India - Destination for Global IT Software Operations

India ” Destination for Global IT Software Operations

Rapid technological developments have contributed significantly to the growth of the IT industry, and India is now emerging as an important destination for global IT business. The growth of the computer industry spawned vibrant software and hardware industries as well as the rapid adoption of the Internet in India. Both the government and private sectors have emerged as major end-users of computer systems and software, and thousands of local Internet cafes are mushrooming all over India. The Internet and technology has not only become a trend, but is quickly acknowledged by most Indians as the wave of the future for both the nation's success and their own.

Indian software companies are concentrated most in the areas of banking, financial services, insurance, manufacturing, the Internet, and e-commerce. The IT area of enabled teleworking services (call centers, medical and legal transcriptions, data and map digitization, CAD, management of large databases, Web content creation and animation) is the latest software sector to attract large interest and investment in India. This sector currently employs 25,000 people and is expected to explode over the next decade to create an estimated one million jobs. ^[6]

In 2000, Internet home connections in India were estimated to be about 1.6 million, while the total number of users was at about 4.8 million. Internet users ^[7] were in the age group of 19 “34, of which 80% were male. Basic estimates ^[8] indicate that the Internet user spends about 10 hours per week on the Internet, earns over Rs. 6,000 (or $125) per month, and is most likely to use the Internet for accessing e-mail. Current demographics indicate that less than 5% ever buy anything online.

Despite the 2001 economic slowdown , the IT industry has continued to grow at an annual rate of about 50%. Joel Ruet, coordinator of economics at the Centre de Sciences Humaines in New Delhi, is author of a comprehensive analysis on the Indian high-tech sector. ^[9] His areas of expertise are in the fields of reform of the public sector in developing countries and integration of informal sectors in the global economy. Dr. Ruet discusses his thoughts on the implications of the economic slowdown of 2001 on the Indian IT sector.

Joel Ruet

Effects of the economic slowdown on the Indian IT industry

Despite the negative effects of the current economic recession in the U.S. on the Indian IT industry, the long- term expectation for the global IT industry is that it will continue to grow. The immediate result of this slowdown is probably a much needed shakeout of the companies in this industry. Only the most competitive and the most viable are likely to emerge out of this phase of the economy. But the IT needs of global companies will continue to grow, and thus firms will continue to invest in information systems, which in turn will continue to generate services.

This is great news for the Indian IT industry, which is largely service-centric. Multinationals are likely to turn to India's low cost differential during these tough times in order to cut costs and to increase their return on IT investments. This can be a great opportunity for Indian companies to enter new markets through this second wave of IT investments.