The Service sector is the major contributor in Indian Economic growth; its contribution to GDP is nearly 55% in 2007-08, is growing at a rate of 10%. The contribution of IT industry in the economic growth is significant; its contribution to the GDP is expected to be 5.8% in FY09. The Indian IT industry is facing the brunt of recent financial crisis and economic slowdown in US as it derives maximum outsourcing revenues from the country. Due to the above-mentioned reasons, the software industry is expected to grow at lower rate of 21-24% in FY09 as compared to the growth rate of 28% in FY08. In order to overcome the slowdown and to reduce the dependency on US, Indian IT firms are gearing up to set up more overseas centers in low cost destination. Both big as well as small companies are trying to extract more revenue per employee and doing more with their human resources. The IT services providers companies both in Tier I such as TCS, Infosys and Satyam and Tier II are expanding their footprint in various economies. On the basis of talent analysis, cost and business environment China is currently a preferred off shoring location for outsourcing low end development work by Japanese clients due to its cultural and geographical proximity. It not only has the potential to provide sourcing base for offshore but also offers huge domestic market. Inspite of global slowdown, India continues to be the most preferred destination for global IT sourcing due to its large pool of skilled labours, top quality management and security and quality focus. Yet there are certain short term challenges – currency fluctuations, suitability of available talent, infrastructure development and sustainance of a positive regulatory environment – all these problems will need to be addressed.

India’s value proposition continues to be strong. Given the widespread impact on corporations, they would be looking at business transformation and new business models, all of which would mean increased opportunities for the Indian IT sector. We will also see the restructuring of existing financial systems in the BFSI segment needing fresh IT inputs. The impact of global slowdown on Indian IT sector will last for 3-4 quarters. The overall growth outlook is positive with the economy growing at a strong rate and annual GDP growth expected to be 7.6%. As per a NASSCOM-MckinsSey study, IT sector is expected to touch US$72 billion by 2010.

Exports remain the mainstay of the sector and reached US$40.4 billion in FY08, contributing nearly 64% to the overall revenue aggregate. The exports are further expected to touch US$60 billion by 2010. IT services (excluding BPO, product development and engineering services), contributed 57% to the total software and services exports, and remained the dominant segment. IT Services crossed US$23 billion, a growth of 28% in FY08. BPO services, accounting for over 27% of the export aggregate, is the fastest growing segment across software and services exports driven by scale as well as scope. Export revenues for this segment crossed US$10 billion, a growth of 30% in FY08. Export revenues from relatively high value-added services such as engineering and R&D, offshore product development and made-in-India software products are estimated to be growing at over 27%, and reach US$6.4 billion in FY08. For FY08, the share of exports and domestic market for the ITES and BPO segment was US$10.9 billion and US$1.6 billion respectively. Engineering services, R&D and software products saw an export of US$6.3 billion and domestic sales of US$2.2 billion. The Indian IT sector is expected to grow at a slow pace because of the US financial crisis that shocked the whole world. BFSI constitutes 40% of the total revenue of the industry, so any slowdown in this sector will directly impact the growth of the industry. But in the long run, the IT industry is going to stabilize, with the growth at 20%. As major revenue comes from exports, companies are looking for new geographies so that they can reduce their dependency on a few regions.

The GDP growth for FY09 is expected to be 7.6%, which is strong enough to propel the growth of the IT industry. According to a study by NASSCOM-McKinsey, IT sector is expected to touch US$72 billion exports by 2010. In future, new kinds of outsourcing services such as Remote Infrastructure Management Outsourcing model and captive BPOs are expected to come up in a big way. At the same time, energy firms will continue to offshore their IT infrastructure, applications, finance and accounting to reduce the cost.

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