Growth in inflows from computer services has stalled

Balance of payments data released by the central bank shows gross inflows from computer services stood at $18.24 billion in April-June, a year-on-year growth of just 0.3%


Growth has come off substantially compared to pre-crisis levels, when growth rates averaged over 30%. Graphic by Naveen Kumar Saini/Mint
Growth has come off substantially compared to pre-crisis levels, when growth rates averaged over 30%. Graphic by Naveen Kumar Saini/Mint

According to balance of payments data released by the central bank, gross inflows from computer services stood at $18.24 billion in the April-June quarter this year.

What’s striking about the data is that this represents a year-on-year growth of just 0.3%, suggesting growth in inflows from IT have practically dried up.

As the chart alongside shows, growth has come off substantially compared to pre-crisis levels, when growth rates averaged over 30%.

But it must be noted that the Reserve Bank of India’s (RBI’s) data shows FY16 gross inflows from computer services of around $74 billion, while Nasscom puts the industry’s revenues at $108 billion in the year till March 2016. Besides, while Nasscom estimated FY16 growth at 10.3% in dollar terms, RBI data puts growth in inflows at merely 1.4%. Growth in gross inflows, of course, need not be the same as growth in IT sector export revenues.

Having said that, it’s true that growth rates of IT exports have come down substantially, as is evidenced in the September quarter results of Tata Consultancy Services Ltd (TCS) and Infosys Ltd. India’s IT industry is set to grow in single digits this fiscal year, its weakest performance since the global financial crisis. Based on TCS and Infosys’s comments, growth is likely to be in the 7-8% range.

Analysts at Kotak Institutional Equities said in a recent note to clients, “At present, Indian IT Industry faces three broad headwinds: (1) weak IT spends in financial services and healthcare verticals coupled with rise in insourcing or expansion of captives by select financial services clients, (2) deflationary impact of automation on revenue. Automation savings built in large deals/renewals puts downward pressure on revenues; downward pressure on contract values has been an ongoing pattern but has accelerated in the past 12-18 months, and (3) lack of adequate participation in digital. Indian IT has lower share in early-stage digital opportunities.”

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