Potential exports of $44 bn beckon Indian IT services

Wednesday, 21 January 2004, 08:00 Hrs
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BANGALORE: The booming Indian IT services sector need not worry about the backlash against outsourcing and jobs moving to India.

The reason? In spite of the hype over this factor, potential exports in IT services worth an estimated $44 billion are waiting to be tapped by domestic and international firms in India during the next seven to eight years.

According to a study conducted by the Mumbai-based Cris-Infac business research firm, if the IT services sector continues to grow at the current rate of over 25 percent annually, the magical figure of potential exports can be achieved by 2010-11.

"Export of IT services from India by the end of the current fiscal (2003-04) is projected to touch $9 billion at an annual growth rate of 25 percent," said Cris-Infac research head Sachin Mathur here Tuesday.

"The share of India in the global IT services market of $385 billion, however, is around two percent at the current rate. The share can grow by six times to reach 12 percent if the sector achieves the potential target."

Even as the IT services sector sits on a goldmine of potential exports, the reason for the optimism in achieving the target is due to the low-cost, high-quality proposition of its global vendors, many of whom have made a mark in global IT services.

"Clients the world over are increasingly convinced about the offshore delivery model of peer players such as TCS, Infosys, Wipro, Satyam and a host of other firms in the small and medium enterprises (SME) segment.

"These global clients across the verticals are also comfortable outsourcing their IT requirements to offshore vendors in the subcontinent," Mathur said.

A McKinsey-Nasscom study had projected during the boom times that India would achieve an export target of $50 billion in IT services by 2008. The technology slow down and the dot-com bust since 9/11 have, however, made these targets appear unrealistic.

The Cris-Infac study, based on interviews with about 50 Indian and foreign IT services vendors, reveals that with global tech spending declining over the last couple of years due to recession and slowdown in the US economy, the potential for exports will be around $44 billion by the end of the current decade.

Current global IT spending is estimated to be around $875 billion as against over $1 trillion during the late 1990s.

The rapid increase in IT services exports from India is likely to come from hitherto untapped verticals such as utilities, healthcare and retail segments.

"Though manufacturing and telecom have been laggards over the last two years, a modest recovery in these two major sectors with a focus on reducing costs will lead to an increase in offshore outsourcing," Mathur said.

"New verticals such as utilities, healthcare, retail and transportation and logistics are expected to be the real growth drivers due to various factors."

For instance, the global financial services sector will generate more demand for IT services due to increased competition, greater compliance with Basel II recommendations, need for customer relationship management, e-solutions and banking software products.

In the case of manufacturing, renewed focus on return on investment and implementation of supply chain management and enterprise resource planning across the enterprises will lead to greater outsourcing of IT services.

Similarly, deregulation of markets in the US and Europe will create demand for IT services in the utilities. Recent tax breaks and steady increase in consumer spending will lead to demand from the retail sector.

At the same time, the study has also pointed out that the Indian IT industry will witness a lot of mergers and acquisition for consolidating the country's strength in services offerings.

Source: IANS
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