The Hindu Business Line : IT’s poised for second wave

The performance of the IT majors in the quarter ending March 2008 and their assessment that near-term prospects are shrouded in some uncertainty only confirm what has been speculated for some time now: The robust growth in business volumes and profitability, the IT sector’s hallmark over all these years, has come under some strain. The crisis in the US economy and, more particularly, the financial woes of its banking industry, are the immediate triggers. The discreti onary spend on information technology initiatives that automate manual processes and aid better decision-making have become the first casualty in belt-tightening by corporate America. It is perhaps too early to say whether the IT industry is confronted with a long spell of sluggish growth and moderate profits. After all, gloomy predictions have been made for the industry by experts after every major global crisis. Witness the concerns about growth that surfaced in the immediate aftermath of the dotcom valuation bubble being pricked and the terror events of the September 2001 in the US. That the industry quickly shrugged off such concerns to repeatedly put itself back on a high growth path is now history.

It is a feature of business cycles that periods of boom are followed by years of stagnation in growth. There is no reason to suppose that the IT industry is immune to the process, even if there are differences in perception about how severe the present situation is. But this is clearly an opportune time for the software industry to indulge in some introspection. It ought to examine if it can reengineer its processes of software development so that it can deliver value to its customers at more competitive costs than they offer now, and in quicker time.

As the industry transits from a period of high growth to one of consolidation, managers face a challenge that is qualitatively different from the one they have had to grapple with when the emphasis was on service delivery rather than costs. But an even sterner test awaits managers in public administration. Despite inadequate social and physical infrastructure in the country, the IT industry was able to create and sustain the first wave of growth. Indeed, cynics argue that the industry’s early success had been due, in no small measure, to a sense of benign neglect by the Government. But inventiveness and the can-do spirit of the average Indian in the software industry and the capacity of the market to deliver what are manifestly public goods can only go thus far. The Government must now get its act together on the infrastructure front as the industry is poised on the threshold of a second growth wave.

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