RAILWAYS TO ROLL OUT WORLD'S BIGGEST ERP PROJECT BY AUG

Surabhi, New Delhi
The Financial Express

Indian Railways is gearing up to roll out its ambitious enterprise resource planning (ERP) programme by August this year, which would cover all its 25 lakh past and present employees and is being touted as the biggest such exercise in the world.

“We have about 14 lakh serving workers and another 11 lakh pensioners who would be covered under the programme, making it even bigger than the ERP programme of the US Army which has about 23 lakh employees,” a railway official said.

The ERP programme is aimed at efficient management of its huge human resources and aims to integrate all of the railways’ entire freight, passenger and administrative operations across the country.

The ministry is finalising the tender for selecting the systems provider and the project implementer and is hopeful inviting bids for the contract within the next three months. “We expect that the software provider and the developer will bid together in a combination,’’ the official said. The railway ministry run CRIS has been made responsible for the overall execution of the project.

After finalising the contract by end 2008, the railways plans to hold a one-year long pilot run of the ERP project most probably on the Western railways zone, which has about 1.4 lakh employees. The entire ERP programme would then be rolled out in all the 16 railway zones over the next two to three years. The programme will be implemented on an all India basis by the end of the 11th Five Year Plan.

While the railways has been sanctioned Rs 10 lakh for the project, it has decided to implement it through the build-operate-own-transfer (BOOT) model, which will allow it not to make any heavy investments upfront. The private developer will cough up the bulk of the investment, estimated at about Rs 400 crore. It will also provide the hardware and the software required for the ERP programme over the next seven years. The railways will then compensate the developer on a per employee per month basis, the official said.

“After our financial success, we need to bring about certain strategic and administrative changes, which would help us sustain this turnaround, and the ERP project is a significant part of this,” the official said. It will provide greater transparency and improve the productivity of workers, he added.

The ERP programme is expected to have a special component on online learning and will identify railway staff that have not received specific training and will arrange it for them.

 

HEFTY PAY PACKETS A THREAT TO INDIAN IT COS' MARGINS

New Delhi
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Leave alone the adverse effects of economic slowdown, the Indian IT industry fears that fattening pay packets for employees could cut down their profit margins.

Country's two largest software exporters, Infosys Technologies and Wipro Technologies, anticipate wage pressures might not only slash their margins but also prevent them from maintaining their competitive advantage.

"Wages in India are increasing at a faster rate than in the United States, which could result in increased costs for companies seeking to employ technology professionals in India, particularly project managers and other mid-level professionals," Infosys said in its recent annual filing to American market regulator Securities and Exchange Commission (SEC).

In order to retain and recruit talent, companies especially in the IT sector are doling out hefty pay packets. The trend is all the more visible for middle level professionals and project managers.

A recent survey by global management consultancy firm HayGroup said salaries in India are forecast to rise by 14.4 per cent during 2008.

Infosys also noted that it might need to raise employee compensation more rapidly than in the past to compete with other employers.

Wipro has also cited wage pressure as a business risk in its latest annual filing to the SEC.

Moreover, lower wage costs in India are considered as one of the important competitive advantages by the IT firms.

"Our wage costs in India have historically been significantly lower than wage costs in the United States and Europe for comparably skilled professionals, and this had been one of our competitive advantages.

"However, wage increases in India may prevent us from sustaining this competitive advantage and may negatively affect our profit margins," Wipro said in its filing.

Industry analysts believe that rising salaries present a challenging scenario and that it could adversely affect the prospects of IT firms in the long term.

To stem attrition rates in the middle and senior levels, Infosys has a long-term retention bonus policy in place.

According to the policy, certain senior executives and employees are entitled to a yearly cash bonus on their continued employment with the company. The bonus is based on seniority, their role and performance in the firm.

 

HEDGING LOSSES MAY SPOIL PARTY FOR IT COS

New Delhi
The Economic Times

Rupee has spelt good news for the Indian IT industry but the cheer could be muted to some extent by hedging losses at the end of the quarter. The rupee, which has dipped about 7.5-8 percent rupee vis-à-vis the dollar already, is expected to depreciate in the short term but appreciate in the medium-to-long term.

