ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Flattening the World or Falling Flat?

Where is the Indian IT-ITeS industry going?

The annual average growth rate of India’s exports of computer and information technology-enabled services (ITeS) and business process outsourcing (BPO) has decelerated very significantly from 33.3% in the five-year period 2003-04 – 2007-08 to 10.5% in the corresponding five-year period 2008-09 – 2012-13, that is, when economic stagnation struck the developed capitalist world in the wake of the great financial crisis of 2008-09. As the chairman of one of the top-five Indian IT corporations put it, and we paraphrase what he said, it may be difficult to go back to the 30% plus annual export growth rates that the industry witnessed not long ago; nevertheless a double-digit growth rate might still be feasible. He was saying this in the context of the sharp deceleration of the export growth rate from 12.2% in 2011-12 to 6.2% in 2012-13.

A few years ago the New York Times’ celebrated columnist Thomas Friedman predicted that India’s IT sector will “flatten” the world – after all, India’s young, educated “Zippies” are able to undertake a whole spectrum of western white-collar jobs at a fraction of the pay over there. The business opportunities for Indian IT firms seemed boundless. But, now, less than a decade later, the pioneers like Infosys are under enormous competitive pressure, this at a time when their major export markets, the United States (US), United Kingdom (UK) and Canada, or the Triad, are at best growing very slowly in the wake of austerity as regards their fiscal policies. The overall export market is not growing; indeed the IT budgets of many of the Fortune 1000 companies have been shrinking. Given the cost-arbitrage business model, the Indian competitors in the offshoring market are seeking to outdo one another by quoting lower rates. Last year (2012-13), Cognizant took the second place in the ranking of the top Indian IT majors, pushing Infosys down the ladder to third place, prompting the latter to bring one of its founders, N R Narayana Murthy, out of retirement back as executive chairman.

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