'Uncertainty the biggest challenge for IT sector'

Usually, the global clients of offshore-centric information technology services companies start  budget preparations for the next year towards November and December every year.

However, given the uncertain global environment, the clients seem to be holding their cards close to their chests.

S Gopalakrishnan, executive co-chairman of Infosys, discuses these and other issues with Business Standard.

Edited excerpts:

. . .

IT clients usually start preparing their next year's budget in November-December every year.
What are you hearing from them?

We are not getting clarity about clients' IT budgets because of the uncertainty. We'll get a better picture only in January or February.

I expect some impact on the budgets.

A recent report says at least one of every four clients have planned to cut their IT budgets by up to 10 per cent next year.

I prefer to wait than say there is going to be a budget cut.

Businesses are actually better now than the last time (during the last recession).

They are better prepared and they have more cash to spend.

If the overall sentiment improves, businesses may actually start spending more. So, I am not completely sure that budgets are only going to be cut.

. . .

There are some views that a large part of clients' 2011 IT budget could not been spent in the first half of the year. Do you expect some budget flush in the third and fourth quarters?

We may not see it (budget flush) this year because of the uncertain environment. If there is something unspent, the clients may not spend those this year because they are still concerned about costs.

Recently, Infosys said it won't be able to meet the upper end of its third-quarter guidance (expectation)? What made you believe so?

We wanted to say we're concerned about the environment.

Since the environment is challenging, it is better to say it upfront.

. . .

What is the most difficult challenge for the IT industry now?

The uncertainty.

How do you make investment in this uncertain environment?

For example, we are still going ahead and recruiting. But there is a concern whether we are doing the right thing.

Is the lack of visibility is posing a challenge for long-term decisions?

Visibility is there but so is a fair amount of uncertainty.

All indications say offshore (clients' outsourcing works offshore) will continue to increase, even if there is a small cut in clients' IT budgets.

. . .

While the global environment uncertain, the Indian economy is not as healthy as it used to be.
Will this impact job creation by IT companies in India?

All of us are recruiting at this point. During the last recession, some companies changed the joining dates of campus recruits.

But by and large, everybody (given offer letters then) finally joined and the industry continued to grow.

Now, by and large, the IT industry is continuing to create jobs and good jobs.

. . .

What about capacity expansion? Will you be cautious before opening more centres?

We have to keep prepared for the future.

We are looking at expanding all our development centres and opening new ones in Kolkata and Indore.

Have you already acquired land in Indore? How big the centre is going to be?

We are waiting for the land proposal from the state government.

But they have clearly shown interest and we have agreed we'd up a centre there.

We need 50 acres ad the government has told us they've identified it.

Typically, when we set up a new campus, we look at building a 5,000-people capacity centre in the first phase.

We expand based on the performance.

You had plans for a centre in Gujarat as well?

The Gujarat government has shown some interest but we have not got any proposal from them.