Large spends on information technology by the government and the private sector in India was meant to bring the next big flush of funds, and projects, for Indian IT firms.

But a delay in decision making by governments - both state and Central - and reduced investment appetite among Indian corporates are likely to result in the market growing much slower. Growth projections of government's IT spends have been pared by 10% from year-beginning levels. The total spend, including hardware, software and services was pegged at $30 billion this year but is likely to close at $27 billion staggered over years, says IT analysts.

The bigger challenge is not the decline in spend but slow decision-making which is hurting tech company balance-sheets since government projects form the lion's share of the domestic market. The delay made Wipro chairman Azim Premji lash out last month. "There is complete absence in decision making among leaders in the government and unless they make a strong correction it is going to set back growth," he said.

A slew of corruption charges against top ministers and bureaucrats and Anna Hazare's anti-graft campaign have slowed down government's decision-making speed. "No one wants to take chances. Everyone in the government is afraid and wants to follow set procedures, even if it means months of delay," an official of the National Population Register (NPR) said. NPR has come out with a tender for enrolment of details of all citizens. This comes as a whammy for Indian and foreign IT firms betting big on the Indian IT services market, estimated at between $8 billion and $9 billion a year, with $6 billion allocated for government spend on services alone. Apart from a large untapped sector, the Indian market also became a honeypot with both European and US markets facing economic uncertainty.

Most Indian IT companies have been focused on the US and European markets from where they get over 80% of revenues. Policy inaction has had the maximum debilitating impact on the government's flagship project for financial inclusion - the Unique Identification (UID) Number project. It was expected to bring in IT projects worth $10 billion and received bids from several large and mid-tier tech services firms. Bids for its Rs 2,000 crore managed services contract were submitted by Accenture, TCS and Wipro, among others, in May but no decision has been taken. "No one wants to take chances even if it means more scrutiny of bids and delays," an UIDAI official said.

HCL Infosystems is another company hamstrung by policy inaction. The domestic hardware player posted a 74% decline in its net profit to Rs 12 crore for the September quarter mainly on delays in government decision on tech projects. "Our systems integration business was severely impacted by the slowdown in projects and decision cycles," explains HCL Infosystems CEO Harsh Chitale. "B2B computing and office automation business did see significant declines year-on-year due to reduction in spending by the government sector," he adds. HCL Infosystems suffered a loss of Rs 68 lakh in its computer systems and services business as sales from computer systems fell sharply by 19%. NIIT, for example, has decided to log out of the IT training business for government schools due to long delays in release of payments.

"In government projects, there are too many complexities and partners. In the private sector, companies are being cautious. CIOs are just focusing on projects that will keep the lights on. On their part, IT companies too have not aligned themselves closely with the national and state agenda," Manish Bahl, director and senior analyst, Forrester Research, said. "Due to movements like that of Anna Hazare's, there is greater scrutiny and people in government departments don't want to put anything on paper. So, these projects are in a limbo. In the private sector spends were growing well but in the past few month capital costs have gone up. So, firms are not investing in new projects and products" an advisor tracking Indian IT, said.

The sluggishness has impacted the large IT firms in the quarter gone by. For TCS, India business was the only market that declined, dragging down overall performance. "Our India geography has dipped on a sequential basis. We still have to sell a lot of discretionary business and these deals have to be signed up and they have to go through board approvals and sometimes they get delayed," TCS' CEO N Chandrasekaran said. "We have not lost this revenue, it will come in subsequent quarters but it does lead to volatility," he added.
Wipro has taken a hit in its products business which declined 6% sequentially. Wipro's Anand Sankaran, who heads the firm's India, Middle East, Africa and Global Infrastructure Services businesses though says there is no abnormal slowdown in domestic projects though the process could be hastened. "The products business is highly cyclical. In the same period last year we had a very good quarter with very large deals so this quarter it looks muted," he says. Infosys has seen its domestic business contributing Rs 600 crore even though it started to focus on this six quarters back.