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A New Game Plan for India's Outsourcing/IT Industry

The Infosys campus in Bangalore, India. (theqspeaks/flickr)
by Stephanie Valera
23 February 2009

NEW YORK, February 23, 2009 – With the world anxiously waiting to
see how the economic downturn will affect India's economic growth, a
panel met at Asia Society headquarters to focus specifically on India's
IT/offshoring industry, which accounts for approximately 5.5% of the
country's GDP. While a general sense of optimism prevailed, despite
widespread negative trends, the panelists voiced growing apprehension
about possible protectionist US policies, which, in their view, have
the potential to stifle future Indian growth.

NASSCOM Chairman and Zensar Technologies Ltd. CEO Ganesh Natarajan
illustrated the Indian IT sector's unparalleled growth, noting how the
market that was a meager 4.8Bn (USD) only ten years ago now amounts to
approximately 64Bn (USD). That achievement has not only brought
monetary gains but has also instilled an unwavering confidence in
Indians who continue to believe in a better future for their country.
Sadly, the global economic recession and domestic
turbulence—specifically, terrorism and the Satyam scandal—have shaken
the faith of overseas investors, leaving the country with an uncertain

As caution rises, India has seen a withdrawal in foreign
institutional investment since August 2008, yet its IT economy still
holds long-term investment potential, according to Seth Bergstein,
managing director and head of Global Services Group of the Investment
Banking Division at Morgan Stanley. Bergstein explained that while
project-oriented application development still constitutes the
majority, as it did at the time of the dot-com crash, the current IT
service exports industry covers a wider range of services than it did
previously; also, more demand for outsourcing is coming not only from
banking and financial firms but also from health care and manufacturing
companies. Moreover, companies like NASSCOM, along with other industry
players, are making a concerted effort to encourage innovation and
provide new services to drive growth.

The Indian government's efficient handling of terrorism and
corporate governance is essential to regain confidence overseas, noted Tim Massad,
a partner at Cravath, Swaine & Moore LLP. The government's swift
handling of the Satyam case is a testament to the importance of
governance in the country. Without de-emphasizing the need for safety,
Stern School of Business professor Marti Subrahmanyam urged objectivity in analyzing India's current position.

The panel expressed deep concern for the potentially protectionist
policies that are currently being considered by the US Congress. S. Mitra Kalita, deputy bureau chief of the Economics Bureau at the Wall Street Journal,
steered attention to the recent US stimulus bill that imposes limits on
H1-B (work) visas for the firms that received bail-out funds. David Good,
chief representative of Tata North America, argued that such
protectionist measures could be very damaging for several companies,
across different industries, to the point where they might even be
forced to shut down.

The vulnerabilities shaking India's foundation are also distressing
countries all over the world. Compared to many of those other
countries, India seems to be holding its own, with the economy
estimated to grow by approximately 6% and with a balance of technology
companies, education and research institutes, investors, government and
a talented youth striving to continue the IT/offshoring success story
even in the face of the downturn. With that amount of domestic
stability, India's success largely depends on America's cooperation and
the world economy's ability to bounce back.

Reported by Chandani Punia