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US recession could be an opportunity for IT sector

It has been a tough year for the darling of the past few years, the information technology and IT-enabled service industry. N Madhavan reports.

india Updated: Jan 01, 2008 00:58 IST
Narayanan Madhavan
Narayanan Madhavan
Hindustan Times

It has been a tough year for the darling of the past few years, the information technology and IT-enabled service industry. But there is always a silver lining to clouds.

The rupee has run up 15 per cent over the past year and wages also went up in the export-oriented industry. As if that was not enough, the US stared into a recession and the hottest clients of the hottest IT market, the financial service giants, ran into deep problems following the sub-prime crisis involving bad loans.

The honeymoon may be over for the country’s software industry, but the marriage is steady and still eyeing long-term bliss, because the US recession could hasten some more spending on outsourced services. It is still far cheaper to do such knowledge work in India compared with the West.

Ameet Nivsarkar, vice-president at the National Association of Software and Service Companies (Nasscom) told Hindustan Times that discretionary long-term spending by fiancial giants like investment banks and insurance companies may hit demand for Indian IT, but overall recession could spur cost-cutting that might aid India.

“There could be an opportunity. More processes will be moved offshore,” Nivsarkar said.

IT and IT-enabled service exports are on track to achieve Nasscom’s export growth target of 24 to 28 per cent in the current financial year, from $31.3 billion in 2006/07. The country aims to hit $60 billion in 2009/10.

Considering that the worldwide market of services that can be outsourced is estimated at anything between $300 and 600 billion, India still has only a small market share and the potential is still huge.

Neverthelss, some hiccups are ahead. Revenues are buoyant but profit margins will be under squeeze as a result of wage increases and a strong rupee. Small business process outsourcing (BPO) companies may be squeezed badly, though large companies can weather the bumps.

Many IT companies have started selling six-day weeks and work-life balance to keep restless workers happy while getting more bang for the salaries they pay.