“As with other exporters, IT companies also stand to gain with rupee depreciation. Every 1 percent depreciation of the rupee has a positive impact of 30 basis points on our operating margins. However, it will have a negative impact on hedges. At the end of the quarter, we may have a situation where we have hedging losses and some translation gains,” said Satyam CFO Srinivas Vadlamani. Satyam hedges about 50 percent of its expected dollar inflows, in a bid to minimise impact of rupee movement either way, Vadlamani added. While Wipro has about $3.5 billion worth of forex cover, TCS has about $3 billion and HCL, about $2.7 billion. Infosys has hedges amounting to $760 million.

“We expect some outperformance in the top line while some EBITDA gains could be offset by hedging losses. Infosys, which had reduced its hedging position from $1.14 billion in the October-December ‘07 quarter, is best positioned to take advantage of the rupee’s dip. It would be interesting to see how companies like TCS, Wipro and HCL manage this situation considering they have all increased their hedges,” said Angel Broking IT analyst Harit Shah. Other experts believe IT companies only stand to gain and the losses on account of hedging would be only minimal. “Hedging losses are going to be minimal and will also be offset to some extent by the improvement in the companies’ margins. Large IT companies have been able to manage rupee appreciation reasonably well and the depreciation would ease off the pressure on them,” said Gartner India research head Partha Iyengar.

Added Tholons CEO Avinash Vashistha: “The industry has not taken a bet on the currency. Companies buy hedges only to protect them from any downslide and they may not exercise the option. Moreover, all the steps that have been taken by companies including productivity improvement, better bench utilisation and reducing SG&A will pay off better in this situation.”

 

ARE SOFTWARE PAYMENTS ROYALTY OR BUSINESS PROFIT, ASK FOREIGN COS

K.R. Srivats
The Hindu Business Line

Do payments made for IT software take the character of ‘royalties’ or lead to business profits for software companies? Treating such payments as royalties could imply more revenues for the taxman here. However, revenues may not be guaranteed for the tax department if they are treated as business profits, due to ‘permanent establishment’ issues for multinational software companies.

With the taxability of payments made for software remaining a controversial issue in terms of income-tax liability, the Finance Ministry is now under pressure from foreign companies to bring clarity on the “characterisation” of such payments so as to avoid litigation and remove uncertainty in the business environment.

Multinational software firms operating in India include Microsoft, Adobe, Oracle and SAP. Making a clamour for clarity and certainty in the tax treatment on software payments is AMCHAM, a body representing the interests of US companies in India.

“We have urged the Finance Ministry to put down in a circular on how payments made for software should be characterised. They could treat it as royalties or as payments leading to business profits. But they should take some view on this. It should not be left to the interpretation of assessing officers. Absence of clarity is only leading to a plethora of litigation and uncertainty in business environment,” Sanjiv K. Chaudhary, Chairman, Taxation Committee, AMCHAM, told Business Line.

The high-profile Microsoft case, involving about Rs 700 crore (including interest) for the financial years 1998-99 to 2003-04, is an example of differing interpretations on the “characterisation” of payments made for software.

While the revenue department at the initial assessment levels has taken a stance that such payments are “royalties” and should attract tax in India, the software major does not hold this view and has gone on appeal.

The Indian stance is contrary to the views expressed by the OECD.

Although India is net exporter of information technology (IT) - software and services, many US companies have significant business interests in India in terms of a market for their ‘Software Application Products’.

 

INDIA PLANS INTELLECTUAL PROPERTY CAMPAIGN

Sutanuka Ghosal, Kolkata, May 19, 2008
The Economic Times

In its drive to catch up with China in the field of patents and trademarks, India will shortly launch a national awareness, sensitisation and consultancy programme by roping in universities, laboratories, state-level chambers of commerce and industry, patent attorneys and the scientific community.

Sources in the commerce ministry told ET: "The cost of this awareness campaign has been pegged at Rs 20 crore. This will establish a correlation between intellectual property, innovation, productivity and competitiveness. The campaign is aimed at promoting intellectual property and boost the proprietary rights culture in the country."

According to the figures of World Intellectual Property Organisation (WIPO), of the total 1.56-lakh applications for international patents it received, China came seventh with 5,456 applications. US topped the list with 52,280 applications, followed by Japan with 27,731. Compared to this, India’s applications were a paltry 686.

In 2006, when China filed 3,951 applications, India filed just 831. The Indian Patent Office granted a record 15,262 patents during 2007-08, the government said, more than double the 7,539 granted the previous year (2006-07) and nearly eight times more than the 1,911 patents granted three years ago, in 2004-05.

