Global captives, companies that have set up operations, including R&D, in India for a variety of services and other applications related to their core businesses back home, may usher in a wave of manufacturing activity in the country as they have begun handling mission critical work as compared with simple cost saving offshore services earlier, according to Som Mittal, president of National Association of Software and Services Companies (Nasscom).
Of the 100-odd global captives in the country, 90 per cent originates from the US and Europe. And, about 50 per cent is engaged in the engineering space, he said on the sidelines of the two-day Global Captive Conclave here on Thursday. IT services comes second with 30 per cent operations of global captives.
The captives segment is growing at the rate of 22 per cent. It currently contributes $7.2 billion to the total IT exports, estimated at $75 billion for the current year. Of this, around $5 billion worth of R&D is happening in engineering alone. India is also becoming the capital of software on chips (embedded systems), he said indicating that the high-end design and development work in the engineering space is expected to result in actual manufacturing operations by these companies in future.
“Global corporations are moving their mission critical integration work to Indian facilities as we not only offer the best talent but have also emerged as a trusted destination for their operations. We are encouraging the trend as they offer multiple advantages to the country besides hiring the Indian management team,” the Nasscom chief said. Seeing their strong presence, many more companies are working out their entry strategies for India, he pointed out.
Moving to Tier II-III cities makes sense
According to a recent Nasscom survey, about 50 per cent workforce hired by IT companies has moved to the six cities where IT operations are located from various places across the country.
Mittal said it had become extremely important now for companies to set up operations in Tier II and Tier III cities -- the trend is already being witnessed in states like Tamil Nadu and Andhra Pradesh besides some parts of North India.
The other encouraging trend is a 3-4 percentage point decline in attrition levels in IT sector to 12-13 per cent from the previous levels. This will allow companies to make new business plans as the supply side issues are seen easing in the qualified skilled manpower area, he said.
In a new trend of nontechnical people getting technical jobs in the IT industry, he said about 15 per cent jobs was expected to be filled by people with general science background in the days to come. In all, the IT sector is expected to hire 250,000 new employees, almost same as last year, during the next financial year. Salaries too are expected to increase by 12-13 per cent in 2010-12.
16-18% growth in FY 12
The growth in the IT sector is expected to be between 16 per cent and 18 per cent in 2011-12, almost similar to the current financial year. Sharp recovery in the US economy has led to the growth in various sectors including financial and healthcare, benefiting the offshore IT services industry.
Though Japan contributes only 2 per cent to the IT companies' business, one has to see the downstream impact in the aftermath of the recent earthquake in that country, Mittal said.
However, he strongly appealed for continuation of tax incentives to IT sector stating that the country still needs to focus on exports owing to its negative trade balance.
“The finance minister had promised us to correct certain decisions but not on the imposition of MAT on companies and SEZs. The government should continue the incentives in one form or the other till the new direct tax regime comes into force,” he said.
The tax proposals will seriously affect the SME sector and abrupt changes in long-term policies related to SEZs will send a wrong signal to global companies , he pointed out.
