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India may gain from US slowdown: Chandrasekhar

Shobha Warrier in Madras

The slowdown in the US economy could be a blessing in disguise for Indian entrepreneurs if they tread the IT path cautiously, says K B Chandrasekhar of Exodus and currently chairman of Jamcracker Inc.

The observation may be music to many an ear, but the cheerful note is somewhat dampened by his next remark: the slowdown might result in the flushing out of several unwanted elements.

The million-dollar-question is how many will survive the crisis?

K B Chandrasekhar, who was in India on a personal visit addressed an anxious audience of the Madras chapter of the TiE (The IndUs Entrepreneurs) on Wednesday.

While maintaining that a combination of factors was responsible for the US slowdown, he indirectly admitted that an exaggerated hype surrounded IT related areas till recently.

Eight years of unrestrained and wild expansion in the IT front, with the hi-tech investment standing at 59 per cent, was one of the reasons why the economy had to take a blow now. Huge investments were made in the backbone and not in the long mile and this resulted in an excess and unused capacity of a whopping 96 per cent.

Commenting on the slowdown of the PC industry, Chandrasekhar said, cheap capital resulted in excess capacity, which in turn slowed down the upgradation of the PC industry. And since the companies did not offer anything different, the consumers, quite naturally, did not find it necessary to upgrade their systems.

All these factors, according to Chandrasekhar, had a very strong impact on the 'hi-tech economy'. Gripped by the fear of losing money, people stopped buying and the sales cycles became longer. Infrastructure investments too got delayed.

He further added that having grown used to unprecedented growth during the past few years, anything less than spectacular made most investors panicky.

Now, not only are most hi-tech companies on a hiring freeze and lay-offs, a relatively new phrase -- cost cutting -- has crept into the agenda of these companies

"This madness will finally help only the fiercely independent companies. They will consolidate themselves in this crisis while the less competitive companies and those who are scared to take risks will cease to exist. I can confidently say that good business models will continue to flourish." Chandrasekhar.

On the future of IT, Chandrasekhar said, IT as a service model would grow tremendously. "If it is $26 billion in the year 2001, it could go up to $102 billion by the year 2005."

When asked about the effect of all this on the Indian economy, Chandrasekhar optimistically opined that India has a better chance to utilize this "blessing in disguise" as more and more companies will be looking for outsourcing. He cited the example of Unisys where outsourcing increased by 100 per cent. "It is going to be back to basics and the focus will be on core and outsource context."

Coming down heavily on the poor level of connectivity in India, Chandrasekhar said India has to concentrate on improving it (connectivity) if the country wants to make use of this "opportunity" that has come in the form of an (US) economic slowdown.

He also stressed the fact that this was the perfect time to make investments to develop intellectual property. Without it India will fail to be a leader in the field. He cited the example of Dr.Reddy's Lab, which was investing heavily in R&D. "The reason could be the WTO, but what's important is that they are doing it. Unless you invest in R&D, you will not grow. This slowdown makes a fundamental shift in focus from owning assets to following 'privileged access'. There has never been a better time to invest than now."

He added that unless India invests heavily in R&D, China could grab the opportunity from under its nose.

"Whether you like it or not, their economy is ready and they have access to the market," he said.

He was, however, positive that India would be hereafter looked at not just as an outsourcing arm but also as an intellectual capital.

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