Thursday, December 20, 2007

India's IT Challenge

Source: "Information technology in India: Gravity's pull," The Economist, December 13th 2007.

"Is India's computer-services industry heading for a fall?" India's IT businesses has boasted annual growth rates of nearly 30% in the past ten years, with revenues now nearing $50 billion, about 5.4% of India's GDP. The industry directly employs 1.6 million people, and of course generates indirect employment for millions more.

India's IT firms have grown due to their ability to marshal huge local workforces to supply high-quality services. Their export of IT services have of course been greatly facilitated by the improvement of the international telecommunications infrastructure and the Internet.

Indian IT now may face a host of threats. The rupee has gained against the dollar in recent months; since its low in mid-2006 it has gained 16%. There are three additional categories of threats:
  • India's general development problems:. clogged and insufficient infrastructure; tax breaks that subsidize the industry, some of which expire in 2009; a growing talent shortage.

  • Emerging competition. IT industries are emerging in other parts of the world, such as Central Europe; foreign IT firms have been beefing up their Indian subsidiaries. (In 2002 the six biggest—including Accenture, IBM and HP—had fewer than 10,000 employees in total in the country. Their combined Indian workforce now exceeds 150,000.)

  • Future threats. A slowdown in IT spending looms as America's economy weakens; many of the services Indian firms now provide will eventually be automated; few Indian firms are set up to provide the new solutions that are increasingly demanded by foreign firms.

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