Historically, the total number of patent filings by residents of India is just three per million population, against a world average of 250. According to the patent office figures, the number of patents granted in 2007-08, the first year of India’s 11th Five Year Plan, compares well with the total number awarded during the entire period of the 10th Five Year Plan, which was just 17,618.

"The application for international petnts should go up substantially to cope up with other countries of the world. We have taken some initiative, but more needs to be done," said the commerce ministry sources.

Incidentally, the government has spent more than Rs 140 crore in the first phase of the modernisation effort, which included setting up integrated intellectual-property offices in four major cities and launching electronic filing of applications. Another Rs 400 crore is to be spent to establish a Trade Marks Registry and Intellectual Property Archives and allied activities.

The government has also begun work on a National Institute of Intellectual Property Management to handle training, education, research and think-tank functions in intellectual-property rights.

 

COMPUTER SOFTWARE PIRACY COSTS INDIA $2 BN

New Delhi
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The Indian software industry lost about two billion dollars of revenue this year due to use of pirated softwares, a study has said.

A study by the Business Software Alliance (BSA), an international association representing the global software industry, showed that though computer software piracy rates in India declined, the country still registered losses to the tune of 2 billion dollars in 2007 in monetary terms, compared to 1.28 billion dollar in 2006.

Piracy of software on personal computers (PC) in India has come down to 69 percentage points for 2007, toeing the global trend in which piracy rates dropped in most countries, the study said.

The software piracy menace has been haunting the major software developers like Microsoft.

Microsoft (India) Managing Director Neelam Dhawan had earlier said the industry is losing a large share of its revenue due to circulation of pirated softwares.

It has also acted as a dampener for the local software firms for developing applications.

"There are less Indian success stories of software applications being adopted on a large scale as India has a high piracy rate and therefore Indian companies do not make money," an industry expert said.

Software piracy affects much more than just the industry revenues; it even hits the job market and eventually the country's economic growth.

An IDC economic impact study released in January this year found that by reducing PC software piracy in India by 10 percentage points over a period of four years could generate an additional 44,000 new jobs, 3.1 billion dollars in economic growth, and 200 million dollar in tax revenues.

 

GOVT MAY GET KEYS TO YOUR BLACKBERRY MAILBOX SOON

Rashmi Pratap, Mumbai
The Economic Times

In a major change of stance, Canada-based Research In Motion (RIM) may allow the Indian government to intercept non-corporate emails sent over BlackBerrys. This is expected to solve the row between the Department of Telecom (DoT) and RIM to a large extent, since the government’s security concerns pertain more to emails from individual users than enterprise customers.

At the core of the issue is the data encryption technology used in BlackBerrys. BlackBerry uses a very high level of encryption — at 256 bits — while sending data.

BlackBerry scrambles messages before sending and unscrambles them at the receiver’s BlackBerry. Owing to security concerns, the government wants to be able to intercept and decode the data.

However, the government’s decryption software can decode messages encrypted only up to 40 bits. India wants RIM to either hand over the decryption keys or reduce encryption to 40 bits.

According to officials close to the development, Canadian High Commissioner David Malone and RIM officials met telecom secretary Siddhartha Behura on May 7. “It was explained by RIM that it should be possible for the government to monitor emails to non-business enterprise customers,” sources said. “RIM is considering giving access to individual users’ email to the government. Details on this will be provided in two or three weeks,” sources said.

BlackBerry offers two kinds of services — for enterprise (corporate) customers and for individual (non-corporate) users. Majority of its 1,14,000-plus customers in India are from the enterprise segment. However, decrypting emails of non-corporate customers is a larger security concern for Indian intelligence agencies.

A RIM spokesperson said: “RIM operates in more than 135 countries around the world and respects the regulatory requirements of governments. RIM does not comment on confidential regulatory matters or speculation on such matters in any given country.”

Cyber law expert Pavan Duggal, however, said the move to give partial access to the government could open up potential legal risks for BlackBerry service providers. In India, Bharti Airtel, Reliance Communications, Vodafone and BPL Mobile offer Blackberry services.

“By virtue of Sec 79 of IT Act 2000, network service providers are made liable for all third-party data or information made available by them. Therefore, if such an action takes place, then potential of legal action arising cannot be ruled out,” Duggal said.

He said there was a need for providing a more comprehensive solution to the issue. “BlackBerry issue has various ramifications — jurisdiction, location of servers, applicable law and a sovereign government exercising the right to intercept data located in foreign land. These piecemeal solutions will not work,” he said.