'Outsourcing to India can become
$50 B in 5 years'

Monday, 23 June 2003, 07:00 Hrs
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Outsourcing of IT jobs to India could grow fivefold to $50 billion by 2008 if it can overcome a U.S. labour backlash, says a report by investment-analyst firm Brean Murray Institutional Research.

WASHINGTON: But despite the assurances the U.S. administration gave to visiting Indian Commerce and Industry Minister Arun Jaitley to allay his country's fears on this, indications are that political opposition to offshore outsourcing is still high among the uncertainties that could slow that projected growth, according to the study.

During his visit to Washington this month Jaitley raised the issue of state legislation banning outsourcing of technology jobs to India with U.S. Trade Representative Robert Zoellick, who assured him that the federal government considers these measures as a "bad policy" and "is trying to resist it".

The Brean Murray report says software and service exports from India for the country's fiscal year ending in March 2003 were up 26 percent to $9.5 billion.

The strongest growth was in business-process outsourcing, also called IT-enabled services, which jumped 59 percent to $2.3 billion. The report is bullish on the stocks of firms such as Infosys, Wipro, Satyam, Cognizant, Syntel and Ebookers (for which Brean Murray is a financial adviser) and says India is the preferred destination for offshore outsourcing because of its strengths in cost savings, the English language advantage, reference sites, scalability and government policy.

InformationWeek.com, an online business news website, says U.S. companies' need to maintain a complex software infrastructure combined with the pressure to cut budgets will force them to make offshore outsourcing a strategic necessity. It adds that India holds more than 70 percent of the U.S. outsourcing market.

If the U.S. economy improves, it would only increase offshore outsourcing to India by freeing up discretionary spending on development projects, it says.

But investments in India-based companies are still at high risk because of many uncertainties, including a backlash against IT outsourcing due to high unemployment rates in the U.S.

For instance, increasing labour unrest due to joblessness would lead to support for labour-union activity and slow decision-making in the private sector.

Whatever the reasons, it would still be difficult for outsourcing jobs being exported to India, the report quoting Brean Murray said. "Economic compulsions that caused migration of manufacturing to Asia will ultimately prevail."
Source: IANS

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