How government policies are harming the IT sector

India’s antiquated regulations have eroded the global competitiveness of the sector. Fix it urgently

It has often been said that the only reason why the Indian information technology (IT) industry scaled the heights it did was because the government never quite understood how it worked, and, so, did not impose on it the sort of regulatory burdens that it did on other sectors. Unfortunately, this is no longer the case. Thanks to a series of misplaced policy choices, the government has systematically eroded the permitted operations of the Indian outsourcing industry to the point where it is no longer globally competitive.

Foremost among these are the telecom regulations imposed on a category of companies broadly known as Other Service Providers (OSPS). Anyone who provides “application services” is an OSP and the term “application services” is defined to mean “telebanking, telemedicine, tele-education, teletrading, e-commerce, call centres, network operation centres and other It-enabled services”. When it was first introduced, these regulations were supposed to apply to the traditional outsourcing industry, focusing primarily on call centre operations. However, it has, over the years been interpreted far more widely than originally intended.

While OSPS do not require a license to operate, they do have to comply with a number of telecom restrictions. The central regulatory philosophy behind these restrictions is the government’s insistence that voice calls terminated in an OSP facility over the regular Public Switched Telephone Network (PSTN) must be kept from intermingling with those carried over the data network. To that end, OSPS are required to design their networks so that they can demonstrate a separation between voice and data calls.

While these restrictions may have made sense a decade ago, when data wasn’t as ubiquitous as it is now, the insistence on maintaining such arbitrary distinctions between different types of calls in today’s world seems daft. Everyone I know prefers to call me over Whatsapp, Skype or any one of a number of data-based call services because the regular voice network cannot be trusted. To require IT companies that operate on the cuttingedge of technology to maintain this distinction when, just outside their gleaming campuses, the average man on the street can choose whichever service suits him, is incomprehensible.

Central to the enforcement of these regulations is the Electronic Private Automatic Branch Exchange (EPABX), a piece of telecom equipment that was once the central junction box through which all telecom connections into and out of an office flowed. The utility of an EPABX has dwindled in a world where the vast majority of telephone conversations happen over the mobile network, but, in OSPS, it remains a central fixture. In the early days, OSPS were required to maintain separate EPABXS for voice and data ensuring that the data network was kept physically separate from the voice network. These restrictions have since been relaxed and OSPS can now have a central EPABX through which voice and data calls flow so long as the EPABX maintains a logical separation between voice and data.

But even this is anachronistic. All global businesses today manage their call and data networks centrally using a single global EPABX located in any one country in which they have operations. This allows them to deliver the sort of converged user experience that customers have come to expect with modern service offerings. In addition, having data centrally managed allows businesses far greater control over their sales and customer conversion rates than is otherwise possible. However, since Indian regulations require OSPS to have an EPABX physically located in India, global businesses with operations in India are forced to re-engineer their networks to specially account for these restrictions.

For companies already operating in India, this is often treated as an additional cost of continuing to do business in here, even though clients I have spoken with have confirmed that we are the only country they have operations in that imposes these restrictions. For companies that are evaluating whether or not to use India as a base for new operations, this is, more often than not, viewed as an unreasonably onerous restriction that imposes an unacceptably high level of constraints on the way in which they can structure their operations. As a result, this is often the single biggest reason why they end up choosing some other less restrictive jurisdiction in which to establish their operations.

It is not clear to me why India continues to persist with this regulatory model. There was a time when the government had a legitimate concern that if they allowed voice and data networks to intermingle with each other, the resulting toll bypass would have meant a significant reduction in licence revenues. Given that today ordinary citizens regularly switch between voice and data on their mobile phones depending on the reliability of the available network, this is surely no longer the case. Why India continues to implement these antiquated regulations even after it has become evident that these restrictions are affecting its global competitiveness is simply beyond me.

The IT industry accounts for close to 8% of India’s Gross Domestic Product (GDP). It is the metaphorical goose that lays golden eggs. Let’s try not to kill it.

SINCE INDIAN REGULATIONS REQUIRE OSPS TO HAVE AN EPABX PHYSICALLY LOCATED IN INDIA, BUSINESSES WITH OPERATIONS IN INDIA ARE FORCED TO RE-ENGINEER THEIR NETWORKS TO SPECIALLY ACCOUNT FOR THESE RESTRICTIONS