IT sector growth set to fall to single digit

The sector constitutes 3.5-4 per cent of India’s Gross Domestic Product.

For the first time, India’s information technology (IT) sector is likely to post a single-digit growth rate of 9 per cent in fiscal 2008-09, as measured in Gross Domestic Product (GDP) calculations, according to a senior government official.

The IT sector, which constitutes 3.5-4 per cent of India’s GDP, grew at an average rate of around 25 per cent in three years up to March 2008. Thus the sharp fall in growth rate is cited as one reason for drop in growth rate of the Indian economy in fiscal 2009.

The Central Statistical Organisation (CSO), in its advance estimates, said the Indian economy would grow at 7.1 per cent in 2008-09, compared with 9 per cent in the previous financial year. Even this estimate was called optimistic by economists, as Asia’s third largest economy grew at a much slower rate of 5.3 per cent in the third quarter ended December 2008. In the first half ended September 2008, the growth rate was 7.8 per cent.

Contributions of different sectors were not calculated when the advance estimates were released in January 2009. They will be made available by the end of this month.

“Even though IT sector constitutes a small part of our GDP, its contribution to growth rate is almost same as agricultural sector,” said another statistics ministry official.

The farm sector, which has nearly 18 per cent weight in GDP, grew at an average rate of 4 per cent in the last four years. At this rate, its contribution to GDP growth rate was 0.72 percentage point.

However, the IT sector, which has only 4 per cent weight in GDP, contributed 1 percentage point to GDP growth rate at 25 per cent growth rate. “Thus a sharp fall in IT growth rate has pulled down overall GDP by at least half percentage point,” said the same official.

The growth rate calculated by the CSO would be different from what the National Association of Software and Services Companies (Nasscom), a body representing the IT industry, puts out. This is because GDP is estimated based on constant prices, that is, at price levels of 1999-2000, whereas Nasscom estimates are nominal ones.

Nasscom estimates the software services segment — which constitute over 80 per cent of IT industry — to post 15 per cent growth rate in fiscal 2009, compared with 32 per cent in the previous fiscal, due to the adverse economic environment. However, the entire IT industry is projected to grow at a much slower rate of 12 per cent in fiscal 2009, at $71.7 billion.

(Additional reporting by Devika Banerji)