India's IT sector warned to keep innovating to maintain edge

India's IT sector warned to keep innovating to maintain edge

5 hours ago

MUMBAI (AFP) — India's outsourcing industry must keep innovating to keep its world-beating edge and meet the challenge of a stronger rupee and a slowing global economy, business leaders said on Wednesday.

The warning came as the nation's top outsourcing body Nasscom began its annual meeting amid mounting worries that trouble looms for the sector.

The outsourcing industry has been hit by a rupee that rose 12 percent last year, lowering the local equivalent of every dollar earned, and a financial crisis gripping its main US market.

"These are challenging times," Nasscom chairman Lakshmi Narayan told the start of the three-day meeting in India's financial capital Mumbai which has drawn hundreds of industry delegates and foreign clients.

"There's a new world order... the current belt-tightening is not temporary," he said. "The industry will have to operate at a new performance level."

The flagship IT sector will have to scale up from relying on its lower-cost advantages to building specialised skills, industry leaders say.

Such sectors as engineering outsourcing and remote infrastructure management by which Indian companies can manage at long-distance businesses' IT systems and staff are promising areas, they say.

Some 70 to 75 percent of infrastructure management can be offshored and 26 billion to 28 billion dollars worth of business would be up for grabs by 2013, a new study by global consultancy McKinsey said.

India is "well-positioned to capture 13 billion to 15 billion dollars" of that business, McKinsey said.

India's IT industry which accounts for five percent of gross domestic product and employs two million workers has been showing signs of strains, prompting the once red-hot sector to reflect seriously about its future.

The Big Three software exporters --- Tata Consultancy Services (TCS), Infosys and Wipro -- posted uninspiring quarterly earnings while their shares remain under pressure after trailing the benchmark Sensex index by more than 40 percent last year.

In an unprecedented step, TCS just cut employee bonuses by 20 percent to boost its diminishing outsourcing cost edge.

Still, the sector expects to meet or "even exceed" its software export target of 60 billion dollars and overall software and services revenue goal of 73-75 billion dollars by 2010, said Som Mittal, president of Nasscom, known for its conservative forecasts.

India's IT sector is keeping its fingers crossed it will escape the worst of the US economic woes.

In fact, it is hoping the US credit crunch could spur more clients to increase the work they farm out to cheaper India firms even as they pare overall technology budgets as they have done in previous slowdowns.

Also "demographic compulsions" -- a reference to the West's ageing population -- will force the world to find newer ways to "service itself" as it grapples with manpower shortages, Mittal added.

"India with its significant pool of talent and healthy demographics" -- 51 percent of the nation's population is under 25 -- "can play a healthy role in addressing" this shortfall, Mittal said.

At the same time, India needs an educational system that gives students the skills to make them "job-ready" for the outsourcing industry to maintain its competitive edge, he said.

In one piece of good news, Communications Minister Thiru Raja said he would press for continuation of a tax holiday for the sector, saying it had promoted "a pioneering environment."