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

The Infosys campus in Bangalore, India. (theqspeaks/flickr)

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 future.

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