Source:http://www.livemint.com/2008/02/12100506/India8217s-top-outsourcing.html

India’s IT sector, which accounts for five percent of GDP, is keeping its fingers crossed that it will escape the worst of the US economic woes

India’s top outsourcing body holds its annual meeting this week amid mounting worries that trouble looms for the IT industry, hit by a muscular rupee and the US economic slowdown.

The flagship sector still expects to meet its software exports target of $60 billion and overall software and services revenues of $73-75 billion by 2010, according to a report Monday by industry body Nasscom.

“The Indian IT industry has been rapidly evolving, growth is on track to achieve, if not exceed the targets for 2010,” said Som Mittal, head of Nasscom, ahead of the group’s three-day meeting in Mumbai starting on Wednesday.

But the once red-hot sector that employs some two million workers is showing signs of strains.

The Big Three software exporters - Tata Consultancy Services (TCS), Infosys and Wipro, posted uninspiring third-quarter earnings while their shares remain under pressure after trailing the benchmark Sensex index by more than 40 % last year.

In an unprecedented step, India’s biggest software exporter, TCS, just cut employee bonuses by 20% to boost its diminishing outsourcing cost edge.

TCS made the move after missing its own third-quarter margin targets, citing a 12% rise in the rupee over the past year that lowered the local equivalent of every dollar it earned.

Such concerns are expected to be mulled at the Mumbai meet where hundreds of industry delegates, including from the major Indian companies as well as clients from overseas, will gather.

The industry also faces worries of a technology spending slowdown in its main US market, the end of a tax holiday and rising wages and other costs, a lack of skilled professionals and competition from rivals like the Philippines.

The country needs to protect its cost advantage and create an educational system that teaches students the skills required for the industry to maintain its competitive edge as an outsourcing site, experts agree.

India’s IT sector, which accounts for five percent of GDP, is keeping its fingers crossed that it will escape the worst of the US economic woes.

In fact, they’re hoping the US credit market crunch could spur more clients to increase the work they farm out to cheaper India firms even as they pare overall technology budgets.

“Whenever the world is facing cost pressures or facing a little lower demand, then US companies will face the need to take out costs,” Azim Premji, the billionaire chairman of Wipro, India’s third-largest software services provider, told AFP in a recent interview.

Some Wipro clients have cut information-technology spending but that does not “automatically mean their outsourcing and offshoring budgets are going to slow,” said Girish Paranjpe, a Wipro executive who deals with financial services customers, traditionally the most remunerative clients.

“Sometimes it gives more impetus, rather than less, to do more offshore” to cut costs, he said.

However, clients are expected to hold off on long-gestation IT projects that will not generate immediate returns.

“What is of concern is uncertainty, that’s when people start sitting on the fence on (business) decisions,” Premji said.

For the moment, the sector appears to be weathering the challenges, analysts said. Exports are forecast to jump 28% to top $40 billion in the year to March 2008, according to Monday’s figures.

“The industry is holding up but what’s happening in the US needs a close watch ,we need to see what the impact it has on the companies,” said Tejas Doshi, software analyst at Sushil Finance in Mumbai.

Source: www.hindu.com

The resilience of the Indian information technology-business process outsourcing (IT-BPO) sector was tested in 2007 but the sector successfully countered issues of a slowing economy and financial sector crisis in the U.S., a sharp rupee appreciation against the U.S. dollar and supply-side constraints to register double-digit growth.

According to key findings of the Strategic Review 2008 announced by the National Association of Software and Service Companies (Nasscom), India’s software and services exports are expected to cross $40.8 billion and the domestic market is expected to touch $23.2 billion [making a total of $64 billion] in 2007-08.

The industry is on track to achieve its aspired target of $60 billion in software and services exports and $73-75 billion in overall software and services revenues by 2009-10.

IT exports

As per the report, IT exports (including hardware exports) at $40.8 billion will register a 28 per cent growth over 2006-07 figure of $31.9 billion while the domestic IT market estimated to reach $23.2 billion ($16.2 billion) will grow by 43 per cent. IT exports will contribute nearly 64 per cent to the overall revenue aggregate. BPO services, accounting for over 27 per cent of the export aggregate, is the fastest growing segment across software and services exports driven by scale as well as scope. Export revenues of this segment are expected to cross $10.9 billion, a growth of 30 per cent in 2007-08.

Direct employment in the sector is expected to reach nearly two million, an increase of about 375,000 professionals over 2006-07. Sectorally, IT services exports, BPO exports and domestic IT industry provide direct employment to 865,000, 704,000 and 427,000 professionals respectively.

Also, as a proportion of national gross domestic product (GDP), the Indian IT sector revenue has grown from 1.2 per cent in 1997-98 to an estimated 5.5 per cent in 2007-08.

While the U.S. and the U.K. remained the largest export markets (accounting for about 61 per cent and 18 per cent respectively) in 2006-07, the industry is steadily increasing exposure to other geographies. Exports to Continental Europe in particular have seen notable gains growing at a rate of more than 55 per cent annually over 2004-07.

Addressing the media, Lakshmi Narayanan, Chairman, Nasscom, and Vice-Chairman, Cognizant, said, “The robust growth of the Indian IT-BPO industry by over 33 per cent in the current fiscal year reinforces the confidence of global corporations in India. As we move towards 2010, trends indicate that the industry is firmly poised for broad-based growth across industries and service lines, thereby strengthening India’s leadership position as the primary sourcing location for software, IT, infrastructure and business process related services.”

The Chairman also said that Nasscom was hopeful that in the forthcoming Union Budget, the benefit extended to Special Economic Zones (SEZ) would be extended to small scale companies and BPO through an extension of the STPI (Software Technology Parks of India) scheme “which would help move business to Tier-2 and Tier-3 cities. Hopefully also, the outlay for education and reforms in the sector continue.”

Mr. Lakshmi Narayanan said software companies needed to diversify geographically, “so that they are servicing less recession-prone industries and are not dependent on economic cycles. The Indian IT sector largely, has a diversified portfolio to tackle recession.”

Som Mittal, President, Nasscom, said, “the Indian IT industry has been rapidly evolving; growth is on track to achieve, if not exceed the targets for 2010.”