New Delhi: India’s top outsourcing body holds its annual meeting this week amid mounting worries that trouble looms for the 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 and overall software and services revenues of $73-75 billion by 2010, according to a report Monday by industry body Nasscom.
“The Indian IT industry has been rapidly evolving, growth is on track to achieve, if not exceed the targets for 2010,” said Som Mittal, head of Nasscom, ahead of the group’s three-day meeting in Mumbai starting on 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 (TCS), Infosys and Wipro, posted uninspiring third-quarter earnings while their shares remain under pressure after trailing the benchmark Sensex index by more than 40 % last year.
In an unprecedented step, India’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 like the Philippines.
The country 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.
India’s IT sector, which accounts for five percent of GDP, is keeping its fingers crossed that it will escape the worst of the US economic woes.
In fact, they’re 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, then US companies will face the need to take out costs,” Azim Premji, the billionaire chairman of Wipro, India’s third-largest software services provider, told AFP in a recent interview.
Some Wipro clients have cut information-technology spending but that does not “automatically mean their outsourcing and offshoring budgets are going to slow,” said Girish Paranjpe, a Wipro executive who deals with financial services customers, traditionally the most remunerative clients.
“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.
For the moment, the sector appears to be weathering the challenges, analysts said. Exports are forecast to jump 28% to top $40 billion in the year to March 2008, according to Monday’s figures.
“The industry is holding up but what’s happening in the US needs a close watch ,we need to see what the impact it has on the companies,” said Tejas Doshi, software analyst at Sushil Finance in Mumbai.