Cover Story
Government Promise
Stung by the downturn in the private sector, many partners are betting on the staggering IT opportunity in the government sector
 As the Indian IT industry starts to suffer from the effects of global recession, the government is offering relief through a number of proactive measures. Apart from these, the government has pledged that it will spend more in the days ahead to further stimulate the economy.
IT vendors and partners are slowly but steadily recognizing the opportunities of doing business with the government even as business from other previously lucrative segments dry up. “To be honest, a year or two ago government business was not our focus area. But since the first indication of a slowdown, we have started talking to government accounts and the response has been good. Business from the IT and ITeS segments has virtually dried up,” states A L Srinath, CEO of Shell Networks, Hyderabad.
While it is difficult to estimate the exact size of the IT business that is being generated by the government, different sources peg the figures from Rs 20,000 crore to Rs 50,000 crore over the next five years. “Even a conservative figure like Rs 20,000 crore makes it an exciting market to be in,” points out Rajeev Mehta of Zest Systems.
Vendors are also urging their partners to look at government business. “Cisco has been pushing us to look at this segment,” informs Srinath. Since last year, Dell India has been scouting for partners who can work with it on government accounts. It is known to have signed around 60 partners so far. “We have signed with Dell to sell their servers to the Maharashtra government, and the relationship has so far been good,” says Yogesh Godbole of Ace Brain Systems, a partner of Acer and Dell.
Meanwhile, Wipro is betting on its two-decade-plus experience of doing business with the government. “Our pitch to our partners has been to go after government business. With Wipro’s brand equity, value proposition and experience in handling government business, our partners definitely have the edge as far as government business goes,” says Mathew Philip, National Sales Manager at Wipro Infotech.
Almost all major IT vendors including HP, IBM, AMD, Intel, Cisco, HCL, Acer and Lenovo are reported to have formed key strategies for addressing the government segment using both direct and indirect sales models.
Numerous projects
While it is difficult to chart the exact spending patterns, the budget allocation for major IT projects easily makes government the largest user of IT in the coming years. At the center of the government’s technology agenda is the National e-Governance Plan (NeGP), for which an estimated Rs 40,000 crore has been earmarked in both central and state government budgets. Many of these projects are expected to be rolled out during 2009. By conservative estimates, 80 percent of the allocated budgets will be used by 2014.
Apart from the allocated budgets for the NeGP, the state budgets for implementing IT solutions hover between Rs 100 crore to Rs 200 crore for large states such as Maharashtra and Tamil Nadu, and between Rs 50 crore and Rs 100 crore for smaller states.
ILFS, a quasi-government funding organization, is expected to raise close to Rs 44,000 crore for financing various government IT projects.
An estimated Rs 1,300 crore is expected to be spent over the next three years on 34 state-wide data centers and close to 200 support data centers of major government organizations.
One lakh common service centers are expected to be deployed by 2010, and an estimated 1,20,000 computers are likely to be deployed in these centers.
The budget outlay for defense and R&D establishments is anticipated to be about $2 billion over the next five years, of which the major part will be spent on state-of-the-art data centers.
The government has also allocated approximately Rs 5 crore for the next five years for e-district projects. With 603 districts, an estimated Rs 3,000 crore will be allocated for this purpose. The e-district project clearly offers a lot of opportunity to local partners.
Apart from the funding through NeGP, different ministries have pet projects of their own. For example, Sarva Siksha Abhiyan, a project promoted by the ministry of human resources, which computerizes schools across the country, has already resulted in nearly 25,000 PC/thin client deployments.
In addition, government-owned PSUs such as Indian Railways, BSNL and the oil giants have floated large tenders or have earmarked major investments for 2009.
“We are banking on two tenders that could catapult us into the Rs 1,000-crore-plus league. We are betting on our experience in servicing government accounts across Gujarat and Rajasthan for over a decade and a half,” informs Vijay Mandora, Director of the Ahmedabad-based Sai Infosystems. Sai has built its business around major government accounts such as BSNL in Gujarat.
