Exclusive: TCS CEO shares his hopes and fears from the budget 2020

Exclusive: TCS CEO shares his hopes and fears from the budget 2020
Tata Consultancy Services (TCS) CEO and MDBCCL

  • Excerpts from interview conducted by Joe Ciolli, Business Insider.
  • The Indian government is hoping to stimulate the economy towards faster growth with the upcoming Union Budget 2020.
  • Rajesh Gopinathan, CEO and MD of Tata Consultancy Services (TCS) told Business Insider that he hopes that the government’s new measures won’t make foreign exchange prices more volatile.
  • A weakening rupee might help IT companies hedge in the short run, but a stable foreign exchange is a prerequisite for long run contracts.
  • He believes education, government, and healthcare are that the next three verticles ripe for digital growth.
  • TCS is also hoping that the insurance sector will get liberalised and follow in the footsteps of banking and financial services.
Indian IT majors have a set of problems that are diametrically different from that of other domestic firms. Their growth story began in foreign countries, like the US, and though their domestic clients grew, international business is a major chunk of their revenue. Which means foreign exchange plays a big role in their fortunes.

So, any move to ensure that India’s slowing economy is triggered will also strengthen the rupee, which is bad news for those who earn in dollars and euros.

Crisis and stimulus
“We’re quite comfortable with the policymaking in India for the last many years. Our only hope is that the current credit crisis and the stimulus don’t spike the foreign exchange prices,” Rajesh Gopinathan, CEO and managing director of Tata Consultancy Services (TCS) told Business Insider.

At the same time, Gopinath hopes that the government would give impetus to three sectors — government, healthcare and education — where technology implementation is at its lowest. Their growth and subsequent digitization will help IT companies build a robust domestic business.

“They have not yet been properly revolutionized by technology, where the opportunity is huge and relatively untapped. They are still far behind,” he said.

TCS also hopes that the insurance sector will get liberalised and follow the example set by banking and financial services, which was one of the first sectors to be liberalised in the Indian economy.

According to Gopinathan, “Insurance is still not liberalised. As the government is liberalising more, there is greater private sector investment and greater acceptance of technology and leverage.” After all, BFSI is the biggest segment of TCS.

Economic stimuli could make foreign exchange more volatile
This budget, Finance Minister Nirmala Sitharaman is expected to announce a slew of measures to help stimulate the economy. India’s growth has dropped from 7% last year to 4.8% expected this year. Its fiscal deficit hit 114.8% of 2019-20 budget estimate according to Controller General of Accounts (CGA) in November.

Frequent stimuli and their effect on economic growth does not bode well for IT companies who rely heavily on outsourcing. It means currency markets turn volatile as do equity markets, which is extra bad news since international tensions are already playing a big part in currency fluctuation.

“We want stability. For us, forex stability is the most important part of it,” said Gopinathan.

In spite of the popular myth, a falling rupee is also not always good news for IT companies. Most IT majors hedge their foreign exchange earnings and they get into trouble when currency value dips or rises beyond the predictable band.

In the long run, volatility and uncertainty are an obstacle. Of late, it is becoming tough for experts to predict the Indian economy. Indian IT companies will bear the largest impact of foreign currency fluctuations, especially when it comes to the dollar since nearly 70% of software exports land in the US.

Education is ripe for disruption
In addition to stability, TCS is also looking forward to exponential growth in the education sector is the “most ripe for disruption”.

“That ability to personalise education and to really switch on to life long learning as a concept we think is possible. And, it’s possible at scale,” he said.

Over the past couple of years, TCS has observed that self-guided learning is increasing significantly. The company has been rethinking the role of schools and universities in terms of where knowledge comes from and what testing can achieve. If testing and knowledge acquisition shifts online and becomes tech-enabled, schools and college will be geared towards soft skills — like communication and values among others.

“Directionally, the government is very focused on raising investments in education and research, which we believe is structurally required,” said Gopinathan.

Healthcare is inefficient, says Gopinath
While education is ready for change, healthcare is one of the most inefficient industries — especially when it comes to data privacy. According to Gopinathan, solutions are available but legislation is yet to catch up.

“Regulation needs to be designed for what it is seeking to achieve rather than justifying the regulatory bureaucracy,” he said. If there is a large-scale shift in mentality, the largest IT company in the country, will be able to gain a lot. After all, it is part of gigantic tech projects undertaken by the government and other industries.

TCS has already been working with the government to digitise the passport system and citizen registry. It’s also worked on a project with the stock exchange, the State Bank of India and payments systems.

“It’s an exciting market with its own challenges — not an easy market to operate in,” said Gopinathan.

See also:
Budget 2020: India’s mobile phones makers fear for jobs in the face of fewer incentives and global competition

Union Budget 2020: 'Allocation to space exploration should be considered a seed fund'

Budget 2020: Five charts that explain what you can expect from India’s defence expenditure this year