In a word of caution to the government with regard to BPO and IT industries, the Economic Survey said data security and developing hardware sector were crucial to growth of these two sectors, even as it projected over three and half-fold increase in software exports at 60 billion dollars by 2010.
Though the contribution of software-BPO exports at $17.2 billion now accounts for five per cent of the economy and 14 per cent of the exports from the country, the potential for growth was still very high, the Survey said.
It praised the "hands off" approach of the government in the IT sector as the reason for the industry's success and predicted that by 2008, the industry is likely to grow to seven per cent of GDP and account for 35 per cent of total exports.
At present, software-BPO exports contribute to fiver per cent of the GDP and 14 per cent of the total exports.
But these are under-tapped figures, the Survey observed.
"India accounts for 65 per cent of the global market in offshore IT services and 46 per cent of the global BPO market in 2004-05. With only 10 per cent of the potential market tapped so far by all the countries put together, the potential for further growth is very large.
"With annual growth of over 25 per cent, these two can generate export revenues of 60 billion dollar by 2010 and studies show that the growth will be driven by more traditional services like hardware and software maintenance, network administration and help desk services", it said.
"Some of the key challenges which need to be overcome include documenting procedures and establishing performance benchmarks, addressing concerns around data security, improving the workforce quality and skills", the Survey pointed.
It expressed concern at the slow uptake of IT in the domestic market, which has led to an under investment in IT capital.
"With annual growth of over 25 per cent, these two can generate export revenues of 60 billion dollar by 2010 and studies show that the growth will be driven by more traditional services like hardware and software maintenance, network administration and help desk services", it said.
"Some of the key challenges which need to be overcome include documenting procedures and establishing performance benchmarks, addressing concerns around data security, improving the workforce quality and skills", the Survey pointed.
It expressed concern at the slow uptake of IT in the domestic market, which has led to an under investment in IT capital.
Globally, 10 per cent is the critical share of IT capital in total capital that separates invested from under invested economies. India's share is only 3.5 per cent and is among the lowest.
Personal computer penetration is about seven per 1,000 people, which is less than an eighth of the average in other IT-under invested economies and a fourth of that in China.
The Survey is worried over the fact that within IT, relative to software and services sector, IT hardware has lagged far behind.
"One of the reasons for the under-investment in IT sector is the slow development in hardware sector. With the implementation of ITA1 agreement in April 2005, there are zero duties for items under ITA1 and greater global competition for the hardware sector.
"IT production development has to focus on the combined hardware-software sector", it said.
"The Economic Survey asked the software sector to be on its toes as achieving high growth in software exports will require deep and enduring innovation across multiple dimension like business model innovation, focussing on new services like infrastructure off-shoring, developing Internet Protocol based solutions."