Govt can fix slowdown in IT industry

A govt wanting to make governance 'smart' by spending on technology can give a leg-up to vendors in this sector

India’s software and services exports will grow at a lower rate in 2015-16 than was earlier projected, with Nasscom, the industry association, revising its growth estimate downwards to 12.3 per cent, at the lower end of the earlier projection of 12-14 per cent. Indeed, if one goes by actual dollars brought in, the growth is likely to be even lower, at 10.3 per cent. The growth rate is likely to fall even further in the next financial year (2016-17), projected at 10-12 per cent in constant currency terms, and likely lower still in actual dollar terms. So actual export earnings in this export-oriented industry will be poorer in dollar terms and look brighter in rupee terms. Apparently, a cheaper rupee is not giving the Indian industry more pricing power; so it is having to offer a price discount so as to hold on to market share. This financial year, India will just about be able to hold on it its share of the global outsourcing industry at 56 per cent, compared to 55 per cent in the previous year. The saving grace is that it still retains its lead over countries like China and Malaysia.

There is little that can be done to global demand — which, according to one forecast, is likely to go up by a bare 0.6 percentage point in the current year, after going down sharply in the previous year. On the other hand, domestic demand for IT and services is likely to go up by 10 per cent in 2015-16. But this is still a comedown from the earlier projection of 15-17 per cent and actual growth of 14 per cent in 2014-15. Domestic spending on information technology may be faltering in tandem with global spending.

The Indian government is, however, seized with a desire to make governance “smart” — which should imply that more information technology spending should give a leg-up to vendors in this sector. Recently the domestic market has continued to disappoint Indian software and services leaders who have found much greater ease of doing business in their traditional developed country markets. In the run-up to the Budget, when there is considerable buzz about public spending in infrastructure stepping in to fill the gap, a sharp boost to government spending on information technology could help Indian players overcome the one negative it has vis-à-vis China. Its information technology companies thrive on domestic demand — domestic spending in software is several times that in India, although China is behind India in software exports. It is important for Indian software and services to keep growing healthily; though it is still a robust job creator, there is a considerable slowdown on that front also. As software and services move increasingly into digital and cloud computing, it will absorb fewer hands — who will, however, need higher skills. Public policy must thus focus both on quality and quantity.