who may charge exorbitant rentals. And he can’t refuse it if he has to avail tax benefits. Regarding the minister’s resignation, I believe that momentum of IT growth in India is already in place and would be unaffected. Though concentrated more towards telecom, Mr Maran was a young mascot for the IT industry who brought in a lot of investment.

Revenues and manpower growth have been in sync for IT industry leading to low revenue per employee compared to global players. How can the linearity between revenues and employees be broken?

The linearity has occurred because most of IT services companies operated on time and materials contracts. The more employees you hired the more you can service, and the greater your revenues.

Now, however, there is a shift to service level agreement (SLA) based, fixed price contracts. We at NIIT have many SLA based contracts in areas such as infrastructure management. Here it does not matter whether you employ 10 people or 100 people unless the SLAs are met at all times.

Through asset management based application development and maintenance, this linearity can be broken. Other way is to concentrate on products rather than services. Scaling up and managing lakhs of employees will become a real challenge if this linearity is not broken.

What are the big challenges facing the IT industry?

There are three big challenges. Good infrastructure which includes better airports, roads, power and quality of real estate. India has an advantage of a large pool of young population below 25 years of age. Converting the potential labour pool into employable talent is a major challenge. Data security in the other big challenge. I define the needs of IT industry as PQR - Price performance, Quality and Resources. To this an ‘S’ of security has to be added.

Why has your BPO business stagnated?

We started NIIT SmartServe in 2004 primarily to integrate our software offerings with BPO. We have broken even only in the last quarter. The BPO is there only to give the clients an integrated service offering. It will turnaround in sometime.