Indian IT industry hopes for good news in 2003
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Indian IT industry hopes for good news in 2003

Monday, 30 December 2002, 08:00 Hrs
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India's high-profile IT industry saw few silver lines in an otherwise gloomy global market in 2002 as software makers strived to explore new avenues and cut costs to offset moribund revenues.


NEW DELHI: After the first three-year stretch of falling prices that badly affected the profitability of companies, the software development and services majors also saw inflows of fresh orders at comparatively higher billing rates.

Industry observers say the earning growth of the software makers in the coming year would continue to be led by strong volume growth and tapering billing rate declines that had crimped the profit and sales growth.

Profit growth of Indian software makers slipped in the past five quarters as overseas clients like British Airways and GE pared orders and new customers demanded sharply lower prices.

"An unrelenting global slowdown and a revival in IT spending by Indian industry are likely to contribute to revenue growth next year, as companies look to reduce cost by outsourcing key activities," said Neeraj Deewan of Quantum Securities.

"I think in general 2002 has been good for the industry after a raft of adverse developments badly shook the sentiment in the preceding two years. I, however, continue to be conservative about the prospects for a rapid recovery during 2003.

"Certainly, we are seeing stabilisation but the differential growth rate between the technology and other sectors is not going to be as high as before. The stubborn technology spending slowdown is likely to get over slowly," Deewan told IANS.

India's cost-effective software army caters to a wide customer range, including financial giants and telecom equipment makers. While price competitiveness has been its strong point, the slowdown that hit in early 2000 has made it a necessity.

If lay-offs, profit warnings and cost cuttings were the common terms in the Indian software sector in 2001, business process outsourcing (BPO) and IT enabled services (ITES) industry became the buzzwords in the second year of the new millennium.

BPO refers to delegating IT-enabled business process of a company to a third party who owns, administers and manages a wide range of processes such as human resources, finance and accounting, supply chain management and customer care.

Lured by the emerging opportunities in the sector, a host of India's top software companies such as Infosys Technologies and Satyam Computer made a foray to offset the impact of revenue slowdown from software services in 2002.

The ITES industry in India is seeing explosive growth of between 50 percent and 70 percent a year and raking in millions of dollars in foreign exchange. Industry players say the slowdown in the West is accelerating demand.

The ITES sector logged a whopping 71 percent growth last year at $1.47 billion, making it the fastest growing industry. The sector is projected to generate $24 billion in revenue by 2008, which will be three percent of India's gross domestic product.

In contrast, India's software exports grew 29 percent to $7.5 billion in the past year to March 2002, of which some 60 percent went to the U.S.

India's ambitions to dominate the BPO industry, and along with it potentially the most promising slice of its crucial IT economy, was, however, threatened briefly in May on fears of a full fledged war breaking out between India and Pakistan.

Tension between India and Pakistan, simmering since the attack on the Indian Parliament on December 13, 2001, rose dramatically after an attack on an Indian Army camp in Jammu and Kashmir on May 14.

The U.S. asked about 60,000 American citizens in India to depart as well and urged those who choose to remain to steer clear of the border areas due to fears of a possible war between the nuclear-capable neighbours.

It also advised Americans intending to travel to India to defer their plans. Other countries such as Australia, Britain and New Zealand also issued similar travel warnings.

The ITES segment, which is highly client-centric, was worst hit by the travel restrictions. On an average, about 200 to 300 officials of 10 to 20 Fortune 500 companies visit India in a month to monitor the functioning of call centres.

The travel restrictions also badly hurt software firms like Infosys Technologies, India's second largest software service exporter, which said the curbs had caused a slowdown in landing new clients.

According to a survey by the National Association of Software and Service Companies (Nasscom), India's IT industry umbrella group, the industry was badly hit as a result of deferred visits and delayed decision-making process.

The war fears, however, made the software makers realise the need for setting up disaster recovery centres, also known as business continuity centres.

This followed concern among clients of Indian companies about the safety of outsourcing IT projects to this country.

Polaris Software, a mid-size Indian software company, and Infosys announced the setting up of back-up facilities in Singapore and Mauritius respectively with a view to ensure continuity of services.

The year 2002 also saw a sharp jump in recruitment by software developers, though with caution, after recovering from a global downturn in tech spending and adverse developments back home.

The blue-chip software companies, which nearly applied a brake on recruitment in 2001 due to the slowdown, begun a hiring drive but were being selective about quality.

Global technology majors continued to stay bullish on the strength of Indian technology developers in 2002 by announcing fresh investments, notwithstanding the spending cutback back home.

In August, Intel Corp, the world's number one chipmaker, said it would invest up to $200 million in India to ramp up its software design centre and more than triple the number of engineers to 3,000 in a few years.

During a visit to India in November, Bill Gates of Microsoft pledged $400 million to boost education, business partnerships and software development in India to aid the next wave of a global technological rebound.

The year also saw the roll out of the Simputer, a handheld computer aimed at wooing the poor across the digital divide.

The Simputer, delayed by funding problems and marketing concerns, aims to help India's poor and rural residents who cannot read or write. Its features have also vowed high-end users and overseas buyers.

On the downside, the Indian IT industry was stunned during the year on reports of a sexual harassment suit filed against Infosys Technologies' global sales and marketing head Phaneesh Murthy in the U.S.

Murthy, who resigned from the company after the suit was filed, denied the charge brought by an unidentified American who had left the company more than a year ago.

The industry was also astounded by the detention of the chief executive of Polaris Software in Indonesia in December over a commercial row.

Arun Jain, chief executive officer of Polaris Software, and senior company executive Rajiv Malhotra returned to India December 25 from week-long detention in Jakarta.

The two were detained in Jakarta December 13 following a row between the Chennai-based banking and financial sector software services firm and Bank Artha Graha.
Source: IANS

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