Software companies say: NASSCOM, not CII - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Wednesday 26 September 2007

Software companies say: NASSCOM, not CII

(Concluding part of a four-part series)

by Ajai Shukla
Business Standard, 27th Sept 07

As a growing number of Indian private sector companies gear up for defence production, a market that is projected to do over $50 billion worth of business over the next five years alone, the information technology (IT) sector is taking heart from a recent US Pentagon study. Its findings underline that 60% of America’s cutting edge defence R&D was done by small and medium-sized software companies. Several of these were Indian companies.

The increasing role of software in every defence platform makes India’s IT companies believe that broad based industry bodies like the CII, FICCI, and ASSOCHAM cannot look after the very specific concerns of the software sector in dealing with the MoD. Platforms like the CII, they believe, represent the interests of brick-and-mortar companies involved in traditional manufacture; the specialised concerns of software developers, say these IT companies, would be better looked after by the National Association of Software and Service Companies (NASSCOM).

Responding to these concerns, NASSCOM has formally approached the Ministry of Defence (MoD), requesting that NASSCOM be invited to represent the IT companies which are playing an increasingly important role in defence R&D. Confirming this request, NASSCOM President, Kiran Karnik told Business Standard, “What we’ve said is that there should be industrial representation on the offset policy discussion and finalisation and that NASSCOM would be very happy to be there. Now we’ve not had a formal response on that.”

Informally, however, sources reveal that the MoD has assured NASSCOM that it understands the rationale behind this request. Industry bodies, CII, FICCI, and ASSOCHAM, however, which represent the entire private industry, including software companies, in important meetings with the MoD are not so sympathetic. CII officials point out that most members of NASSCOM are also members of the CII, and big IT companies like HCL and Wipro sit on the defence committee of the CII.

But senior CII officials point out that NASSCOM doesn’t even have a defence division, while the CII has one that specialises in defence issues. Mr Ashok Kanodia, an industrialist on the defence committee of the CII, says, “We have a committee on Communications and Information Warfare also, and in this we discuss in detail all the issues that are relevant to the IT industry.”

While big IT companies like Wipro and HCL do indeed play important roles in CII committees, the medium-sized software developers, do not believe the large companies truly represent the interests of their segment. Bharti Sinha from Infotech Enterprises points out, “Companies like Wipro are into hardware as well as software, so they are also manufacturers. But in the software field, most of the respected, cutting-edge, high technology companies that would be able to contribute effectively to defence manufacture are mid-sized companies with a turnover of between Rs 200-700 crores. They have a different set of concerns.”

NASSCOM will be pursuing its case with the MoD for representing the software industry. The MoD has understood the potential of the IT sector for getting offset tie-ups, as sub-contractors for important indigenous projects like the Arjun tank and the Light Combat Aircraft, and for playing an important role in joint development projects with other countries of high-tech platforms like the 5th generation fighter with Russia. Private sector IT companies have given a sheen of respectability to Indian defence production, and their requests are now being taken seriously.

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