June 10, 2002 | 1640 IST
|
|
|
|
|
|
||
|
Home >
Money > Business Headlines > Report June 10, 2002 | 1640 IST |
Feedback
|
|
|
Nasscom-McKinsey study predicts $80-billion potential for Indian IT sector in 2008Syed Amin Jafri in Hyderabad
By 2008, the industry would employ 4 million people, account for 7 per cent of India's GDP and 30 per cent of India's foreign exchange flows, according to Arun Kumar, chairman of the National Association of Software and Services Companies. Giving highlights of the Nasscom-McKinsey Study 2002 in Hyderabad at the two-day Indian IT and ITES Strategy Summit on Monday, Arun Kumar said the study lays down the strategies and implications for Indian IT companies, the government and the Nasscom to achieve its long-term vision. The Nasscom-McKinsey Study 2002 points out that despite the depressed economic conditions and a marked slowdown in the growth rate of the industry, the long term potential of the industry is robust. Since the historical growth rate of the software industry has been higher than that required to achieve the vision of the 1999 Nasscom-McKinsey study report, the compounded annual growth rate required between 2002 and 2008 would be 34 per cent. Highlighting the salient features of the report, Nasscom President Kiran Karnik, said: "Despite the challenges facing the sector, we are optimistic about the long-term potential of this industry. We believe four powerful forces will continue to drive it. For one, a large mass of untapped potential blockbuster customers are set to take off." "Furthermore, India has achieved the familiarity and experience with offshoring and this is dramatically increasing the breadth of service lines. Significant under-penetrated segments exist at both country and industry levels and there is pressure on global majors to move a significant portion of their work to India," he said. "However, based on the industry's experience over the last three years and the changing nature of the customer needs, we believe that the mix of these services will be slightly different from the mix projected in the earlier study," he pointed out. "While IT services exports and products and technology services growth projections are relatively unchanged, our projections of ITES exports and domestic market revenues have been modified. We expect the ITES sector to grow faster than the earlier projections given the increased interest in offshoring by global companies. The domestic market is likely to grow slower due to delays in product market reforms," said Karnik. The IT software and services industry has been segmented into four component--- the IT services and exports sector, ITES exports, product and technology services and the domestic market. As per the study, IT services exports will touch $28 billion to $30 billion by the year 2008, the ITES segment will account for $21 billion to $24 billion, while the products and technology services industry will contribute around $8 billion to $10 billion to overall revenues. The domestic software market will generate revenues of $13 billion to $15 billion. The Nasscom-McKinsey study also projected that the contribution of Indian software and the IT enabled industry to the GDP will increase from 0.3 per cent in 1998-99 to seven per cent in 2008. More importantly, it is expected to contribute to 20 per cent of incremental GDP growth forecast between now and 2008. IT software and services export revenues will account for more than 30 per cent of all foreign exchange inflows in 2008 from the figure of 8 per cent currently. The IT industry will create over two million jobs by 2008 with software contributing to approximately 1.1 million and the ITES sector to an additional one million jobs. In addition, the parallel support services industry will create employment for another two million people. The study noted that over the last two years, the IT industry landscape has fundamentally changed in terms of customer purchasing behaviour, entry of global IT majors and increasing polarisation of player performance. Gautam Kumra, Partner, McKinsey & Co, said: "These changes will force the various categories of Indian players to examine how they want to differentiate themselves in a more competitive environment." "For example, while the 'scale players' will need to continue to drive a sustainable growth in current service lines while building 1 to 2 new business, tier-2 players will need to choose between pursuing and acquisition/alliance led strategy to become a scale player and pursuing a focused play," he said. Nasscom vice-chairman Som Mittal added: "The unique partnership between the government and Nasscom has helped place India firmly on the global technology map." "The fundamentals of the Indian IT and ITES industry are strong and we need to continue this partnership to realize our long term vision. The new Nasscom-McKinsey study lays out a clear agenda for the government and Nasscom to enable the industry to maintain its growth momentum," he said. ITES: Expanding opportunities Speaking on the potential of the ITES sector, Karnik said: "Today, India and Ireland surpass all other competitors in terms of employment, number of companies sourcing ITES and the spectrum of verticals and services lines they offer. The IT-Enabled Services sector in India has steadily increased its share in the overall IT software and services industry, from a low of 6.5 per cent in 1998-99 to almost 20 per cent in 2001-02. the Indian ITES industry is also expected to account for 37 per cent of the total IT software and services export market in India by 2008." Offshoring opportunities for Indian ITES players exist both across a wide range of processes as well as across multiple verticals. Banking and insurance are likely to provide the maximum opportunity driven by the high cost base and high extent of offshorable processes in these verticals. In addition, six other verticals-telecom, retailing, utilities, automative, computer and pharmaceuticals, also offer immense growth potential. Speaking on the potential of the domestic IT software and services market, Arun Kumar pointed out : "India currently spends only 1.1 per cent of its GDP on IT when compared to the US which spends five per cent of its GDP on IT." "While India has been lagging in developing a vibrant domestic market, this market will become significant, particularly for smaller players who will need to tap this market to build scale. The domestic market can act as a test bed for innovation and new services; it can support rapid accumulation of higher value-added skills and attract back high quality diaspora," he said. ALSO READ:
|
ADVERTISEMENT |
||||||||||||
The Indian IT software and services sector is on track to achieving its long-term aspiration of $77 billion turnover (excluding e-commerce transactions of $10 billion), according to the Nasscom-McKinsey Study 2002.