E-Paper
BPOs log out of outsourcing outcry
Outsourcing protests died down as clients returned to Indian IT vendors.
The year 2004 saw voices against outsourcing reach the crescendo and gradually die down to give more credence to the global delivery model with clients returning to the Indian IT vendors and two more companies joining the billion dollar club.
Software sector, despite a strong rupee appreciation, posted a buoyant growth. Software & services exports were up 30.5 per cent in 2004-05 to touch $12.5 billion. While the overall growth in software and services exports from India was above NASSCOM projections, it was below estimates in the ITeS/BPO segment at $3.6 bilion.
Overall, the Indian software and services industry grew by 28.2 per cent in 2003-04 to $15.9 billion.
NASSCOM estimated that the industry, including domestic, will see revenues cross $20 billion in 2004-05 with services and software exports growing at 30-32 per cent to record revenues of over $16.3 billion.
In August this year, Central Board of Direct Taxes issued a draft circular, doing away with the distinction between core and non-core (incidental) activities by a BPO unit of a foreign company.
The circular, which dispelled doubts of MNC BPO companies borne out of an earlier circular in January this year, aligned Indian taxation with global practices and from now, the tax will be attributed to the foreign companies only if its dependent BPO outfit in India is paid less than the market price. Most importantly, tax officials will not have the discretion to decide what is core and non-core.
In January, 2004 , the Government had threatened the MNC BPOs to tax their income based on core and non-core activities.
But the outcry over outsourcing died a natural death with the US electing pro-outsourcing George Bush for the second term.
Before that, in January this year, the US Senate passed a law barring doling out sub-contracts to India and other countries by American companies to cut costs.
Though the Government contracts account for less than five per cent of the overall US contracts of Indian IT companies, vendors here got panicky fearing the development as just the tip of the iceberg.
Indian leaders, including the Prime Minister, decried the move, prompting US Trade Representative Robert Zoellick to say that India had no right to speak about the US law as it had not signed agreement on Government procurement under the World Trade Organisation.
The year saw high profile visits of CEOs of Microsoft and Intel, who have high stakes in India. Microsoft CEO Steve Ballmer inaugurated a new campus facility of the company in Hyderabad and said the firm would hire hundreds in India and bring out MS Windows in 14 Indian languages.
Intel's Craig Barret said his company would evaluate setting up chip manufacturing facility in the country.
Barret also announced an investment of $40 million for its Banaglore facility.
While a lot of heat and dust was raised on the issue of outsourcing, the two biggest software and service exporters from India - Infosys and Wipro - crossed $1 billion in revenues in April.
The first two quarters of 2004-05 have been extremely good for the top three software exporters - TCS, Wipro and Infosys. Their topline started growing handsomely reminding of the heady days of 1999-2001. In fact, all of them have projected liberal growth for 2004-05 .
With the topline, the number of employees of the IT companies also grew. Many unveiled plans to hire thousands in the coming quarters.
The year also saw some big acquisitions in India's sunrise BPO sector. The biggest was by Oak Hill Capital Partners and General Atlantic who agreed to pay about $500 million for 60 per cent of General Electric's business-processing operations in India - GE Capital Services.
IBM bought independent BPO company Daksh in an all-cash deal. Although the company did not reveal the deal size, industry estimates put it at $150 million.
The Singapore-based Flextronics also entered India through the acquisition route. The company paid Rs 1021 crore for 54 per cent of Rupert Murdoch's share in Hughes Software Systems (HSS). Not content with HSS, Flextronics went ahead and bought Chennai-based FutureSoftware, Deccanet Designs and Emuzed.
The much-hyped H1B visa, which is the entry pass for Indian techies to the US, was once again in the news during the year, this time for some positive reasons.
After bringing it down to 65,000 in September this year after having increased the limit to 1.95 lakh three years ago, amid much outcry, the US Senate again raised it by 20,000 more visas.
But the caveat was that it would be only for those foreign students who have received their masters or doctoral degree from the US universities. Still, India stands to gain from the development.
Despite a budgetary goof-up, it was a good year for the hardware sector. Personal computer sales crossed 17.1 lakh units during the first half of the current fiscal, showing a growth of 37 per cent over the same period last fiscal.
PC sales are expected to touch 40 lakh units this fiscal with the second half also expected to turn up with encouraging numbers, MAIT, the apex body of IT hardware companies, said.
Earlier this year, the Finance Ministry abolished the eight per cent excise duty while leaving out the countervailing duty untouched.
This would have led to a situation where imported PCs would have cost upto eight per cent cheaper than the domestic PCs. After the IT department persisted, the eight per cent duty cut was again restored, bringing parity between the two segments.
