India’s service exports, which have so far not put out numbers as alarming as the country’s sales of merchandise to the world, begin to look noticeably wobbly when Infosys Technologies sees an unprecedented drop in its revenues this year. India’s top three software companies — Infosys, TCS and Wipro — have brought in nearly a third of the $47 billion that industry body Nasscom projects India will export in software and services in 2008-09. Infosys’ guidance of dollar revenues, shrinking by as much as 6.7 per cent in 2009-10, is a leading indicator of what is in store for the sector. Wipro fears a 5 per cent drop in business in this quarter and analysts project TCS’ dollar earnings could fall by up to 8-9 per cent in 2009-10. Four in five of Infy’s clients have told them they are cutting their IT budgets; Wipro expects these will shrink by as much as 15 per cent.
The outsourcing business has been expanding in the region of 30 per cent a year for most of this decade. A global recession was expected to knock off half of that growth in 2008-09. The Infy guidance is unambiguous: the worst is not over. Already one in three of its employees is on the “bench”—idling for lack of orders but kept on the rolls to be pressed into service immediately as new clients sign up. TCS, which doubled its headcount to 144,500 in three years, intends to add a mere 17,000 this year. The eagles of India’s outsourcing industry can afford ‘benches’, the minnows that hire most of the 2.5-3 million people working in it do not have that cushion.
Outsourcing has consistently defied political opposition and the business cycle. The first, it was argued, could do little to stop it and the second only underscored its inevitability. Every slowdown has brought meatier business processes to the offshoring table. There is no reason to believe that this time will be different. As distress spreads, companies in the US will be under pressure to relocate more critical, and hence more expensive, processes overseas. It’s a blip and not a slump that is staring Indian software exports in the face. The estimated 5-20 per cent fall in the prices of IT services over the next financial year should help focus our mind on our cost advantage.