New Delhi: The country’s top outsourcing body holds its annual meeting this week amid mounting worries that trouble looms for the information technology (IT) industry, hit by a muscular rupee and the US economic slowdown.
The flagship sector still expects to meet its software exports target of $60 billion (Rs2.38 trillion) and overall software and services revenues of $73-75 billion by 2010, according to a report by industry body Nasscom on Monday. “The Indian IT industry has been rapidly evolving, growth is on track to achieve, if not exceed, the targets for 2010,” said Nasscom head Som Mittal ahead of the group’s three-day meeting in Mumbai starting Wednesday.
But the once red-hot sector that employs some two million workers is showing signs of strains. The Big Three software exporters—Tata Consultancy Services Ltd (TCS), Infosys Technologies Ltd and Wipro Ltd — posted uninspiring third quarter earnings while their shares remain under pressure after trailing the Bombay Stock Exchange’s benchmark index, the Sensex, by more than 40% last year.
In an unprecedented step, the country’s biggest software exporter TCS just cut employee bonuses by 20% to boost its diminishing outsourcing cost edge. TCS made the move after missing its own third quarter margin targets, citing a 12% rise in the rupee over the past year that lowered the local equivalent of every dollar it earned.
Such concerns are expected to be mulled at the Mumbai meet where hundreds of industry delegates, including from the major Indian companies as well as clients from overseas, will gather.
The industry also faces worries of a technology spending slowdown in its main US market, the end of a tax holiday and rising wages and other costs, a lack of skilled professionals and competition from rivals such as the Philippines. India needs to protect its cost advantage and create an educational system that teaches students the skills required for the industry to maintain its competitive edge as an outsourcing site, experts agree.
The IT sector, which accounts for 5% of gross domestic product, is keeping its fingers crossed that it will escape the worst of the US economic woes. In fact, it’s hoping the US credit market crunch could spur more clients to increase the work they farm out to cheaper India firms even as they pare overall technology budgets. “Whenever the world is facing cost pressures or facing a little lower demand, US companies will face the need to take out costs,” Azim Premji, the billionaire chairman of Wipro said recently.
Some Wipro clients have cut IT spending but that does not “automatically mean their outsourcing and offshoring budgets are going to slow,” said Girish Paranjpe, a Wipro executive. “Sometimes it gives more impetus, rather than less, to do more offshore” to cut costs, he said.
However, clients are expected to hold off on long-gestation IT projects that will not generate immediate returns.
“What is of concern is uncertainty — that’s when people start sitting on the fence on (business) decisions,” Premji said.