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Indian IT Sector Back on Growth Path

Friday, April 29th, 2011
Indian IT

The Indian information technology sector has been a vital element in contributing to the continued economic growth of the country in recent years.

The IT sector was profoundly affected by globalization, catapulting India into the global market and capturing sizable percentages in the business services and technology sourcing markets.

The growth in India’s IT sector in previous years is attributed by initiatives from vertical industries which include banking, finance, insurance, manufacturing, retail and telecom. Changes in the global market scenario are providing new environments for emerging vertical industries with a focus on green technologies, energy efficiency, renewable energy, healthcare and mobile applications - new arenas in the global market where the Indian IT sector can make its mark.

Issues and challenges

However, the past few years saw India’s IT industry slowing down in its growth path, as it was affected by many challenges and issues. Single digit growth was experienced by the industry in 2008, due to the financial crisis that was starting to sweep the globe during this period, prompting IT companies to cut down on cost by stopping expansion work and the hiring of new employees.

The global financial crisis also resulted in a weakened US economy which translated into considerable appreciation of the rupee and cutbacks in Federal Bank interest rates. This resulted in lower profit margins for most Indian IT companies. Aside from that, infrastructure developments also met with a slowdown that affected the value chain and Indian IT firms’ efforts in providing end-to-end solutions for their clientele. A recent Nasscom survey indicated a lot of technical deficiencies among new college graduates, leaving them unqualified to fill in the necessary skills required in India’s IT sector.

But according to Kris Gopalakrishnan, CEO of Infosys Technologies Ltd, the Indian IT sector is headed for a growth rebound, with companies expecting to hire additional staff and employees. The top five companies are expected to hire up to 180,000 new employees during the next 12 months.

On the rebound path

The Indian IT industry has shown a strong example of continuous growth during the last 15 years, starting in 1993 with only 150,000 employees, which then multiplied over the years to over 2 million employees at present. The IT industry overall has weathered the global economic downturn, exhibiting a recovery that is faster than what might have been expected.

At present, 50% of IT companies have strong plans of hiring additional manpower and intend to reward existing employees with an 8% average in salary increases. As the economic outlook stabilizes in the country and worldwide, the recovery of remaining IT companies will return them once more to the growth path.

Outlook for the Indian IT sector

The high growth rate in the country’s economy is attributed to the growing demand for electronic hardware and software among a new generation of young consumers and the middle class with significant disposable incomes and high buying powers. Software and services exports are expected to breach the 60 billion dollar level by the year 2012, which is incidentally also the last year of the recent five-year development plan.

Several multinational companies are also looking towards India as an ideal geographical location to expand their global markets and this would require Indian IT support in terms of back office functions and other critical operational processes.

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