India’s software revenues could touch $50 billion (Rs2.05 trillion) this fiscal year, buoyed by a strong demand for application development, maintenance and back office services; and despite a near 9% appreciation of the rupee against the US dollar, the currency in which most local tech vendors bill their clients.
The Indian IT industry, which employs around 1.6 million software programmers, contributed about 5.2% to India’s gross domestic product (GDP) in fiscal 2007 with total revenues from software touching $39.6 billion, including $8.2 billion worth of sales in the domestic market.
This 30.7% rise over the previous fiscal year exceeded an initial forecast of 27% growth made by trade body National Association of Software and Services Companies (Nasscom) at the beginning of 2006-07.
Nasscom president Kiran Karnik on Monday, called the pace at which the rupee has been appreciating “too much too fast, and a cause of concern for the industry”.
Yet, he said, the overall outlook for the tech outsourcing industry is positive with many clients looking to send workto India. Software exports to the US accounts for two-thirds of the overall software revenues, while revenues from UK-based customers stood at 15%.
By 2010, the Indian IT industry will reach $60 billion in revenues, Nasscom added.
For fiscal 2008, Nasscom has set a target of between $28 billion and $29 billion for software services exports, which is about 26.6% more than the $22.9 billion recorded in the year-ago period.
Indian software companies have been able to grow their revenues by almost 30% despite the challenges of rupee appreciation and rising wage costs, “because of new service lines such as remote infrastructure management and engineering services (are) being added every year,” said Lakshmi Narayanan, chairman of Nasscom and vice-chairman of Cognizant Technology Solutions.
Engineering services and product export for customers such as Alcatel-Lucent and Nokia-Siemens grew about a quarter from $4 billion in 2006 to almost $5 billion in 2007.
Back office and IT-enabled service businesses also continued its strong growth momentum expanding by one-third to $8.4 billion in 2007.
However, concerns around a weakening dollar continue to mount as many companies prepare to report the revenues for the quarter ended June 2007. India’s largest software exporter, Tata Consultancy Services Ltd recently said that the rising rupee could impact its margins by almost 2.5% in the quarter.
In May, TCS chief financial officer S. Mahalingam called the local currency’s rise a “killer cycle”, even as “the company maintains around $1.5 billion as hedge for the next 24 months”. He said that for every percentage drop in the dollar-rupee exchange rates, there is an impact of around 0.4% on the company’s net margins.
IT spending by Indian enterprises such as ONGC Ltdand Reliance Industries Ltd totalled to almost $8.2 billion last year, and is expected to cross $10 billion in 2007-2008, Nasscom said.