Despite economy, India outsourcing grows

Despite a recession and growing protectionism in key markets like the U.S. and Europe, India’s exports of software and services registered robust growth of 26.3 per cent in the year to March 31, reaching US$9.5 billion, according to estimates from the Delhi-based National Association of Software and Service Companies (NASSCOM).

Revenue from business process outsourcing (BPO) services and related services like call centres grew by 59 per cent to US$2.3 billion, while revenue from export of IT services like software development grew by 18.3 per cent to US$7.2 billion.

The growth in BPO services revenue reflects a growing trend by U.S. and European companies to outsource services like call centres and back office operations to their Indian subsidiaries and other companies in India.

However, the figures from NASSCOM, released Tuesday, reveal some disturbing trends, according to analysts.

Growth in IT services revenue from areas like software development and design services business was lower in the year to March 2003 than the 22 per cent growth in revenue posted by the previous year, and far lower than the growth rates of more than 50 per cent posted year-on-year by the sector about three years ago.

IT services margins are also under severe pressure, and will go down further, said Kiran Karnik, president of NASSCOM. When reporting financial results for the year to March 31, key software services companies like Wipro Ltd. and Infosys Technologies Ltd., both based in Bangalore, said they were under intense pressure from customers to lower prices.

The pressure has left the relatively newer BPO services industry as the sector with a promising forecast. Revenue from BPO and related services is projected to grow 54 per cent in the year to March 31, 2004, to touch US$3.6 billion.

But U.S. and European companies and governments have been criticized for moving jobs to India by outsourcing software services and BPO, and some state legislatures in the U.S. such as New Jersey are considering a ban on government business to technology companies that outsource work.

“There will not be an immediate impact as these anti-outsourcing bills have just been introduced, and will need to pass through various stages to become law,” Karnik said. “The Indian software and service industry has led to significant cost savings, increase in productivity and quality which has thereby resulted in customers retaining their competitive edge due to offshoring. We are communicating this powerful message to policy makers and governments across the globe.”

As Indian software companies move most of the software development work to India, rather than do the work at clients’ sites in the U.S. and Europe, the impact of visa restrictions on Indian companies will also be reduced, Karnik said. Projects executed offshore in India contributed 57 per cent of revenue the year to March 31, according to NASSCOM.