The good and the great of the Indian outsourcing industry gathered in Mumbai this week under the gathering storm clouds of a US-led recession. But delegates at the Nasscom (the National Association of Software and Service Companies) event were remarkably upbeat, confident that European business would compensate for any shortfall coming out of the US.
Certainly there were optimistic noises coming from the trade body. The Indian technology industry is expected to generate around £32 billion in revenues in 2008 – a 33 percent year-on-year growth, according to Nasscom's 2008 Strategic Review. Services and software exports are expected to contribute around $41 billion, with the domestic market generating more than $23 billion.
"The Indian IT industry has been rapidly evolving, the growth is on track to achieve, if not exceed the targets for 2010. The trends indicate that the domestic market is poised for growth with IT spends trending upwards, particularly by the government," said Nasscom President Som Mittal.
As a proportion of national GDP the Indian technology sector will hit 5.5 percent in 2008, up from just 1.2 percent in 1998. It is also expected to contribute a net value to the economy of up to 3.9 percent. The Nasscom study found the technology industry also fuelled a 36 percent increase in direct exports and boosted direct employment by a compound annual growth rate of 26 percent over the past decade.
All of this has a beneficial knock-on effect on the Indian economy with every rupee earned by the Indian technology-business process outsourcing (BPO) industry leading to an additional rupee being spent in the economy.
That said, the shadow of a US economic downturn was never far from delegates thoughts. With unfortunate timing, Forrester Research this week cut its outlook for US and worldwide information technology purchases in 2008, citing a downturn in the US. The market is expected to grow 2.8 percent, down from an earlier forecast of 4.6 percent. In the UK, meanwhile, the Bank of England has also predicted a slowdown in growth, and suggested that further interest rate cuts are unlikely in the short term as inflation is rising.
In India itself, the pressures have been showing of late with three leading firms – Tata Consultancy Services (TCS), Infosys and Wipro – posting uninspiring quarterly earnings. "These are challenging times," warned Nasscom chairman Lakshmi Narayan. "There's a new world order. The current belt-tightening is not temporary. The industry will have to operate at a new performance level. Those who cannot keep pace with this will be driven out.”
But he added: "The robust growth of the Indian IT-BPO [business process outsourcing] industry by over 33 percent 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.” Nasscom will tomorrow (Friday 15th) release the findings of a study carried out with Deloitte entitled Indian IT Industry: Impacting the Economy and Society . The report is a follow-on from Nasscom Foundation's annual research publication titled Catalysing Change , which highlights the state-of-play of corporate social responsibility (CSR) within the IT and ITES industries. This year, the report has looked beyond the boundaries of CSR initiatives, and has undertaken a more comprehensive study for identifying and assessing the overall social and economic contribution of the IT and ITES industry in India.
The study finds that IT is now the largest employer in India's organised public sector. and that IT has made socially relevant products and services available as well as involving itself in the training of workforce for technical and non-technical jobs. The technology sector has also made a contribution towards education, employability and health, as well as encouraging better working opportunities for women.
"While the IT / ITES industry has made a promising start, there is indeed a long way to go,” said Saurabh Srivastava, chairman of Nasscom Foundation. “With the encouragement and support of its member companies, the application of its best practices, innovative strategies and the entrepreneurial spirit, it is on track to set an example that would encourage others to emulate and help positively change the face of India.”
As part of efforts to keep the momentum going, Nasscom is lobbying the Indian government to extend its Software Technology Park of India (STPI) scheme beyond 2009, especially for the benefit of small and medium-sized firms. Among other benefits, the STPI scheme which is set to expire in 2009, provides a 10-year income tax exemption for units situated in software technology parks. "We have sought a blanket continuation,” confirmed Narayanan. "Extension of STPI will also encourage smaller companies to move to Tier II and Tier III cities.”
The scheme is at the centre of a turf war between two arms of the Indian government. The finance ministry thinks the IT sector is now so large that it should not expect to keep getting tax breaks beyond March 2009, when the STPI scheme ends; the department of information technology, on the other hand, is pushing for a two-year extension of the tax concessions.
The odds seem to be in Nasscom's favour based on remarks by A. Raja, Union Minister for IT and Communications who told the conference that he was hopeful that they would be extended beyond 2009. “We have received feedback from the industry players for the continuation of the STPI scheme,” he said, adding that his ministry is asking for a dedicated incentive package for the Indian IT and BPO industry in the forthcoming Indian budget. “We are looking into the issue of extending the STPI scheme on a priority basis. We feel there are many start-ups and small and medium enterprises for whom special economic zones may not be a viable option.”
Raja also said that a new Information Technology Act with additional cyber security muscle, IP protection and steps to combat piracy effectively will be passed in the next session of Parliament.
“We are hopeful of tabling these changes in the next session and the revised IT Act will be a reality,” he said, an announcement that was met with cheering by delegates. “We will be strengthening the IT Act 2000 based on the feedback we’ve got from the industry. Besides, we also feel that there is a need to launch many more schemes along with the human resources ministry to create a better employable talent pool.”
All this was important in order to keep India ahead of the game in the global economy, he said. “I am deeply impressed that the IT industry is on par to reach $60 billion in revenues by 2008 and provide employment to two million people, an increase of 370,000 over the previous year,” he said. “Eighty percent of the population is bereft of Internet connectivity and the IT industry should come with affordable products and services so that the fruits of IT revolution will reach the masses.”
