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Nasscom sees 3-4% slowdown in IT, ITeS in FY09

Published on Mon, Jun 09, 2008 at 17:36 | Source : CNBC-TV18

Updated at Tue, Jun 10, 2008 at 09:17

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By Roshni Menon , CNBC-TV18

The National Association of Software and Services Companies, or Nasscom , BPO summit took off in Bangalore today where Nasscom has revealed that there will be a 3-4% slowdown in growth of the IT-ITeS (IT enabled services) industries this year, largely on account of the fluctuating dollar and economic uncertainties in the US.

FY09 growth of the IT sector is expected to be 22-24% as against 28-29% last year. The major factors responsible for this are economic uncertainty and slowdown in IT spends in the US market.

There is also competition growing from other countries such as China, Philippines and Sri Lanka. The domestic IT-BPO sector is booming and is expected to grow at 45 % in FY09.

The NASSCOM-A.T Kearney study on 'Location Roadmap for IT- BPO Growth: Assessment of 50 leading cities' stated that around 85% of the BPO business is concentrated in seven cities. It has identified 43 other cities for BPO growth. It will collaborate with state governments to improve social and physical infrastructure in these cities.

"The fundamentals of the BPO industry have remained quite strong. We have seen that, in spite of downturns and so on, we have talked about the industry still continuing to be robust. We are part of the global world. So, obviously with the changes that are happening across, there will be impact on us. We are a part of the global world, so with changes happening across, there would be an impact on us as well. Last year, we grew at a rate of 28-29 %. There could be some impact this year. Our forecast is it will go down to 22-24 %. But it is still a fairly good growth rate," said Som Mittal, President, Nasscom.

It was perhaps the largest turnout at a Nasscom summit. Uncertainties in the global market were enough reason to bring the bigwigs of the BPO industry to Bangalore. But the mood in the Nasscom camp was still upbeat, despite the slowdown everyone was expecting.

Nasscom says this will not impact the long-term prospects of the sector, which is set to cross the USD 60 billion mark this year. With the domestic IT and BPO sector racing ahead at 45 %, these challenges are being seen as part of the deal. But growth in the Indian market is key. According to a Nasscom -AT Kearney study, 85 % of IT and ITes work happens out of 7 large cities. The study has also identified 43 other locations that present a competitive edge for the BPO industry to flourish. While the union Government has already shown interest in developing special IT investment regions, Nasscom is working with state governments to speed up this proposal.

But competition from China, Phillipines and Sri Lanka is hotting up, and Nasscom estimates that the Indian industry will need to innovate and innovate soon. Currently, around 90 % of business comes from traditional areas like IT services, BPO and engineering services. That number will need to change to bring in at least 30-40 % of business from non-traditional areas.