$6 bn govt projects for IT cos

NEW DELHI: The country’s information technology industry is turning its gaze inwards, as a dearth of new contracts in its core western markets e
xposes the soft underbelly of a sector long viewed as a habitual growth monster.

While there is a slump in demand from cash-strapped global customers for new technology services, the home market is increasingly looking good for these IT players, with contract sizes matching the ones available overseas.

And there seem to be quite a few big deals up for grabs, many of them from the government departments taking their baby-steps in embracing any form of technology.

The government departments have plans to spend $6 billion in 30 so-called “mission mode projects”, and there’s promise of more to come, as the federal and state governments embrace e-governance and look to digitise everything from land records to tax filing. There are scores of the government projects that relate to the filing of income-tax, central excise, transport services, computerising municipalities and the police force and developing e-district and e-courts.

Companies such as TCS, HCL and Wipro have won significant government business in recent months, and industry officials speak of the government contracts on offer ranging from as small as Rs 100 crore to multiples of Rs 1,000 crore.

Infosys has recently bid for a railway project related to creating a Locomotive Management System and ERP implementation, a project to create a billing system for BSNL and another contract from the defence forces.

Yet, a lot of the government business appears good only on paper, and is often hamstrung by a tardy pace of decision making. “In the government projects, there’s a start date but no end date,” said Tanmoy Chakrabarty, VP & head of government industry solutions unit of TCS, the largest software services company by revenues.

Nasscom’s vice-president Rajdeep Sahrawat illustrates the time taken by the government to approve projects by citing the example of the Passport Seva project to digitise passport records, which took the ministry of external affairs almost three years to conclude. TCS eventually won the Rs 1,000-crore project.

”The domestic market is growing at 20%, thanks mainly to the large government contracts. But three years is the typical time frame for project approvals,” said Sahrawat of Nasscom.

Others like HR Binod, services VP & head of the India Business Unit at Infosys Technologies, noted that it normally took at least 12-18 months for the government contracts to be awarded compared with about 1-2 months for private sector contracts.

Many others complain about the T1, L1 rule for the government projects, which stipulate contracts only go to companies that offer the best technology solutions at the lowest price. This means that the lowest bidder gets the work.

Further, in most the government contracts, separate teams look at the technical aspects and the pricing aspects of a contract, which delays decision making.

“People on technical committee are not on price committee. And for larger contracts (say over Rs 1,000 crore) approvals can take much longer,” added Binod of Infosys Technologies. But the government officials defend the decision-making process, arguing that many of these state-awarded contracts had complexities not normally associated with other contracts.

“It involves complexities. Some projects require even legal changes. Then there is an extensive vendor selection process,” said R Chadrasekhar, special secretary at the department of information technology, adding that in a few cases, an extensive selection process for vendors was required to ensure the smooth implementation of projects.

But for now, the sector has little choice to but to take it on the chin, as it braces for slower growth of less than 15% during the next few quarters.

Industry body Nasscom has already pegged the growth at under 17%, down from about 21-24% just a few quarters ago, making the prospect of business from any new quarter particularly alluring.

“It takes longer to get the government business, but from a relative perspective India has been unaffected by the slowdown. PSUs (public sector undertakings) and the government spends are on track, deal sizes are on the upswing,” said Kiran Bhagwanani, senior VP, India & Middle East at HCL Technologies, which recently won a seven-year, Rs 393-crore project from the National Insurance Company to roll out a new IT application across the company’s operations.