Software = infrastructure

India's software and BPO story is about to become an infrastructure story: if software is to keep growing at its current rate of about 30 per cent, then India has to fix its urban infrastructure. It has to create new townships, build modern office blocks, provide housing for everyone, have airports to handle the additional traffic, guarantee support services aplenty, and boast of an education system that delivers both quality and numbers. If the country cannot create the equivalent of a new Manhattan in five years' time (which means 150 million square feet of Grade A office space), then the software/BPO sector will not be able to maintain its growth rate or fulfil its potential""said to be $60 billion worth of exports by 2009-10. If the education sector cannot throw up more qualified and willing people to work in the sector (and the shortage is estimated at half a million people), that will become another bottleneck. Such systemic constraints could be ignored when the software industry was small, because it could create its own infrastructure and training establishments. But when the asking rate is 25 million square feet of new office space every year (the equivalent of nearly 10 Gurgaons), and when 300,000 people have to be inducted into the industry every year, then the issue has to be addressed by the entire system because no one industry can handle such gigantic tasks.

That is the blunt message from the latest Nasscom-McKinsey report on the prospects for Indian software. The industry association and the consultancy firm have combined, over the years, to provide powerful guides to ambitious goals. The highlights of the third report in the series, just unveiled, contain both a validation of past goals and critical proposals for fine-tuning the strategy to help achieve the new goals. The latest report has gone beyond the initial time horizon of 2008, and looked at a stretch from now to March 2010. Its contention is that, if the system delivers the support that is required, the industry is more or less on course to achieving something close to the original goal of $50 billion in software exports by December 2008, and can look forward to achieving exports of $60 billion by 2010.

The report also makes the interesting point that future growth will not come mainly from the kind of activities that have delivered numbers in the past (like application development and maintenance in software, or call handling for BPO), and the two sub-sectors have to evolve and move into new lines of activity""which, moreover, should be able to generate more revenue per head than is the case today. Translated, this probably means that the software firms will have to develop their consulting capability. For the BPO firms, the challenge to get out of reliance on the voice business is even more crucial. The BPO industry's transition into the handling of entire processes rather than just transactions, and getting a better grip of what has come to be known as knowledge process outsourcing, will be a fairly tough agenda. But the more important, and perhaps tougher, agenda is before the government""which has so far shown little ability to fix either India's higher education system or its cities, or for that matter, its airports.