Thursday, October 28, 2010

IT OutSourcing : The Blue Eyed Mafia.

According to me, there are three stages for the Software Industry in India.

The first stage was the stage before 100% Tax holidays were given to Software Exports from India. That was introduced by Devegowda Govt (by P. Chidambaram- who is described by some as the trusted broker of Foreign Speculative capital institutions). The Second stage commences from the date when Chidambaram presented his dream Budget as the Finance Minister in the DeveGowda led Govt and till the date when the Tax holiday is ended.  But we all know that this Tax holiday is extended in the Special Economic Zones. But most of Indian Software companies have expansion plans in the SEZs. In that sense, they continue to get benefited by this subsidizing policy of Central Govt.  Hence the third phase of Indian Software export business is not marked by the end of Subsidy regime by 2009-2010. But unfortunately or fortunately it is marked by the recession, deeper financial troubles and policy changes in the Targeted export market - that is in the USA.

In the second phase of India's software export business, only foreign financial institutions got benefited in large way. Yes, the software export has become a major component of India's GDP Growth. But the "wealth' generated by software export has never trickled down. In that sense, masses were never got benefited by this growth story. In fact, software companies, including Infosys has coerced the various regional and central govts to cater to their special needs at the expense of general public. As almost all Media heads and other business heads were direct or indirect beneficiaries of Indian Software boom, it was easy for these vested interests to campaign against any govt which refuse to give away undue favours to these corporates. Goverments were forced to spend major chunk of the public exchequer to develop infrastructure, fly-overs and roads almost exclusively for these companies. Hundreds of acres of land were freely gifted to leading software companies including Infosys.

Software business after Chidambaram's TAX holiday is not a software business but a money chain business. Let us all note that leading economists in the world have pointed out a special situation existing in the world. World's top conglomerates are not interested in production. They only want to multiply their profits. This huge surplus they have is going across the borders looking for "quick -profits without much risks". They go to Indian and Chinese stock markets in the form of (highly volatile) foreign institutional investments. When the stock indices fall, they invest in Gold of on Petroleum production. These are all widely reported and well discussed in the main-stream media.

But what is not widely discussed is the fact that, Indian Software (and other companies) are forcing regional govts to back up their "casino business" with huge land banks. Either directly or indirectly real-estate is linked to Software business. When Govts gift vast areas of land to software companies or companies like TATAs it is not used immediately some times. The subsidised land which is gifted to the software companies are basically becoming the part of capital assets of the companies and this immediately trigger the initial boom in the stock indices. Then comes the inflow of speculative financial capital. They are certain to get profited because, there is a huge disparity between the land price in India and the land price existing in the west. As I stated earlier, the emphasis is not on the production but on multiplying of the already existing profit.  When the land is attached as part of the capital asset of a corporate and can be converted to cash for short term benefit. Land remains in India, but the "value" of the land - cash flow out. This is why Infosys never approaches Indian banks for any loan. Every one who has primary knowledge about Sofware business knows that, you need huge investment for Software export business. Unless and until you dont huge cash in hand, you can never take up major projects which value hundreds of crores of rupees. If you dont have enough cash in hand, you end up taking up left-over projects and and you run your institutions to train large number of guys, and later these guys join bigger companies and you perish.

Please Visit My Other Articles Below:

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So, we all know Software business needs a lot of cash. Still companies like Infosys never takes loans from banking institutions. Why? The secret lies how these companies get cash. They get cash from the initial investments from foreign institutional investors. This is why Top managements of Infosys were seen vigorously arguing for the need to ensure full Capital Account Convertibility. They always argue for the interests of foreign institutional investors.

As we have seen, the real-estate compartment of software business is very important. Now a days, almost every corporate model is using this Real Estate compartment. When you have a new Airport Project, thousands of acres of land is gifted to the developers. To software companies, to TATA in singur, To national highway projects. Janashakthi weekly is arguing why Shobha developers need hundreds of acres of land in islands near Cochin, when the govt of Kerala is ensuring the commercial space? I agree with Janashakthi, but the fact remain that without Real-estate compartment, no financial capital is going to come and without real-estate compartment and without foreign institutional investors, the software companies would cease to exist.

