Log in ....Tribune--Feature article

Monday, February 18, 2002		Article

Put national Internet backbone in order
Binay Srivastava

THE Indian software industry thrives on export revenue. The US companies that accounts for over 65 per cent of India's exports have postponed decisions to place new orders besides putting on hold the existing ones. Orders are coming in trickles only. On top of the slowdown in America, India's proximity to Afghanistan has further compounded the problems. And until upturn takes place there, software sector with our current portfolio of services is likely to have a much lower growth rate of 15 to 18 per cent instead of 30 to 40 per cent projected by Nasscom (National Association of Software and Service Companies) earlier for 2001-02.

Business models suggest that demand recovery in America is unlikely to set in before the second quarter of 2002-03 earliest. Until then, large organisations with sustaining power and holding lucrative assignments like engineering design, project solutions, packages etc. will continue to grow by 25-40 per cent while the smaller ones (many of whom are merely executing sub-contracted implementation jobs) will have marginal real growth. India has over 5500 registered software companies and over 98 per cent are small and medium-sized firms. Economic slowdown, rebuilding costs and increasing competition is likely to push firms in the US to outsource most of the non-core activities to countries with cheap labour like India. Lack of Malaysian or Singapore like infrastructure is likely to limit India's additional export volume growth on IT-enables services to 20-25 per cent.

Indian software professionals had shot into fame during Y2K period. Once it passed off peacefully their utility got reduced and recession in the US made life harder. In spite of being hyped as the most talented, economical and English-proficient programmers individually, collectively their contribution towards exports in 2000-01 in the lucrative high end category (like engineering and design, products development, packages etc) was under 10 per cent. Our software exports and services is of low-level and is further accentuated by the fact that all top 25 Nasdaq listed software companies are based around some product or the other. No Indian names there. And there is no Indian product known throughout the world.Weak consumer confidence in the stocks have forced many firms to drop billing rates by about 20-35 per cent from what they were a few months back. Consequently not all India focused links are likely to be restored. Opportunity is also being utilised to explore other software markets of China, Sri Lanka, Philippines Ireland and Poland. Their costing, higher bandwidth and high-speed leased lines could spell trouble for Indian exports.

To take on the newly emerging rivals head on, the first thing that must be in place is the National Internet Backbone - and pretty fast. It involves a reliable and low-tariff information infrastructure, an extensive spread of fibre-optic and high-speed wireless networks to ensure a fast nationwide onset of the Internet. No 'last mile' connection problem when the fibre optic network links up with the local exchange. No transmission failure either. Only then, in spite of the present day doom and gloom, Nasscom's projection of $ 8.5 billion of export revenue in 2001-02 and of $ 87 billion of software industry by 2008 will look feasible.

Most of the analysts have sealed down these figures by 15-20 per cent for 2001-02. But according to global consulting firm McKinsey in order to make up for the lost opportunity as well as to move up the value chain from the existing model of low-end call centers, Indian software companies need to shift to IT-enabled services. These services are remotely served known as business process outsourcing (BPO) - and provided from a location different from that of the users or beneficiaries Some of the IT-enabled services with high growth potential are customer interaction services (outbound call centers), finance and accounting services, engineering and design, HR services, technical support services, market strategy, insurance claim, medical transcription etc. Large firms like Wipro, Infosys TCS etc. can take advantage of their technical resources base to offer remote services through call centers to their existing clients in Europe and America.

It is fairly well expected that the prevailing recession worldwide will create an impetus for more outsourcing of IT-enabled services. It is high time our government wakes up to the demand and puts in place the National Internet Backbone fast so as to facilitate shifting of our software companies to IT-enabled ones - business process outsourcing in industry jargon.