IT sector growth to lose steam

By Goutam Das

Bangalore, May 2: The IT applecart will continue to roll for Indian service providers in the coming years, but ‘Growth 2.0’ may be harder to achieve than ‘Growth 1.0’. While the IT/ITeS industry jumped at a compound annual growth rate (CAGR) of 27 per cent between 2002 and 2007, that rate may dip to 18 per cent between 2007 and 2012, country manager with market research firm IDC India, Mr Kapil Dev Singh, projected.

This, however, does not imply a rapid slowdown of the industry. In fact, rising cost pressures because of the US slowdown might actually lead to more outsourcing to India. The slowing of growth will primarily be due to the high base the market has already achieved.

"IT suppliers will have to share the risk of doing business with enterprises — more and more of their revenues will therefore be tied to how the customer performs," Mr Singh said. This trend will eventually result in a new class of IT vendors: service providers who understand their customers’ businesses better, incorporate Web 2.0 tools and service offerings, and innovate around solutions that link IT with business processes.

In the near-term, the perceptional risk for service providers is from the slumping American economy, which has led to caution in technology spending. Analysts, however, see little effect on Indian vendors, at least for the moment since the Indian companies have long-term contracts in place, typically ranging between three and five years.