IT ops a costly business in India: E&Y

Operational cost is 3.2% higher than in South East Asian neighbours.

In what could blunt the competitive edge of the Indian information technology industry, the cost of operations in the country is estimated 3.2 per cent higher than in its South East Asian neighbours, said a study conducted by Ernst & Young.

Even with the lowest labour rates, delays and higher interest rates in India lead to a much higher increase in the cost of sales for the hardware manufacturing industry in India.

While it takes 36 days to start hardware manufacturing in other countries like China, Taiwan and Korea, it takes 81 days in India to start operations. The working capital interest is 14 per cent in India, compared with 8 per cent for other countries.

"The estimates show that the time-lines and higher interest rates are harming the hardware manufacturing industry in India," said an industry analyst. The report, which shows that the shipping time in other South Asian countries is two days as against 15 days for India, projects that the Indian hardware industry has a potential of reaching $73 billion by 2010.

Of this, the domestic market will be worth $37 billion and $25 billion will be the export revenue. The study estimates that the industry will create employment for 1.6 million people by 2010. It shows that while it takes half a day in other South Asian countries for custom clearance, this takes about 12 days in India.

The report also shows that the time delays for buffer inventory for raw material in India is 15 days, three times that for other South Asian countries. For finished goods, the buffer inventory is 10 days, while for other countries it is three days.