Outsourcing blip predicted for India

Outsourcing blip predicted for India

By Joe Leahy in Mumbai

Published: February 14 2008 17:32 | Last updated: February 14 2008 17:32

Executives in India’s information technology outsourcing industry expect slower growth in the first two quarters of the year because of uncertainty in the US economy, but most believe business will return to normal in the second half.

If they are right, these forecasts will be greeted with relief by the Indian government, as outsourcing is one of the main growth engines of the economy, employing nearly 2m middle-class professionals and creating millions of ancillary jobs.

“In the short term there is concern about the US economy but, in the medium to long term, the value proposition [stemming from outsourcing] is still there,” S. Gopalakrishnan, chief executive officer of Infosys, told the Financial Times on Thursday.

The outsourcing industry, which provides services ranging from developing software for overseas clients to managing back office processing of mortgages, has risen to become one of India’s main export earners.

The sector is forecasting that export revenue for the year ending in March will reach $40bn (€27bn, £20bn) and rise 50 per cent to $60bn by 2010.

But recent local media reports have speculated that the US slowdown is beginning to affect the industry’s hiring policies.

One report cited a move by Tata Consultancy Services, India’s biggest outsourcer, to sack 500 staff for underperformance as evidence that business was getting tougher. Executives in Mumbai said that while they regularly weeded  out underperformers, hiring was proceeding normally.

Some US financial clients, which normally finalise their IT budgets for the year ahead in January, had delayed making decisions because of the uncertainty in the industry. But most Indian outsourcing executives believed business would resume as normal in the second half once the outlook for the US economy became clearer.

And few US clients were expected to reduce their expenditure on outsourcing, which remained a lower cost option than keeping functions onshore.

“My worry is that people are talking about this slowdown so much they’re starting to believe it,” said Azim Premji, chairman of Wipro, India’s third largest outsourcer.