Challenges ahead
But many partners who do not have a good track record of doing business with the government are reluctant to venture into the water again. “Our personal experience has been bad. Payments were held up for many months, and we had to shell out more than 50 percent of our margins as kick-backs to release the payments,” complains Salim Ahmed of Bangalore-based Netscope Systems.
Fear of payment delays, unwillingness to give bribes, and red tapism are the biggest reasons why many partners are reluctant to pursue government business.
Others prefer to deal with only one side of the opportunity. “We are currently doing a road-show along with Nvidia, and are working exclusively with R&D and defense organizations in Bangalore for our Tesla-powered server and workstation solutions,” informs Harish Kumar R P, CEO of Bangalore-based Connoisseur Electronics.
Certain government rules have also been bit of a challenge for partners. “When we deal with the government, we have to either give a bank guarantee for 10 percent of the bill value or collect the same value after the warranty period. It is very rare for a reseller to have double-digit margins,” comments Sandeep Lodha, Vice President of Netweb Technologies, which manufactures storage and high-end computing solutions.
Profitable, but...
While challenges do keep a number of resellers away from the business of selling to the government, some channel partners focused on government accounts say it is still a profitable business. “Overall, government business is lucrative business, though you do have to go through periods of frustration,” comments Godbole of Ace Brain.
“I would go further and say that government business needs a lot of passion, patience and perseverance,” says Ajay Maitin, CEO of Patna-based Graphic Trades, who has aligned with Dell and HP to address government markets in Bihar and Jharkhand.
Both Godbole and Maitin insist that it is not easy to generate government business overnight, and that a lot of leg-work is required. “Getting the confidence of the government is not very easy. There is a lot of red tapism before you get empanelled, especially if you want to handle large accounts and large tenders. Some organizations insist on a track record of handling large deals such as supplying computers worth Rs 2 crore to a single customer during the past three years,” informs Godbole.
Maitin advocates building relationships at multiple levels through multiple representatives of a partner organization with multiple decision-makers and support functionaries in a government organization. “It will be a cardinal sin if the same person interacts with an IAS officer and also with a peon or a clerk in an organization. Government machinery works on hierarchy and delegation, and expects the same when it does business,” he explains.
“At the macro level, a government organization is not very different from a corporate organization. It’s the way you build relations with key people in the organization that makes the difference,” says Mandora of Sai.
Maitin warns organizations to be extra careful on commitments. “If you falter on commitments made to a government agency you are inviting trouble as these can be directly linked to your payments, and later result in unnecessary bureaucratic hassles.”
Godbole feels it is not advisable for any partner to enter into a business deal with the government without having proper banking support, especially if large deals are involved. “Many projects take almost three months for implementation. Then you need to submit various deployment or installation certificates from multiple account heads across multiple locations, consolidate them, and submit them for payment. In this way the payment cycle stretches for many months. We therefore have a strong tie-up with State Bank of India, which foots our transaction,” he details.
Further, since most government tenders are large and can mean multi-location implementation, partners must be geared to support accounts across different geographies.
But there is a big positive, as Maitin points out. “You might lose money when you deal with a corporate or private entity, especially in a recessionary market. But with the government your money is always safe.”
Preferred route
Almost all vendors are eager to route government business through partners. “This is because none of the MNC vendors like to get involved in the hassle of red tapism and bureaucracy,” laughs the Channel Manager of a leading PC vendor. “Kick-backs are a reality, and for an MNC vendor it is difficult to account for these.”
Many others rely on partners for deployment, also for support. “The Sarva Siksha Abhiyan order, which we bagged from Gujarat schools, is a classic example where we relied on our partners for both deployment and support,” notes S Rajendran, CMO of Acer India.
While many partners are betting on government business to save them in these recessionary times, they are worried about the forthcoming Lok Sabha elections. “Once the elections are announced, the tendering processes will be slower and many decisions may be put off,” analyzes Dushyant Mehta, CEO of the Mediaman Group. “But till that time, and definitely till March, there is a lot of business to be grabbed from the government.” |