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Benefits of IT Outsourcing to India - Economy

By realizing its long-term potential, the Indian IT and IT-enabled services industry could be one of the most powerful drivers of India's economic growth.Apart from a powerfull economy, India would also need a tremendous infrastructural development to realise this dream.

GDP Growth

The ITS and ITES industries are being recognized as the largest contributors to incremental market capitalization in India. However, it is still small in terms of contribution to GDP--especially when compared to other large sectors in the economy like agriculture and manufacturing.

This is likely to change quite substantially over the next six years. As per the NASSCOM-McKinsey study 2002, by achieving its long-term potential, the industry will dramatically boost the Indian economy. If the industry achieves its long-term potential, it will become one of the largest sectors in the Indian economy. The share of the Indian IT and ITES industries in the GDP will increase from 1.4 percent (in 2001) to 7 percent by 2008. Moreover, the analysis predicts that it will contribute 19 percent of incremental GDP growth between now and 2008.

Increase in Foreign Exchange Inflows

In addition, revenues from ITS and ITES exports are likely to grow at a significantly higher rate than other exports and invisibles and by 2008 will exceed all other invisibles combined. ITS and ITES exports, which currently account for 8 percent of foreign exchange inflows, will contribute more than 30 percent of foreign exchange inflows in 2008.

Enormous Employment Opportunities

Also, the industry will create enormous employment opportunities in the country. The IT industry which currently employs 0.5 million people, will employ over 2 million people directly and create indirect employment opportunities for at least an additional 2 million people by 2008.

In ITES exports, some of the segments creating the greatest number of jobs will be customer care (contributing 370,00 to 390,000 jobs), HR (contributing 140,000 to 160,00 jobs) and administration (contributing roughly 80,000 to 100,000 jobs).

Similarly, IT services will create employment for 450,00 people; the products and technology services opportunity will contribute around 140,00 jobs and the domestic market will employ about 650,000 people.

Not only, will the industry provide direct employment to 2 million people, it will also create significant entrepreneurial and employment opportunities in support services. Training, food/canteen, transport, housekeeping and security will be some of the biggest areas.

Market Share

Technology and manufacturing hubs have emerged across many industries. India has already effected the cycle for customized application development and has succeeded in capturing a 15 percent market share. Since India possess the ingredients and knowledge to repeat the cycle, it has the potential to emerge as a hub for other IT services like packaged software installation and support, and systems integration, IT-enabled services and technology services like embedded software development and ISV back-ending.

In terms of market share, the long-term potential for India translates into a 4 percent market share in IT services and IT-enabled services.

Potential Opportunities

Indian companies have traditionally focused on two of the largest IT services markets, the US and the UK. By focusing on these two geographies, Indian companies have largely ignored the potential of Canada and key non-English-speaking markets like Japan, Germany, France and Italy. However, these countries which account for roughly 27 percent of world IT services spend could represent a potential of over US$ 4.5 billion by 2008.

Other countries than have large English-speaking populations like Netherlands, Sweden and Australia also offer significant growth potential. All these countries, along with Brazil, Switzerland, Spain and Belgium, account for 90 percent of the IT services spend in the world.

Learn more about the advantages of India as an Offshore Destination

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