IT Industry: What will be the next growth driver?

Tue, 13 Sep Pre-Open

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Prospects of the Indian Information Technology (IT) industry are predominantly dependent upon the growth environment in the West. Protectionist measures such as ban on outsourcing activities in order to shield domestic markets have always been a cause of worry for the industry as a whole. Further, cuts in discretionary spending in light of the impending slowdown also seem to have impacted the growth momentum in the recent past.

Despite these headwinds the performance of the Indian IT industry has been remarkable over these years. Significant labor cost arbitrage and abundant talent have been the pillars of the growth as evidenced in the past. However, overdependence on West meant that geographical diversification was required if this growth was to be sustained. And there is no better fit than the emerging economies that can fill the current consumption void of the West.

The emerging economies have been growing at a brisk pace with strong demand emanating from newer verticals like health care and transportation. Indian IT firms need to exploit the opportunities present in these markets for the next leg of growth. Even the domestic market offers huge opportunities in sectors such as banking, telecom and insurance. E-governance plan is another area of growth that can be exploited.

Focusing on the emerging economies will not only diversify the geographical revenue stream but will also bring in some stability into the business.

While the current slowdown has impacted the Indian companies we do not foresee a significant threat over the longer term due to the twin benefits of cost arbitrage and talented manpower availability at India's disposal. Protectionist policies can impact growth in the near term (measures that ban outsourcing) but it cannot eliminate the business case altogether for the Indian IT companies as there is no replacement for talent (abundant in India).

Thus, while the demand from West would continue to be a larger a pie of the overall revenue stream, focus on other emerging markets would not only expand the geographical coverage but also reduce the volatility in the business as a whole.