Vast growth
Total spend on products and services rose from $5 b in 1997-98 to $20 b in 2003-04.
Hands-off approach behind software success.

Our Bureau

New Delhi, Feb. 27

Expressing concern over under-investment in domestic IT capital and the slow uptake of hardware sector at a time when software and BPO exports race towards targeted revenues of $60 billion by 2010, the Economic Survey on Monday prescribed an all-round IT production approach that focuses on combined hardware-software sectors and on the domestic market along with exports.

"India accounts for 65 per cent of the global market in offshore IT services and 46 per cent of the global BPO market in 2004-05. With only 10 per cent of the potential market tapped so far by all the countries put together, the potential for further growth is very large. With annual growth of over 25 per cent, these two together can generate export revenues of $60 billion by 2010," the survey said.

The industry would have to overcome challenges including documenting procedures, establishing performance benchmarks, addressing concerns around data security, improving workforce quality and skills and developing new services while improving the operational excellence.

The survey noted that the total spending on products and services of the IT sector increased from $5 billion in 1997-98 to nearly $20 billion in 2003-04, and lauded the Government's "hands off" approach for the success of software sector which registered exports of $17.2 billion in 2004-05, growing 34 per cent over the previous year. IT exports are expected to increase by 30-32 per cent in the current year.

Job creation

With the satisfactory growth of the Indian ITES-BPO sector both onshore and offshore, export revenues from this sector increased rapidly from $2.5 billion in 2002-03 to $5.1 billion in 2004-05. A major impact of the growth was on employment creation, it said, adding that IT and ITES sectors are estimated to have employed about 10.45 lakh people in March 2005.

Slow IT uptake

The survey noted with concern that the slow IT uptake in the domestic market had led to an under-investment in IT capital. Among 30 economies worldwide studied by software association Nasscom, 10 per cent was the critical share of IT capital in total capital, which separated invested from under-invested economies.

Low PC penetration

India's share of only 3.5 per cent and is among the lowest. "Personal computer penetration rate of about seven per 1,000 people, is less than an eighth of the average in other IT under-invested economies and a fourth of that in China," it said.

The survey also cautioned that the IT hardware sector lagged far behind the burgeoning software and services sector, and said, "One of the reasons for the under-investment in IT sector is the slow development in hardware sector. With the implementation of IT Agreement-1 in April 2005, there are zero duties for ITA-1 items and greater international competition for the hardware sector."

(This article was published in the Business Line print edition dated February 28, 2006)
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