Buoyant Indian IT industry rebounds but remains cautious

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Fakir Balaji | 19 Dec, 2010
Recovering from global tech meltdown, the resilient Indian IT industry returned to high growth during a tumultuous 2010 but is cautiously optimistic about 2011 in view of the economic uncertainty in Europe and the US, which account for 80-85 percent of its export revenue from software services and back office operations.

"Though 2010 has been a good year for our IT industry with a healthy growth, we are entering the new year with cautious optimism as clouds of uncertainty hang over Europe and to an extent the US due to less than expected recovery from the Great Recession," Infosys Technologies Chief Executive S. Gopalakrishnan said.

Putting behind fiscal 2009-10 as a year of downturn, when the annual growth plunged to six percent after a scorching cumulative growth of 25-30 percent during the previous four years, the industry returned to double-digit growth in this fiscal (2010-11), thanks to renewed investments by global firms across verticals in IT infrastructure, software and back office services.

"We have seen growth returning and business coming back because of transformational needs of our global customers and changing business models favouring more outsourcing and off-shoring of IT services and solutions we deliver cost-effectively," industry body Nasscom president Som Mittal said.

With the worst behind and the industry on the recovery path, Nasscom has projected $56-57 billion or 13-15 percent year-on-year (YoY) growth from exports and Rs.768 billion (Rs.76,800 crore) or 15-17 percent YoY growth in domestic market this fiscal (2010-11).

"With growth surpassing our expectations during the first half, we will be revising the outlook for this fiscal after the third quarter (Oct-Dec) results, factoring the anticipated growth in the fourth quarter (Jan-March)," Mittal said.

Emerging largely unscathed from the global tech meltdown, the Indian IT-BPO (business process outsourcing) industry grew 6 percent last fiscal (2009-10) to touch $50 billion (Rs.23,100 crore) in exports and 12 percent YoY in the domestic market to post Rs.66,200 crore ($13.25 billion).

"Sustaining this year's robust growth in 2011 depends on how fast economies in Europe recover, as there are concerns over some countries still grappling with financial crisis. Sovereign fallout in any country will have a domino effect on the global economy," Gopalakrishnan pointed out.

The year, however, began on a sluggish note with the industry reeling under the ripple effect of slowdown in 2009-10, conspicuous absence of fresh investments and hiring and thousands of techies laid off or fearing pink slips.

"The year demonstrated the inherent strength of the industry to get over the global recovery trend. As we exit 2010, the new year looks promising, as the industry is poised to get back to growth trajectory despite an element of uncertainty looming over Europe due to monetary and regulatory crisis," Wipro Executive Vice President and Chief Financial Officer Suresh Senapaty said.

If the global financial crisis and tech meltdown made the Indian IT industry cringe and resort to unconventional measures to stay afloat, the revival made them go overboard in exploring new markets, scouting for talent and investing in new service lines to offer end-to-end solutions across verticals.

"Unlike the crisis we faced during the dotcom bust earlier in the decade, the global recession tested our resilience and gave us an opportunity to provide more for less, as IT budgets shrunk and clients were in consolidation process," Genpact Chief Executive and past Nasscom chairman Pramod Bhasin said.

To sustain the growth momentum and make optimal use of their resources, even export-oriented bellwethers like TCS, Infosys, Wipro and HCL turned aggressive in the domestic market as enterprises, state-run organisations and governments across the country have decided to enhance their investments in IT infrastructure, products and services for the benefit of its people.

Buoyed by increased tech spending in the private and public sectors, the industry has been gearing up to offer its services in new areas such as engineering services and product development.

With 450 delivery centres in 60 countries worldwide, the Indian IT industry has an unparalleled global value chain. The industry resumed enhancing its global workforce, hiring specialised talent in developed markets and building a truly global delivery model.

Mergers and acquisitions in the IT industry remained sluggish as companies were in consolidation mode and continued to be risk-averse.

For raising human capital, besides the bellwethers jointly offering about 100,000 jobs this fiscal to create bench strength and build capacity in anticipation of better growth in next fiscal (2011-12), small and medium business too have resumed hiring to meet the demand for ICT services and products.

As a top outsourcing destination and back office operations hub, India dominates the global IT services market with 51 percent share.