BPO income in India seen touching $50 billion by 2012

Mumbai: Earnings from back-office outsourcing in the country will rise five-fold to $50 billion by 2012 despite a possible recession in the United States, industry group Nasscom said in a report.

Business process outsourcing into the country has recorded 35 per cent annual growth over the last five years, hitting revenues of about $11 billion, with the bulk coming from exports, Nasscom said in a joint study with consulting firm Everest.

Nasscom, however, warned that a skills shortage, infrastructure shortcomings and rapidly rising wages are major challenges.

"We have seen that when there are recessions and when there are costs pressures that come in, the companies still want to cut costs," Nasscom president Som Mittal said.

"In spite of all the wage inflation and so on, (India) has still a fairly large cost advantage. I think we are still ahead of the curve, while competition is emerging," Mittal said.

While the United States would continue to be the largest BPO opportunity for India up to 2012, there were significant untapped opportunities in Britain, Europe and Asia Pacific, the study pointed out.

The study said the domestic market also offers huge potential for BPO companies as banks, retail, insurance, telecom and government departments look to cut costs and boost efficiency. About four-fifths of the world's 500 largest companies already farm out some work to India, and outsourcing to Asia's third-largest economy can typically generate cost savings of between 35 and 50 per cent.

The study said India would also have to gear up to face increased competition from emerging back-office services destinations like China, the Philippines and Vietnam.

The back-office boom has helped firms like Infosys BPO, a unit of software major Infosys Technologies, to thrive by providing services like processing insurance claims, managing payrolls and customer support to western firms.

The sector, which currently employs 700,000 people, is expected to provide direct employment to about 2 million by 2012.