SARS gives India IT a cold

here are a few conspiracy theories about the present SARS (Severe Acute Respiratory Syndrome) outbreak. One says that the reason there were so few biological agent finds in Iraq was because much of it had been dumped in and around China, and hence the SARS occurrence. Another goes that it is actually the US which has released the SARS germ because it cannot attack China. Yet another is that it is China's way of ensuring that the US doesn't try any dirty tricks on its soil!

Whatever that may be, one reality that everyone accepts is the economic consequence of SARS, and the figure has been growing steadily. The last estimate is to the tune of $30 billion. And, with a lot of the action in the technology sphere taking place in the central SARS-affected area of China and southeast Asia, it is no wonder that there is a worry of the recovery of the technology industry being put at risk.

In such a fluid situation, it's no wonder that not many are willing to hazard a guess about the effect that SARS might have on the tech industry. The general tone, though, is obviously one of caution, though not worry - not yet, at least.

Says Mr Sunil Kallerackal, President & CEO, Avedis Microsystems, "There has certainly been an effect on the IT industry. In our case, since we mainly do chip design, it is our Taiwan business that has been affected, to the effect of about 50 per cent."

According to a source in one of the multinational majors that has a significant presence in Bangalore, it is still too early to gauge the ultimate impact of SARS. "Because there are already projects in the pipeline, right now it is difficult to say more than that there will be a delay effect," he says. However, other industries, especially tourism and airlines, have already seen the drastic consequence of SARS, with the global airline industry's hit predicted at $15 billion mainly from the Iraq war and SARS.

According to the Quality Assurance Institute, an IT consultancy firm, the estimated 28 per cent growth in software and IT services is likely to come down by more than a third to 20 per cent. About 12 per cent of IT exports are to SARS-affected countries.

As of now, the effect of SARS on the Indian tech industry has been insubstantial, leading only to delays in project cycles of up to two weeks. Says Mr Kallerackal, "Right now, the SARS effect is only a temporary setback. What is happening is that the business with SARS-affected countries is being put back by about a quarter, and at worst, two. This is because in those countries themselves, the economic sentiment as a result of SARS is quite low. When they see their inflows getting affected, it will have a bearing on us too and billings and new orders will be delayed."

Implementation of new projects and getting new customers is facing a setback where SARS-affected countries are concerned. Infosys, for instance, has stated that its China plans could be held up because of the situation. Though video-conferencing is holding the fort in the area of the progress of projects, new deals need negotiations that require a number of personal meetings, according to industry people.

Companies that have a significant number of employees in SARS countries, such as Polaris Software which has more than a 100 employees in Hong Kong and Singapore, are also on alert and considering getting them back to India; this could impact project deadlines.

Efforts on containing the disease don't seem to have made much headway. Though predictions range from mild to substantial effect in the present scenario, there is widespread apprehension that the epidemic, if it continues to hold sway much longer, could have a pronounced effect on the economies of affected countries and those that have close ties with them. In that case, the IT industry too, obviously, will face a setback.

The disease has already affected more than 7,000 people and killed about 600 in the last six months. Though China is the most affected place, Taiwan, Hong Kong, Singapore and Thailand too have been hit by the disease in the Asian region.

However, as Mr Kallerackal says, whatever the duration of the epidemic, the economic effect, in the case of the IT industry at least, is likely to be a temporary phenomenon. "Customers are loyal and the orders will finally come, though later than scheduled or expected." The delay and hiccups will naturally be more in the case of companies that place an embargo on travel to and from affected countries.

So, at worst, the balance sheets for the current quarter would show a negative trend, but the general feeling is that this will be more than made up in the later quarters.

R Mahadevan

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