We all expected the terrorist attacks on the US to hurt Indian software exports. But, two weeks after, the mood within the software industry is paradoxically more upbeat now than it was some weeks ago, and some companies actually believe they will benefit rather than loose from the crisis. Akila Satheesh in Chennai and Vineet Joshi in New Delhi report

When terrorists launched ‘war’ on America last September 11, more than a few analysts predicted that India’s software services industry, which derives 65 percent of its revenues from the US, would hurt badly. Two weeks on, there is little, if anything, to support this assessment. Indeed, if any thing, the mood within the software industry is more upbeat now than it was some weeks ago, which may be indicative of the fact that software exporters could actually benefit from the aftermath of the September attacks. That, at least is what half a dozen leading lights of the industry told this paper.

The industry’s mouthpiece, NASSCOM, refused to go so far, and preferred caution in its assessment instead. Says Phiroz Vandrevala, chairman, NASSCOM, “It is too early to predict the exact repercussions of the attack, but an act of such a nature would definitely have an immediate impact on the economy. Currently, most Indian companies are still in the evaluation mode and trying to assess the extent of the damage that the incident may have caused to their clients. But in the worst-case scenario, we may see a growth of 30-35 percent in place of 40 percent (estimated growth), but that is still better than the growth rates in other industries.” “But we do believe that technology spending will be further negatively impacted, and new business will be more difficult to come by. This will put pressure on billing rates,” he adds.

This notwithstanding, Vandrevala insists that the long term targets set by the MCKenzie report of $50 billion in software exports by 2008 will be unaffected, a line he has maintained through the past few months when many Indian companies were beginning to feel the effects of the US economic slowdown. If that seems to imply that the WTC attacks will at best cause a transitory blip on the growth chart, NASSCOM refuses to say so in so many words. India exported software services valued at Rs 28,350 crore ($6.2 billion) during 2000-01, and NASSCOM predicts that exports will top Rs 40,000 crores ($8.5 billion) for the current fiscal year. The industry’s quarterly performance is due to be collated and published in mid October.

In the interim, however, the only evidence available comes in the form of qualitative assessments made by a cross section of industry heavy weights, and almost none of them point to a negative impact. Take for instance the case of Bangalore-based Infosys, India’s most high profile software services exporter. Says N R Narayan Murthy, chairman, Infosys, “Certain onsite projects have been delayed because of strict security concerns both from the parent company in India as well as the client in US. However, it is too early to determine if there will be any revenue implications of the attacks, one way or another”. Reports indicate that projects that were temporarily dislocated have now been resumed.

Yet, Infosys’ stock has plummeted on NASDAQ, the premier US tech stock exchange, in the wake of the attacks and that’s certainly detrimental to the interests of those Infosys employees who get dollar denominated stock options. But conversely, the declining Rupee-Dollar parity—now at Rs 47.84 to the dollar— could boost Rupee denominated revenues of the company. Narayan Murthy’s cautious assessment reflects this duality.

Many other software firms insist that there will be no visible impact at all. Chennai-based SSI Technologies which has an onsite facility on Broad Street in New York, shifted operations overnight to its New Jersey facility to service New York based clients in the financial and select vertical segments that it operates in. Says P K Seshadrinadhan, CTO, SSIT, “Because we were able to move our operations quickly out of our Broad Street site to our New Jersey office, there was no real disruption of work.”

There are valid reasons to believe that software exporters will not be negatively impacted, at least in the short run. Says Venkat Subramanyan, consultant,Ernst & Young, “The businesses that have been directly affected by the attacks are investment banks, not software services firms. But the negative impact on banks has a strong impact on market sentiment and confidence, which indirectly affects software services. Tech stocks decline and VC funding becomes more difficult, so all tech companies will feel the crunch in time. At a second level, the attacks will delay the predicted turnaround in the US economy and growth of software services will be impacted by this too. “

In an industry that is chronically now oriented, all that is too far away to worry about seriously. But what of the now, aren’t there any firms that have been impacted? Some analysts believe that IT Enabled Services should logically be impacted because many financial services firms in New York and elsewhere outsource their back office work to Indian service providers. But evidence that this is happening is hard to come by. On the contrary, most firms that spoke to Express Computer denied feeling the pinch. Says Devendra Saharia, director of Ajuba who actually saw the WTC disaster from a mile away, “The attacks did not dislocate the IT infrastructure of most companies, and hence the impact is minimal. We have a client in New York and we were able to resume services to this client on the day after the attacks. I don’t see out-sourced businesses like ours being impacted.”.

Covansys, another company which has one large financial firm as its client operating in New York did not have major hiccups barring a disconnection of the computer systems for a few days. “Immediately after the attack we could not log-in to their systems from off-shore as they were disconnected. But the connection was re-established quickly and we are back to work as usual” says K S Mohan Ramnathen, executive vice president-finance at Covansys India.

Ramco also experienced ‘disruption of work for a few days immediately after the attack.’ But insists that things are back on track now. Says Girish A Menon, vice president-marketing & strategic planning, Ramco, “At an industry level, I reckon that the attacks will result in growth rates being squeezed by 5 to 10 percent for the full year compared to last year’s numbers, but this reduction is inclusive of the effects of the US slowdown. I think onsite work will be hit and bear the direct impact of the crisis in the short term, and this will be most visible in financial sector. But Ramco’s derives only 35 percent of its revenues from the US, so we will not be affected as much as other firms.” Menon points to another dimension of the crisis that could have more damaging long term effects: visa regulations. “Immigration and work visas may become tighter. That will affect our ability to do on site work,” he says.

Others argue differently and insist that financial firms that have been impacted will now look at outsourcing options more readily because of the cost savings.

Says Ananth Padmanabhan, director at Zen Data Services-another ITES company into medical transcriptions and data conversion, “Many firms have lost data, and recapturing that data will become a concern once the immediate issues are dealt with. That’s a new opportunity for us”.

Even Vandrevala admits the attacks could throw up new opportunities for India. “Areas such as security-related information technology products and services, back-office outsourcing areas like medical transcription, call centres, insurance claims, medical billing and human resource consulting can be tapped by Indian companies,” agrees Phiroz.

It is this prospect of new opportunities arising for Indian software firms that has many excited, but the attacks once again underscore the risk inherent in deriving a large proportion of revenues from a single country. Certainly, one beneficial effect of the attacks is that it will re-enforce the move to diversify markets to Europe and Asia. Nasscom has a slew of promotional events across Europe slated for the coming months and it will now take them very seriously indeed.