According to a Nasscom-McKinsey 2002 study, A Vision for the Indian Software and IT-Enabled Services, conducted this month, the prime driver for growth in the ITES sector is the widening demand-supply gap in developed regions, which is going to sustain for quite sometime.

Nasscom president Kiran Karnik says the study seeks to provide answers to many questions dogging the small-, medium- and large-software entrepreneur. These include:

• Will the Indian software industry be able to step up growth momentum in these trying times?
• Will India be able to achieve the software vision it set before itself in 1999?
• What are the new strategies the software industry will need to put in place to maximise growth?
• Will the Chinese dragon overtake India?
• Is there a chance for the smaller software player to survive and thrive in this emerging environment?

Other global trends that are expected to provide a fillip to this sector are:

• A large mass of untapped potential blockbuster customers set to take off.
• Familiarity and experience of Indian players in the offshore market is increasing the breadth of service lines such as ITES, systems integration and IT outsourcing, and research and development services.
• Significant under-penetrated segments exist in both the countries and industry levels.
• Cost-cutting pressures compel global majors to move a significant proportion of their work to India.
• The emergence of high bandwidth telecom networks is making offshore processing a viable proposition.

Here are some facts and figures that underscore the claim that ITES is a sunshine territory in India:

• India is witnessing rapid growth in ITES due to its cost advantages, the success of reference customers and positive government initiatives.
• The industry has been growing at a blazing 70 per cent over the last two years.
• The sector has employed over 1,00.000 people as of March 2002 and over 50 global corporations have begun pilot projects in either captive or third party operations.
• The ITES industry has attracted a significant share of venture capital and is expected to account for 40 per cent of all venture capital investments by the end of 2002.
• There is a need to sustain these natural advantages, as it has been predicted that the Philippines and China could pose as the strongest competitors and challenge Indias supremacy in this segment in the medium to long term.

To add to all these, the Indian government and industry have made certain serious moves to enhance the countrys location and people-attractiveness. Recent years have seen significant investments in IT infrastructure that have been made with the establishment of technology parks, like the Hitec City in Hyderabad among others (See ).

A significant change in the government policy was the introduction of the much-needed liberalisation in the telecom sector, allowing private players in international long-distance, national long-distance and leased-line services. All state governments, including lesser-known states in the eastern and north-eastern region, have put individual IT policies or visions in place and are vying with each other to attract private investments in the ITES sector.

The central government has created a regulatory environment marked by sops for the ITES players such as a 10-year tax holiday, rebates in custom duties and liberal investment policies. To top it all, India has a large, low-cost English-speaking talent pool, which is the countrys biggest advantage.

Overall, IT services and ITES are poised to log healthy growth over the next few years and this is likely to have a positive impact on the Indian economy, says the study. Some of the positive predictions are the fact that the contribution of the Indian software and IT-enabled services industry will increase from 2 to 10 per cent in 2008.

It is also expected that IT services and ITES will account for more than 30 per cent of all foreign exchange in 2008. The industry will create 2 million jobs for direct employment and an equal number indirectly by way of support services. This will result in the global industry putting India firmly on the world technology map.

But dont think the road is smooth. The study suggests that it must be borne in mind that in order to fulfil these predictions the government needs to be proactive and take certain key steps. These include the removal of regulatory bottlenecks and ensuring consistency of policies. India also has to strengthen the supply-base of knowledge workers by increasing the number of engineering seats and increasing the share of IT in graduate curriculum.

The government also needs to address specific concerns of the ITES sector labour laws, telecom infrastructure and regulatory issues. It also needs to jumpstart the growth of domestic market (through product market reforms and increased use of IT in the government) and develop second tier towns into world-class software hubs by improving their IT and telecom infrastructure.

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