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April - 2011 - issue > Cover Feature

BPO Sector Is Doomsday Near?

Hari Anil
Thursday, March 31, 2011
Hari Anil
Doomsday, Armageddon, end of the day, as we all know these words or phrases have negative connotations, and outside religion they can never have any positive aspects associated to them. For that matter, even the slightest doubt that something is heading for any of these cannot be good.

According to a NASSCOM report the IT/BPO sector is estimated to aggregate revenues of $88.1 billion in FY2011 of which $12 billion is from the BPO sector. They are also estimating the domestic segment to grow and reach `127 billion by 2011 and are predicting a very bright future for the industry. It seems to be such a great time for the BPO segment, or is it really?

There are many developments in the Indian BPO industry that might not have a very positive effect on the industry, which makes it doubtful on the prospects of the industry. To begin with, the STPI Act ending on the 31st of March, MAT to be levied on units operating in SEZ, a lack of availability of skilled labor, an increase in labor cost, and finally other countries like Philippines are gaining more prominence in the market.

It is these factors in the segment that makes one wonder ‘Is the future going to be a bright one for Indian BPO sector or is it nearing its doomsday?’

The Budget Woes
For long, IT/ITeS companies had been under the protective umbrella of the STPI Act. Launched by the Indian Government back in 1991, the STPI Act provides facilities to IT industry for undertaking software development and IT enabled services for 100 percent exports using data communication links in the form of physical exports including export of professional services. Individual units can also do business in the domestic market up to 50 percent of the exports. With the act expiring on the 31st of March and the government is not showing any signs of providing an extension to this, spells trouble brewing for the BPO players. Also companies in Special Economic Zones were safe from MAT till now, but the recent budget made it clear that this will no longer be so. The levying of MAT along with non-extension of STPI Act beyond FY11 will have a major negative impact the IT/BPO sector as profit margins of these companies(especially small and medium) who enjoyed tax exemptions under the above mentioned schemes is expected to come down.

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Reader's comments(1)
1:Why is anyone not focusing on the wages of the BPO staff? There is a difference of 150% in the salary of a BPO employee aganist an IT professional and obviously we will not get quality people at such low wages.
For an instance, the starting salary of a BPO personal [international business] in Bangalore is 15k-20k/month against an IT professional whose starting salary is 35k-40k/month. Why will a graduate start his career with such a low salary while he has options to work in the same domain with 150% more salary. Will that mere 15k-20k help him survive in the city whose cost of living is so high?
And who cares if the company has the projects to work on or not, they are still getting paid inspite of being on Bench.
Posted by: Dash G - 17th Apr 2011
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