Citius, altius...

When the National Association of Software Service Companies (Nasscom) and the consulting firm McKinsey came out at the start of this decade with their joint projection of $50 billion exports of information technology and IT-enabled services by 2008, it seemed a stratospheric number since it translated into something like a compound annual growth rate of 30 per cent. While that may have seemed feasible in the odd year or two, achieving it year after year seemed a bit of an ask. Yet, the reality now is that this year's (2006-07) projected exports are around $32 billion, up from $23.6 billion last year""which is growth of 35 per cent. Despite the growing shortage of educated and trained manpower, sustaining that rate of growth now looks eminently feasible, and the target therefore is now within reach. Nasscom and McKinsey, to no one's surprise, raised the target last year to $60 billion by 2010, and Nasscom's president now thinks this may be too modest a target, and that $75 billion is feasible. The Prime Minister has gone a step further and mentioned $80 billion""which is nothing more than a CAGR of 35 per cent! The stage will soon be reached where this one sector alone adds 1 per cent to the country's GDP every year.

Importantly, as a McKinsey survey shows, clients are quite happy with the work that Indian firms are doing, and are encouraging them to move up the value chain. When it comes to basic data operations, for instance, the survey reveals that 97.2 per cent of firms are meeting their basic Service Level Agreements (SLA). In what McKinsey calls "rules-based decisioning", where the offshore centres crunch data in accordance with pre-specified parameters, SLA compliance rises to 97.4 per cent. In other words, while outsourcing may be a bad word in the political arena, companies across the world are quite happy to continue the process.

McKinsey now estimates that the total opportunity that is available for Indian IT/ITeS firms is a whopping $300 billion, provided the industry is able to deliver on certain efficiencies. On average, it finds that while the cost of running a captive BPO unit is 28 per cent more expensive than an average third-party BPO, the best captive units are 15 per cent better than the best third-party BPOs. That is, Indian BPO units have some room for improvement. The problem, McKinsey says, is largely one of management. For instance, even within the same BPO units, there are big quality differences between one practice and the other.

Interestingly, both Nasscom and McKinsey are sanguine about the shortage of a skilled workforce, the issue that had them exercised a few years ago. This has largely to do with the fact that, with 14-16 weeks of training in captive training establishments, the leading IT/ITeS firms are able to churn out workers with reasonably good skills. The flip side of this is that other industries, such as construction and machine tools, are not able to find engineers whom they can hire as each such graduate now wants to get absorbed in the fast-growing IT sector. But there could be a solution to this as well. As this newspaper reported the other day, Satyam Computers runs a fairly successful BPO unit in a rural area where, with some weeks of training, it is able to upgrade the skills of workers to bring them up to the levels required. Indeed, such workers are so grateful to be employed that attrition levels drop. In short, while there can be no doubt that India needs to increase the spread of its universities in the manner that China is doing if it wants truly world-class R&D and genuine innovation, there is enough room for functional training to deliver the manpower required by what could soon become India's biggest employment-generating industry.