Monday,
January 13, 2003
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Feature |
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2003 brings high
hopes for Indian IT sector
INDIA'S
high-profile IT industry saw few silver lines in an otherwise gloomy
global market in 2002 as software makers strived to explore new avenues
and cut costs to offset moribund revenues.
After the first three-year
stretch of falling prices that badly affected the profitability of
companies, the software development and services majors also saw inflows
of fresh orders at comparatively higher billing rates.
Industry observers say the
earning growth of the software makers in the coming year would continue
to be led by strong volume growth and tapering billing rate declines
that had crimped the profit and sales growth.
Profit growth of Indian
software makers slipped in the past five quarters as overseas clients
like British Airways and GE pared orders and new customers demanded
sharply lower prices.
"An unrelenting
global slowdown and a revival in IT spending by Indian industry are
likely to contribute to revenue growth next year, as companies look to
reduce cost by outsourcing key activities," said Neeraj Deewan of
Quantum Securities.
"I think in general
2002 has been good for the industry after a raft of adverse developments
badly shook the sentiment in the preceding two years. I, however,
continue to be conservative about the prospects for a rapid recovery
during 2003.
"Certainly, we are
seeing stabilisation but the differential growth rate between the
technology and other sectors is not going to be as high as before. The
stubborn technology spending slowdown is likely to get over
slowly," Deewan told IANS.
India’s cost-effective
software army caters to a wide customer range, including financial
giants and telecom equipment makers. While price competitiveness has
been its strong point, the slowdown that hit in early 2000 has made it a
necessity.
If lay-offs, profit
warnings and cost cuttings were the common terms in the Indian software
sector in 2001, business process outsourcing (BPO) and IT enabled
services (ITES) industry became the buzzwords in the second year of the
new millennium.
BPO refers to delegating
IT-enabled business process of a company to a third party who owns,
administers and manages a wide range of processes such as human
resources, finance and accounting, supply chain management and customer
care.
Lured by the emerging
opportunities in the sector, a host of India’s top software companies
such as Infosys Technologies and Satyam Computer made a foray to offset
the impact of revenue slowdown from software services in 2002.
The ITES industry in India
is seeing explosive growth of between 50 percent and 70 percent a year
and raking in millions of dollars in foreign exchange. Industry players
say the slowdown in the West is accelerating demand.
The ITES sector logged a
whopping 71 per cent growth last year at $1.47 billion, making it the
fastest growing industry. The sector is projected to generate $24
billion in revenue by 2008, which will be three per cent of India’s
gross domestic product.
In contrast, India’s
software exports grew 29 per cent to $7.5 billion in the past year to
March 2002, of which some 60 per cent went to the US.
India’s ambitions to
dominate the BPO industry, and along with it potentially the most
promising slice of its crucial IT economy, was, however, threatened
briefly in May on fears of a full fledged war breaking out between India
and Pakistan.
Tension between India and
Pakistan, simmering since the attack on the Indian Parliament on
December 13, 2001, rose dramatically after an attack on an Indian Army
camp in Jammu and Kashmir on May 14.
The U.S. asked about
60,000 American citizens in India to depart as well and urged those who
choose to remain to steer clear of the border areas due to fears of a
possible war between the nuclear-capable neighbours.
It also advised Americans
intending to travel to India to defer their plans. Other countries such
as Australia, Britain and New Zealand also issued similar travel
warnings. The ITES segment, which is highly client-centric, was worst
hit by the travel restrictions. On an average, about 200 to 300
officials of 10 to 20 Fortune 500 companies visit India in a month to
monitor the functioning of call centres. The travel restrictions also
badly hurt software firms like Infosys Technologies, India’s second
largest software service exporter, which said the curbs had caused a
slowdown in landing new clients.
According to a survey by
the National Association of Software and Service Companies (Nasscom),
India’s IT industry umbrella group, the industry was badly hit as a
result of deferred visits and delayed decision-making process. The war
fears, however, made the software makers realise the need for setting up
disaster recovery centres, also known as business continuity centres.
This followed concern
among clients of Indian companies about the safety of outsourcing IT
projects to this country.
Polaris Software, a
mid-size Indian software company, and Infosys announced the setting up
of back-up facilities in Singapore and Mauritius respectively with a
view to ensure continuity of services.
The year 2002 also saw a
sharp jump in recruitment by software developers, though with caution,
after recovering from a global downturn in tech spending and adverse
developments back home. The blue-chip software companies, which nearly
applied a brake on recruitment in 2001 due to the slowdown, begun a
hiring drive but were being selective about quality.
Global technology majors
continued to stay bullish on the strength of Indian technology
developers in 2002 by announcing fresh investments, notwithstanding the
spending cutback back home.
In August, Intel Corp, the
world’s number one chipmaker, said it would invest up to $200 million
in India to ramp up its software design centre and more than triple the
number of engineers to 3,000 in a few years.
During a visit to India in
November, Bill Gates of Microsoft pledged $400 million to boost
education, business partnerships and software development in India to
aid the next wave of a global technological rebound.
The year also saw the roll
out of the Simputer, a handheld computer aimed at wooing the poor across
the digital divide. The Simputer, delayed by funding problems and
marketing concerns, aims to help India’s poor and rural residents who
cannot read or write. Its features have also vowed high-end users and
overseas buyers.
On the downside, the
Indian IT industry was stunned during the year on reports of a sexual
harassment suit filed against Infosys Technologies’ global sales and
marketing head Phaneesh Murthy in the U.S.
Murthy, who resigned from
the company after the suit was filed, denied the charge brought by an
unidentified American who had left the company more than a year ago. The
industry was also astounded by
the detention of the chief executive of
Polaris Software in Indonesia in December over a commercial row.
Arun Jain, chief executive
officer of Polaris Software, and senior company executive Rajiv Malhotra
returned to India December 25 from weeklong detention in Jakarta.
The two were detained in
Jakarta December 13 following a row between the Chennai-based banking
and financial sector software services firm and Bank Artha Graha. —
Indo-Asian News Service
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