IT-ITeS to boost income, jobs: Study

Every rupee spent by the IT-ITeS sector (on domestically-sourced goods and services) translates into a total output of Rs 2 in the economy. And for every job that is created in this sector, four jobs are created in the rest of the economy.

These are a couple of findings of the latest Nasscom-Crisl report titled 'The Rising Tide - Output and Employment Linkages of IT-ITeS' released here today. It quantifies the "multiplier effects on income generation and job creation induced by the Indian IT-ITeS sector and the economic impact of IT-ITeS activity".

The IT-ITeS sector, which is expected to generate exports worth $60-75 billion in 2010, will contribute $115 billion to the economy from allied sectors as well. In terms of employment creation, the industry is expected to create about 11 million jobs (directly and indirectly) over the next three years.

In 2005-06, the maximum additional employment was generated through consumption spending (2.49 million) followed by operating expenses (2.1 million) and capital expenditure (0.63 million), according to the report. Besides, nearly three-fourths of the workforce employed by service providers (catering, housekeeping, security, transport) is SSC/HSC educated or sometimes practically uneducated.

The report also states that cost competitiveness remains a key factor determining investment attractiveness. The report adds that wage inflation is a market dynamic, and is likely to remain so. As for the billing rates, at current levels, a 1 per cent point increase translates into a 0.6 per cent point increase in net margins.

Besides, at current levels, a 1 per cent point increase in employee utilisation rates translates into a 0.5 per cent increase in net margins while a 1 per cent increase in the share of employees (with income less than Rs 5 lakh) in total employees, translates into a 0.8 per cent increase in net margins.

Rising wage inflation and phasing out of the STP (Software Technology Park) scheme (and the associated tax holiday) are often cited as areas of concern, notes the report.

In this context, Nasscom has already appealed to the Government of India to extend tax benefits for another 10 years.

B Ramalinga Raju, founder and chairman of Satyam Computer Services and chairman of Nasscom, told the media on the sidelines that removing these benefits could result in a drop in overall growth rate and jeopardise companies' expansion plans. "Tax benefits enable better utilisation of infrastructure and help companies make strategic acquisitions," he added.