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The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

GROW or DIE

Pradeep Shankar
Friday, June 1, 2012
Pradeep Shankar
The Indian IT industry has come a long way.

Including the domestic IT business, the industry has crossed $100 billion in revenues with over 3.5 million employees. Five of the top 10 global leaders in software services are Indian companies. With all Indian companies put together account only for only 10 per cent of the $850 billion global IT services industry indicating there is ample space for growth.
However, the growth for Indian IT industry is choked at present. Although India's IT services exports grew by a robust 19 per cent year-on-year in dollar terms in 2011-12, the trends in the last two quarters are worrisome.

Hit by the continued macro-economic woes in developed countries that resulted in delays in project ramp-ups, the top four Indian IT companies grew at 17 per cent in the third quarter and 14 per cent in the fourth quarter, against a healthy 24 per cent in the first-half.

In the current volatile global economy even achieving growth rates of 10-14 percent has become challenging. Some of the aftershocks of this global economic downturn are already visible. The BFSI (banking, financial services, insurance) industry, which has been the bread earner for the IT services industry — accounting for more than 40 per cent of Indian IT services players revenues— is lurching from one crisis to another, never having fully recovered from the 2008 meltdown. In 2011, global BFSI clients reported a dip in profitability due to lower revenue growth and pressure on margins. Telecom clients too, have been going through tough times. As a result, the cash flows and discretionary spending of such large clients have come down significantly in the last few quarters of 2011-12 and is expected to remain subdued in the next few quarters.

In such a scenario, the competition for Indian IT service players is not from the global IT service majors. The new competition is mainly between Indian offshore players leading to lack of pricing power, commoditization and reduction in margins. There will be growth but margins will be lesser.

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