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Resilient in tough times

THE INDIAN ICT (Information, Communication, Technology) industry, probably the brightest star in the economic firmament, has been receiving a mixture of good and bad news. Being a truly global industry depending on overseas markets for the bulk of its earnings, it cannot be immune to the sometimes-contradictory meanings that are read into the global economic trends. The good news is that in the aggregate at least (though not in all individual cases), Indian ICT exporters have been able to ride out the recession-caused vagaries that have conditioned economic decision-making in the developed economies. A recent report card of the National Association of Software Service Companies (NASSCOM) points out that software and services exports from India netted $6.9 billion (Rs. 34, 000 crores) during the first six months of the year, up 28 per cent from $5.6 billion (Rs. 26, 600 crores) earned during the same period last year. With just two more months remaining, industry sources are confidently predicting a growth rate of 30 per cent for exports, on top of a 29 per cent growth last year. Evidently, those financial statements establish the resilience of the Indian ICT industry but for deeper insights one has to look at the individual factors as well as components that have determined its success.

Such resilience is all the more remarkable in the context of the significant decline in IT spending throughout the developed world. The U.S. experience is especially relevant as it continues to be the most important destination for ICT exports from India. In the aftermath of the collapse of the technology bubble there, large corporations drastically pruned down their IT budgets. In common with many other ICT solutions suppliers worldwide, Indian exporters who have been heavily dependent on those countries have naturally suffered. Among other consequences, their share valuations have dropped substantially from the dizzy heights reached during the boom period. Having invested heavily in setting up computer architecture as well as on human resources to match the hugely inflated expectations of the dot com period, many ICT suppliers are left with large inventories. Cost reductions, retrenchment and lay-offs have been the norm in most countries. It is therefore to the credit of at least the top IT companies in India that they were able to reverse the global trends at least partially. That is reflected in their recent financial performance.

Even more encouragingly, Indian exporters have been able to convert the negative trends in their traditional markets into a huge advantage. In the U.S. and other developed countries, the reduction in IT spending has been accompanied by a move into what for Indian developers has become a high growth area. Outsourcing of a variety of IT services has become the norm in the developed world.

The gainers are countries like India whose leading software exporters have leveraged their well recognised strengths of low development costs, highly skilled manpower but lower salaries and competitive billing, to establish themselves in the fast growing segment of BPO (Business Process Outsourcing) and ITES (IT enabled services). The country has been a major beneficiary of the BPO/ITES boom. The segment has in fact recorded the highest growth over the past two years. In the first half of the year it grew by a phenomenal 61 per cent and NASSCOM expects it to achieve revenues of $20 billion by 2008.The more traditional software exports came under competitive pricing pressures but have continued to grow towards the high-value offshore development model. While the performance of the ICT industry as a whole has been encouraging even in a tough environment, a few action points have been recommended to diversify the risks and place the industry on a more even keel. Unfortunately, the very success in the BPO/ITES segment has fanned protectionist tendencies in the U.S. States such as New Jersey, worried over the shift of well-paying white collared jobs to India and a few other countries through outsourcing, are preparing to legislate against it. Such an ominous development can be countered only by educating influential opinion makers there on the inherent advantages accruing to America by outsourcing IT services. It is also necessary to look more closely at the domestic market that has a huge, untapped potential.

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