Since Som Mittal took over as Nasscom President, he has seen industry growth wither and US introduce 40 Bills with some form of protectionism -- he may just have weathered the worst, he tells Sunil Jain
When will the administration step in, Som Mittal asks US Ambassador Nancy Powell at a Brookings India dinner meet, after India’s Ambassador to the US Nirupama Rao finishes her initial talk. The Immigration Bill, Mittal agrees with Powell, is very progressive in many ways but is totally, and for the wrong reasons, protectionist when it comes to STEM (Science, Technology, Engineering and Math) workers.
With Mittal reeling off statistics on how the US has virtually no unemployment when it comes to STEM workers whom the Immigration Bill is protecting, I ask Mittal to elaborate. As he does, we find the chicken dish being moved further down the table, and getting replaced with a sweet dish—let’s do it at lunch the next week, we agree, and try to get to the dinner before it moves off the table completely.
I try to do some reading before the lunch, but most news reports are written for the cognoscenti—so there’s a lot of talk of H1B-dependent companies, but no explanation as to who or what is H1B-dependent. Fortunately, Mittal’s a bit professorial even though he’s been a corporate executive all his life.
After doing the IIT-IIM routine, Kanpur and Ahmedabad, respectively, Mittal has worked with L&T, Yamaha and SRF. In the last place, thanks to the license permit raj, he spent most of time doing feasibility reports on diversification from sponge iron to shipping—as he puts it, if the company had to expand, it could only do so through diversification, no matter how unrelated. After a stunt at SRF Nippondenso, he got his first exposure to IT—after a 7-hour job interview with Azim Premji! We quickly discuss his stints at Digital, Compaq, HP (where he headed global centres) … but our waiter at the IIC Annexe is getting impatient, so we order some cream of almond soup to begin with.
Mittal wants to know what I usually have since he’s not a regular—a grilled fish, I tell him, since I can eat it with my left hand while taking notes with the right. So continental it is, he says, opting for an asparagus dish with garlic bread on the side.
Since Mittal’s just been talking of the global centres he ran for HP, we talk about the Rangachary report first, the so-called safe harbour rules and the IT industry’s persecution by the IT department. The industry, Mittal says has a turn over of $80 billion, profits of $12 billion and contingent liabilities of $2 billion, with the number set to get worse the way things are going.
Mittal is pleased with the Rangachary report’s recommendations on how the taxman shouldn’t tax R&D centres using what is called the Profit-Split Method—under this, in the Microsoft tax case, the taxman ruled that since 4.3% of Microsoft’s global R&D took place in India and R&D accounted for 50% of its global profits, 4.3% of this had to be added to Indian arm’s profits. This led to a R1,356 crore adjustment to income in FY09 and a R5,135 crore transfer pricing adjustment for FY06 to FY09, with the worst yet to come with Microsoft’s India’s turnover rising dramatically with more R&D being done out of India in each passing year.
I rattle off details Mittal is already familiar with—not because he doesn’t know, but because The Financial Express broke the story! Mittal is duly impressed (or is he being polite?) and goes on to tell me the number of reports submitted by Rangachary, just one of which has been made public.
The other reports, he tells me to my utter embarrassment given I have no clue about them, concern the IT department not giving the industry tax sops the law permits—not accepting “master agreements” between companies as proof of a long contract but treating each order separately is one such example, Mittal tells me. This, and several other such instances Mittal says, have important tax implications.
What’s unfortunate, Mittal says, is that the Rangachary report on taxing offshore R&D centres was submitted in September last year while the circular on this came out only 9 months later. During this period, the taxman was making life hell for firms like Microsoft India.
We’re in the middle of our asparagus and fish, so there’s no option to being rude and cutting Mittal short, nudging him in the direction of the dinner conversation at Brookings. What did Mittal mean when he said US STEM’s unemployment was actually very low? Mittal promises to send some slides across but the short point he’s making is that the US simply doesn’t produce the required number of STEM graduates. By 2020, the slides reveal, the US will have 1 million jobs in computer science in excess of the number of students graduating in this discipline. Mittal also cites a Brookings study that shatters another myth of H1B-holders getting paid less than US workers with bachelors degrees—it’s $76,000 per year versus $67,301 in 2010, he says.
But, I ask, if the Bill is so progressive—it makes it easier for Indians to get citizenship by giving greater scores for skills—why is he against it? Before Mittal can answer, I ask whether this is the end of the current outsourcing model we follow. I mistake Mittal’s silence for awe, so carry on unembarrassed—does this mean Infosys and Wipro now need to do more value-added stuff in place of what they do right now?
Mittal is enough of a gentleman to put me down gently. Yes, Indian IT firms are trying to go up the value chain, but the US Immigration Bill doesn’t affect their ability to work, it creates a temporary problem, an unfair problem, he adds.
But first, Mittal gives me a bit of a primer on the Bill. If Infosys has 600 people on an H1B visa in the US, then it has 100% of its US staff on H1B visa. If IBM has 600 workers from India on an H1B visa, but also has 4,800 US workers in its US operations, then IBM has a ninth of its workforce which is H1B, so it is not H1B-dependent. This, Mittal agrees, isn’t really the core of the Bill—which is to set more skilled people to enter the US and become citizens—but just gives an unfair advantage to MNCs with India operations. It is not as if the problem is not insurmountable. Infosys, he says, can start doing more work offshore, back in India, but this will take time; it can also buy an American company and use its workforce to get over the H1B-dependent tag—an H1B-dependent firm has to offer jobs to Americans first … there are a host of requirements that drive up costs.
But, and he offers hope here—hope that plays out into reality, just the way he said it would, over the next few weeks. The Bill passed by the Senate, he says, is hugely different from the Bill passed by the House. Though it is true 12 Republicans voted for the Bill in the Senate, getting it past the House won’t be easy.
Eventually, he predicts, there will be a joint reconciliation where, he says, the role of the White House becomes critical—especially when it comes to the date of enforcing critical provisions in the Bill such as the “outplacement section”. As it happens, on July 9, the House simply refused to put the Bill to vote with the Republicans saying they preferred a series of smaller Bills—but it’s early days yet, so the Bill isn’t fully dead.
Mittal’s on his way to the US, as part of the intense lobbying Nasscom has been doing, using two firms in the US, and will be having some joint meetings in the US where commerce and industry minister Anand Sharma will also be present. Though it’s best to prepare for the worst, Mittal tells me—over some herbal tea—that the industry has successfully fought off 40 Bills dealing with immigration issues over the past 3 years alone. The dampener though, he says is that when he took over presidency of Nasscom in 2008—he was chairman in 2003-04—the industry was growing 40% qoq. Today, the industry is far from there, actually struggling but if all goes well, the immigration Bill is one less thing his successor—former IT secretary R Chandrasekhar—will have to bother about. Getting the industry to value add, to actively mentor young entrepreneurs—Nasscom, Mittal says proudly, is embarking on an ambitious incubator/VC programme—will be Chandrasekhar’s job.