IT Scan

Indian IT "industry cake" continues to swell

Rajendra Prabhu

This is a cake that continues to swell, despite the downturn elsewhere! The Indian IT industry (software and enabled services) in 2002-03 would grow by 25 percent to Rs 60,700 crores ($12.3 billion) of which exports would constitute 32.84 percent at Rs 47,500 crores (nearly $10 billion).

The industry's turnover was Rs 48,000 crores (nearly $10 billion) in software and services with exports grossing Rs 36,500 crores ($7.68 billion) in 2001-02. What was more significant was that despite the slowdown in the US, there was an increase in exports to that particular destination. NASSCOM president Kiran Karnik explained: "While the IT services segment witnessed a slowdown in exports to USA, increase in ITES exports to USA, resulted in an increased share of USA in India's software and services exports." The software exports sector registered a growth of 29 percent in rupee terms and 23 percent in dollar terms over revenues of Rs. 28,350 crores ($6.2 billion) in 2000-01.

Both NASSCOM and the Electronics and Computer Software Export Promotion Council (ESC) now see ITES as the driver of software exports with a tremendous potential for growth and employment generation within the country. However, hardware that is the poor performer in the IT exports industry. The hardware exports of Rs 5,800 crores ($1.2 billion) is only a small part of the potential.

"Given the potential that exists in the electronics hardware segment, exports can catch up with that of the software sector. What is critical is evolving a proactive policy which should address problems faced by exporters and manufacturers" said ESC chairman Deepak Puri who is also managing director of Moser Baer India, one of the world leaders in electronics hardware. "The hardware export route could be the best way to prime software exports as there is a hardware-software convergence," he added.

The ESC is all set to launch such an initiative for which inter-industry consultations have already started. A set of suggestions is likely to be submitted to the government. ESC would do everything possible "to catalyze blossoming of entrepreneurship in the electronics hardware sector in the same magnitude and direction as it happened in the software sector" Puri says. His plan is to carry forward that thrust that developed in the software.

Karnik said that the software and services industry is gaining significance in the Indian economy with sustainable growth rates, increased contribution to FDI, employment and exports. "This industry has led to a wealth creation of Rs 90,000 crore in the last six years and is expected to attract a cumulative FDI worth $1.2 billion by 2005," he asserted.

According to him, NASSCOM will appoint a PR agency for keeping up the market expansion in the US and a lobbying agent to look after Indian interests in the US administration. This should ensure that India remains at the top in software and services exports to the US.

ESC's three-point plan for IT

The ESC has also come out with a three point promotion strategy for the IT industry. Delineating the pro-active policy, D.K. Sareen, executive director, ESC says that a three-point action plan has been drawn up to build on India's software market. These are:

• rejuvenating the US and Canada markets that are gradually coming out of the shock of September 11 and the grip of the severe slowdown;
• aggressively developing second-tier markets like the EU countries, Japan, Australia, etc.; and
• nurturing evolving alternative markets like Latin America, Africa, West Asia (WANA) countries.

The initiatives in the North American market include ESC's proposal to organize INDIASOFT marts in five identified cities in North America -- New York, Atlanta, Chicago, Los Angeles and Toronto. It would also undertake intensive publicity campaigns to promote INDIASOFT marts in USA and Canada, organize special trade fairs and hire services of PR/advertising agencies to promote Indian software markets.

According to Deepak Puri, ESC will be laying considerable importance to e-governance during the year that can permeate transparency and accountability in the administration. "The scams that are erupting out in the US at regular intervals should be an eye opener to us. Such unfortunate happenings will act as a dampener to our development tempo and put breaks on the reform process," he added. Moreover, computerization of courts, educational institutions, state, district and local self-governments, apart from toning up civic facilities and uphold civil rights, will create enormous business opportunities for both electronics hardware and software sectors.

Puri made a strong plea for computerization of the manufacturing sector in India. "The progress that we have achieved in this area is not satisfactory. Countries like China are going very strong in digitalization of their manufacturing processes to make those conform to international quality standards. Therefore, 'wiring'of our manufacturing units should receive active attention.

India should not also under-rate the challenge it will face in software from China in future, Puri warned. He referred to China's importing of 4,000 English-speaking teachers to overcome the national backwardness of China in the English language. "We will have a problem in future," he added.

Stress on software-hardware synergy

One way of our boosting software and hardware items is to incorporate intelligence platforms in hardware that enhance hardware capabilities. At present, Puri said that our software gets embedded in devices abroad that are then incorporated in hardware and exported to India. That is why he is stressing on the software-hardware synergy to overcome our limitation.

Puri affirmed that ESC's efforts would see some MNCs coming to India to set up manufacturing bases. US, Canadian and Korean companies are the targets. Indian companies must display greater enterprise and aim at high volume production line to evolve a competitive production facility. He expected that the newly created facilities at Special Economic Zones would help hardware to build a large export volume.

Talking about the growing potential of the ITES sector, Kiran Karnik said: "The ITES sector has shown tremendous growth during the last year and is turning out to be the second pillar of the Indian IT export revolution. However, there are some unique issues facing the industry in terms of infrastructure, labour regulations, quality and manpower that need to be addressed to maintain the growth trajectory."

Nasscom also conducted India's first-ever city-wise survey on the ITES sector covering 310 companies. The survey revealed that:

• The average number of employees in the ITES sector is 190 but the range is huge and varies from as low as four people to as many as 16,000 people;
• The encouraging trend in this area is the presence of MNC captive units that account for 45 percent of the industry and are a vital determinant of the long-term competitiveness of India in this sector; and
• Among the cities representing the ITES sector, the National Capital Region (NCR) has emerged as the largest with 53 companies based in this region. Mumbai comes second with 45 companies and Bangalore and Chennai are at fourth place with 35 companies each.