This is dangerous for the interest of people in the third world countries. This is the death bell of all the progressive movements. Creating huge land-bank for the interests of financial capital is a dangerous trend.

We know that Software companies operate in a very small area and they attract cheaper skilled labour to this area. And when you work on export market and when a large number of highly paid executives stay in a small area, that would always result increased inflation. And one reason why software companies are now looking for cheaper human resource and cheaper destinations is that, over a period of time any software hub become un-viable because of the inflation. When you are getting profited by an export market (when there is no barriers between two worlds), essentially, both the market would try to come to a balance level over a period of time. But the software outsourcing can be viable only when there is a huge disparity in the salaries and other expenses in two different markets. Already the top level salary of Indian Software professionals is come to the parity of that of the west. That is why people like Mohandas Pai has publicly declared that no software business is possible in Bangalore as the real estate and other prices has already gone up beyond a level. (And there is a strategical change in the model of the business. Now a days more emphasis is given on On-shore model (especially after Obama's protective policies).

Software business and using technology for pursuing greater wealth concentration and monopolizing is bound to face resistance all over the world. Even in India, there is no software developed for indigenous use (with a few exceptions). They are all meant for expensive export market. And the end beneficiaries are NOT the working class of the western world. They are also the victims. Only the corporate wealth increases with this process. Both the Out-sourcing destination and the outsourcing country working class are suffering.

DRDO has clearly showed how the strategic projects are delayed for nearly a decade due to the poaching by outsourcing companies in Bangalore. CNR Rao has expressed his anguish against software business killing scholarship. You come to Bangalore, visit each of the IT hub. Thousands of traditional business were forced to close down or forced to relocate from these areas. Paying high salary is not a generosity of IT companies. If they dont pay high salary any small and medium company can poach their experienced staff. Hence keeping the pay scale high enough so that other small companies (some times project employees of the same company) can not reach out them and keeping the pay scale low enough to see that there is a competitive advantage when compared to the Western Export market is an inevitable strategy of the software export business. And how long you can keep this balance? Not longer. Remember any software company is forced to give more salary to its employees to prevent attrition. This is relational. Related to the highest salary in the rest of industry. Hence the very existence of a software business in any area is bound to add to the inflation. You can not start a software company, where you are not ensuring a huge supply of skilled young workforce. Hence, at least in theory there should be an anticipation among the young workers that they may get significantly higher salary if they relocate to this new IT hub. Thus large scale migration to a geographically small (No IT hub can locate more than 1 hour away from an Airport as frequent visits by project employees, clients, players is necessary) location is important for any IT business. This also means that there is more money being circulated in a small area and which is connected with International finance business. This would inevitably lead to high inflation in that area and consistent high inflation for a decade would almost always ensure that this new IT hub loses its competitive advantage in terms of low salaried skill labour.

Thus any IT hub and outsourcing business would kill itself in a decade's time. And by that time, millions of rupees of tax exemption is pumped and millions of rupees is spent for the implementation of massive infrastructure project, which do not cater to the local working class.  By the time, you realize that your lovely IT business itself has become non-viable in your area, it would have already killed all other types of business which cater to the local community/ domestic market.

Naturally over a period of time, there would be massive resistance against this "software dream projects" by the local people who are going to be the victims of such a cleverly planned game of International Financial capital.

Before we cheer up Infosys' executive's statements, we have to see these problems. I understand that there is lot of scopes (at least in the short term) for software industry (and its real estate compartment), at least in the short term. But are they going to arm-twist the regional govts to award major tax subsidies? Are they going to coerce the Govts to gift free lands?

We also should be careful to understand that the high inflation in these areas would also result a situation that the small and medium industry wont get cheap labour any more. Any company targeting local market (all software companies are targeting western market which is any way costly), would not be able to function in the long run. So an emphasis in software business would kill all traditional business in the long run. (except real estate and other export business.) Are we prepared to face this situation?
(originally posted as a response to the interview with Narayana Murthy, Infosys, on comments section)
First published on June 2010.

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