The release of two important reports within days of each other underline the potential that lies ahead for the Indian economy and the Indian IT industry as well as the challenges that will be faced to achieve true success.
The Economic Paper on India released by Goldman Sachs recognizes that the country’s significant growth acceleration since 2003 represents a structural increase rather than a cyclical upturn and recognises the contribution of sustained productivity increases, particularly a manufacturing productivity turnaround.
The Strategic Review released by NASSCOM this year points out that the Indian IT and Business Process Outsourcing sector is growing at an estimated 28 per cent in the current financial year ending March 2007 with aggregate revenue for the sector expected to exceed $47.8 bn, a nearly ten-fold increase over the aggregate revenue of $4.8 bn, reported in FY1998.
As a proportion of national GDP, the revenue aggregate of the Indian technology sector has grown from 1.2 per cent in FY1998 to an estimated 5.4 per cent in FY2007. Worldwide technology and related services spending crossed $1.5 trillion in 2006, growing at 7.7 per cent over 2005.
Contrary to concerns of rising wage inflation eroding the sustainability of India’s cost-advantage, especially over the past two years, leading players have managed to grow at an above average rate – while sustaining their high levels of profitability.
However this growth needs a sustained focus on quality and innovation by the industry and enhancement of infrastructure by all participants.
The Goldman Sachs report, while commenting favourably on the investment in highways, particularly the Golden Quadrilateral project, argues that capital accumulation and an increase in investment rate are essential to increase growth rates or even maintain them at the 8 to 10% level.
The NASSCOM review points out that in spite of the rapid decline in telecom costs in India, the rates are still not at internationally competitive levels.
India’s core proposition of talent, quality, security and cost advantage would be inconsequential without the rapid growth in availability of high quality telecommunication connectivity across the country.
The report points out that telecom penetration in the country has increased from a modest 3.6 per cent in 2001 to over 12.6% in 2006, and is targeted to reach to 29.6% by 2009.
Yet, this is only a start. The low penetration levels and a growing consumer base are driving strong growth forecasts across all segments of telecom demand are likely to keep this sector in the spotlight for the foreseeable future.
In addition to strong telecom links, cities across the country have witnessed steady growth in office facilities, hotels and other supporting business infrastructure matching global standards. The opening up of the aviation sector has also enabled continuous migration of knowledge workers across the country.
Nonetheless, other elements of urban infrastructure are beginning to show some signs of strain – predominantly in the key metropolitan hubs of the country. To ensure the availability of adequate, quality business and social infrastructure for continued growth of industry and for overall socio-economic development, it is estimated that India will need investments of over $300 bn in various elements of infrastructure development.
A progressive government policy and a strong focus on public-private partnerships are both essential for these challenges to be overcome. The momentum exists and the opportunity is right – for Indian IT and the Indian economy to continue its march to global success!
Dr Ganesh Natarajan is Deputy Chairman & MD of Zensar Technologies Ltd