The Hindu : Software challenges

Online edition of India's National Newspaper
Saturday, Jun 15, 2002

Opinion

Opinion - Editorials

Software challenges

THE INDIAN SOFTWARE industry continues to be optimistic about its medium-term prospects in spite of being buffeted over the past year first by the IT-meltdown in the advanced economies and then by the downturn in global business after the September 2001 terrorist attacks in the U.S. A new joint study by the National Association of Software and Service Companies (NASSCOM) and the consultancy, McKinsey, claims that the industry is on target to reach a business turnover (exports and domestic sales) of $70-80 billion in 2008. A similar joint study conducted in 1999 — at the height of the dotcom boom — had first raised the bar for the industry by suggesting that it had the wherewithal to grow by 38 per cent a year and achieve a business of $87 billion (including $10 billion of e-commerce) in 2008, comprising $50 billion of exports and $37 billion of domestic sales. That study was itself seen as setting a target that even the hyper-active software industry of India would find difficult to achieve. The question is if the experience of the past three years gives any indication that the software sector can maintain the scorching pace it set in the 1990s.

On paper the industry is on target, which is what the new NASSCOM-McKinsey study asserts. As against the annual growth rate of 38 per cent that would be required between 1999 and 2008, the industry has, on the average, been growing even more rapidly. Between 1999 and 2002, the software sector has expanded by as much as 46 per cent a year. This, as is now pointed out, reduces the required growth rate between 2002 to 2008 to 34 per cent a year. However, averages over a short period conceal more than they reveal and in this case they represent more the industry's fortunes during the dotcom and Year 2000 booms than the recent experience. For instance, the export sector, which is the mainstay of the Indian software industry, grew in rupee terms by 29 per cent in 2001-02, which in dollar terms was only a 16 per cent growth. Besides, growth during the difficult year of 2001-02 was achieved as a result of intense competition among the Indian software firms, which included some lowering of rates. However, what does finally matter is not if the exact target of $70-80 billion is met in 2008 but that the industry continues to record a substantial pace of growth in both exports and domestic sales. In exports, fortunately for the Indian industry a new business has emerged in recent years — what is called IT-enabled services or also business process outsourcing (BPO) activities. Covering a range of activities such as call centres, transcriptions, geographic information systems and even consulting, the IT-enabled services have become a new source of growth for the Indian industry. This is reflected in the new NASSCOM study which suggests a continuing shift in business towards IT-enabled services in the years ahead. Unfortunately, though, margins in some of the IT-enabled services are lower than in the traditional software services that India has always provided and use lower skills as well.

Ultimately, the ability of the Indian software industry to maintain, in at least some measure, the growth it registered in the 1990s will depend on its ability to keep ahead of competitors in other countries as well as find fresh business opportunities in both new sectors and new geographic markets. The downside of India's success in software exports has been that it has been in the low-end areas where potential competition can quickly catch up. This is why Indian exporters are constantly looking over their shoulders at threats from China, the Philippines and even Russia.

Send this article to Friends by E-Mail

Opinion

Stories in this Section

The next President

Software challenges

Before the night falls

Gujarat and majority women

Democratic Front Govt. in a precarious position