The outlook for Indian software has never looked grimmer. Infosys CEO S Gopalakrishnan has indicated that the export-oriented industry may grow by only 15 per cent this year, down from nearly 30 per cent last year and an earlier Nasscom projection of 21-24 per cent for the current year. One immediate impact will be on jobs. Infosys is standing by its hiring target announced at the beginning of the financial year, but the chances of fresh hiring next year appear slim. It does seem as though this year will be worse than 2002-03, which followed the tech and telecom bubbles bursting and the impact of 9/11. The numbers for 2009-10 are also likely to be poor.
In response, the industry has adopted several strategies even as it has been blessed by a few fortuitous developments. The depreciating rupee is one, though the immediate gains may be limited because of the rates at which hedging was done. The second piece of good news is that attrition rates are falling, and compensation costs will come under control. The third good news is that more complex, higher-value work is coming to India in both software services and BPO. The crisis in the western financial services industry, which has provoked several mergers, is presenting new opportunities. These new merged entities will need to re-engineer their processes so that the earlier separate parts with their different IT architectures can talk to each other, and that presents work opportunities. The BPO industry had already been undergoing structural change by reducing dependence on the low-value, high-volume voice business, and focusing more on knowledge and legal process outsourcing. The importance of outsourced engineering services work has also been growing.
Meanwhile, the industry has been seeking to reduce reliance on the US and the UK, which together account for 80 per cent of its export revenue. Continental Europe has been growing at a compounded annual rate of 50 per cent. The industry has also been reducing its reliance on the financial services industry, which accounts for nearly 40 per cent of business, and this has been helped by the rise of a new sector comprising music, media and entertainment. Digitisation and archiving are growing areas and new alliances have been formed in the emerging field of media process outsourcing. But the biggest challenge for Indian IT to get out of its dependence on linearity (hours multiplied by wage rate) and to move into the products business, based on ownership of intellectual property. Making this into a substantial business is still a distant goal; in essence, Indian IT remains a software services (rather than a software) industry, and that will not change for the foreseeable future.