A recent economic research note by JP Morgan Chase talks about the impact India's IT sector is having on the booming economy. It points out that the sector continues to have a significant impact on economic growth, balance of payments and job creation in the country. As one of the key accelerators for Indian economic growth to touch the magical 8-per-cent mark, the industry, including IT and IT-enabled services, engineering services and hardware, has grown to $36.3 billion amounting to 4.5 per cent of the GDP in 2005-06 from $4.8 billion, which was 1.2 per cent of the GDP in 1997-98. The company forecasts revenues to double to $86 billion by 2010.
All this is music to ears of the industry watchers and financial analysts who seem confident that the high price earnings ratios currently enjoyed by the industry are sustainable, and the continuing growth of revenues will result in multiple jobs, boom in wealth and spending in many new cities like Pune, Hyderabad, Kolkata and Chandigarh. This will ease the pressure on the tier 1 metros and start the benefit trickle down that has been anticipated for quite some time. However, sustenance of this high-growth phenomenon will now need more than a few more WITS ( Wipro, Infosys, TCS and Satyam ) capturing the imagination and wallet share of Fortune 500 companies. We have discussed in this column about the issues facing the creation of a robust ecosystem for the growth of IT industry -resource creation, government support and innovation led growth. Let us look at the external threat as many new competitors eye this lucrative industry and start competing for market share.
Two perspectives from different sources may serve to put the issues on the table which we can inspect in more detail in future columns. At a recent seminar in Brussels organised by European research firm Morgan Chambers, the research showed that the acceleration of business process outsourcing in China and the Philippines rivals, and sometimes exceeds, comparable data from the Indian side, albeit on a smaller base. The scale of preparedness of hundreds of higher-level universities in every province in China, the unstinting support provided through subsidies, infrastructure creation and employment incentives in multiple countries in Asia and Eastern Europe and the sharp focus of emerging competitors like Romania and Vietnam… And take the view from America, the largest outsourcing country where outsourcing pioneers like EDS are preparing themselves for the battle by not just buying significant Indian firms like Mphasis but also creating a wide ranging "best shore" strategy with centres in Brazil, Hungary, China and other parts of the world.
The question is not whether India will continue to succeed in this sector - like Indian hockey in the early years of the game, we have enough wizards and momentum to maintain the lead for at least this decade - but the need to understand the policies and strategies of other countries is crucial if we are not to lose focus and fritter away our advantage in a manner similar to our hockey administrators have done in that particular game.
The author is deputy chairman & managing director of Zensar Technologies and chairman of the NASSCOM Innovation Forum.