Retail News Update

Signs of economic slowdown in the US and rupee appreciation notwithstanding, the National Association of Software and Services Companies (Nasscom), the consortium that serves as the apex body of the Indian IT software and BPO industry said that India’s IT-BPO industry is poised to achieve the target of $75 billion in overall software and services revenues by 2010.

Releasing the Strategic Review for 2008 during the India Leadership Forum in Mumbai, Feb. 13, Nasscom Chairman Lakshmi Narayanan said despite weak global markets, the Indian IT industry continues to perform very well and is set to achieve a healthy 33 percent growth in the fiscal year 2008 (FY08).

“Positive market indications and strong records support the optimism of the industry in achieving its aspired target of $60 billion in software and services exports and $73-75 billion in overall software and services revenue by fiscal 2010,” Narayanan said.

“The robust growth of the Indian IT-BPO industry by over 33 percent in the current fiscal reinforces the confidence of global corporations in India. As we move, the trend indicates that the industry is firmly poised for broad growth across industry and service lines. It strengthens India’s leadership position as the primary sourcing location for software IT experimentation and business process related services,” he added.

Earlier, Nasscom had forecast the software services revenues to rise 24-27 percent to reach $49-50 billion in the year ending March 2008.

For FY07, the total IT industry (including domestic segment and hardware) was $48 billion. Of this, the total revenue from software and services (exports) was $31.3 billion and ITeS-BPO revenue was $9.5 billion for FY07.

For FY08, the share of exports and domestic market for the ITES-BPO segment was $10.9 billion and $1.6 billion respectively. Engineering services, R&D and software products saw an export of $6.3 billion and domestic sales of $2.2 billion.

Giving the sector-wise break-up, Nasscom said, out of the estimated $31 billion from IT services, $23.1 billion came from exports, with the domestic market contributing the balance.

IT services (excluding BPO, product development and engineering services), contributing 57 percent of the total software and services exports, remains the dominant segment and is expected to cross $23 billion, a growth of 28 percent in FY08.

Including hardware, India’s IT industry is estimated to be worth $64 billion, up 37.5 percent from the previous year.

The domestic IT market (including hardware) is estimated to grow by 43 percent to reach $23.2 billion in FY08 as against $16.2 billion in FY07 while IT exports (including hardware) is set to grow 28 percent to cross $40.8 billion in FY08.

The hardware sector alone would see a $12 billion market in the current fiscal with domestic market alone contributing $11.5 billion.

Services and software exports are expected to contribute around $41 billion with the domestic market generating more than $23 billion.

The IT-BPO industry would directly hire 2 million people (an increase of about 375,000 professionals over FY07) while indirect employment is expected to be in the range of 7-8 million.

“The IT industry is going to tier II and III cities as well, and they are not just hiring engineers but also graduates,” said Som Mittal, President, Nasscom.

According to the review, though the US technology spending was cut short due to economic slowdown, global technology spending forecasts remain strong, supported by the momentum in the emerging market economies, including the Asia Pacific countries.

Though the US continues to remain the biggest market for India’s software industry with a share of 61 percent, exports to Europe, have grown more than 55 percent since 2004, and the UK now accounts for 18 percent of India’s software services while continental Europe for 12 percent, the review said.

It said companies that earlier provided services to traditionally recession prone industries such as banking and telecommunication are expanding to sectors such as retail, health care and entertainment, which are less likely to be hit in a slowdown.

A recent report released by Forrester Research Inc. said US IT buyers, concerned that the economy is slumping, may spend less than projected this year, reducing worldwide demand for computers, software and services.

While US spending will climb 2.8 percent to $552 billion, missing an earlier forecast for 4.6 percent growth, global spending will rise 6 percent to $1.7 trillion, instead of the 9 percent originally predicted, the report said.

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

“These are challenging times,” Narayan said. “There’s a new world order… the current belt-tightening is not temporary. The industry will have to operate at a new performance level.”

Narayanan also urged the Indian government to extend the benefits given to Special Economic Zones (SEZ) 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.”

In response, Union IT and Communications Minister Thiru Raja said he would press for continuation of a tax holiday for the sector which has promoted “a pioneering environment.”

The IT industry will account for 5.5 percent of GDP for the current year, up from 1.2 percent for the fiscal year 1998, it added. It is also expected to contribute a net value to the economy of up to 3.9 percent.

“The Indian IT industry has been rapidly evolving; growth is on track to achieve, if not exceed the targets of 2010. We see an increasing level of specialization within the industry both in IT services and BPO, exhibiting signs of a rapidly maturing industry,” said Mittal.

“The trends are interesting and findings indicate that the domestic market is poised for growth with IT spends trending upwards, particularly by the Government,” he said.

“We are expanding our base and this shows in the diversification of industry from English-speaking countries to Europe and other nations,” Mittal added. “The industry is managing to grow and diversify geographically.”

However, Mittal pointed out that there are “global macroeconomic challenges: talent, manpower and infrastructure issues” that would need to be “addressed and resolved collectively.”

Source : International Business Times