Wednesday, May 16, 2018

IT sector hovers in mid-air

Information Technology (IT) export earnings are what keep India going. It is India’s face abroad and the country is proud of the vibrant IT sector. The 2016-17 Reserve Bank’s annual survey on computer software and information technology enabled services exports gives a general picture how the sector, which is what makes the India a big player in the world, is faring in terms of the services it offers and the dollars it fetches in turn. There are of course illusions among politicians and spin-doctors that IT exports make India a major global economic power, which is not really the case. The survey reveals that India is among the top Information and Communication Technology (ICT) exporters, that it is ahead of China, Ireland and France, close to Germany, and far behind United Kingdom and the United States. India is exactly in the middle of the IT exporters pecking order.

In 2016-17, India’s software exports brought in a net invisible surplus of $97.1 billion (71 per cent), and it helped in reducing the current account deficit of $112.4 billion to $15.3 billion. But where do these earnings come from? They come by way of computer services (69.2 per cent) and Information Technology-enabled services (30.8 per cent). The computer services segment accounts for 66 per cent of the earnings and software product development has a share of 3.2 per cent. In the ITes segment, 23.7 per cent is accounted by the business process outsourcing (BPO) and engineering services contribute 7.1 per cent of the share. There has been encouraging improvement in terms of software product development and engineering services, but earnings from those segments are still small. The Indian IT sector stands at the lower end of the value chain, and though its dollar earnings provide ballast to the crucial foreign exchange cushioning, it would be an exaggeration to call India an IT superpower. India is the IT service hub of the world, but it is not the leader in the sector in terms of spearheading technology with its brainpower.

In terms of the industry, BPO services corner the share of 76.8 per cent and engineering services 23.2 per cent within the sector. Within the larger BPO services, the share of customer interaction services is 5 per cent, which is half of what it was in 2012-13 (10.9 per cent), financing and accounting, auditing, book-keeping and tax consultancy services is 10.3 per cent. Segments like medical transcription (0.8 per cent), HR administration (0.6 per cent), content development, managing and publishing (0.8 per cent) reveal diversification but not significantly so. Similarly, on the engineering services side, product design engineering (electronics and mechanical) has a share of 7.7 per cent

Experts are aware where India stands in the IT league table, and there are attempts to improve the position by increasing the share in software product development and in engineering services. A change can also be seen in the profile of the companies dominating the sector. In 2012-13, the public limited companies dominated the scene with a 64.6 share of the sector’s space, with the private limited companies occupying 35.3 per cent of the share. That is the big companies with a larger shareholder base were the lead players, though the small companies existed. In 2016-17, the private limited companies increased their share to 49. 2 per cent, while the public limited companies’ space shrunk to 50.3 per cent. This marks a major change in the profile of the sector. It means that there are more players, and the smaller players have almost an equal share of the IT business along with the big ones. It also means that those employed in the sector get lesser pay and the jobs are also insecure because the private limited companies operate on tight and stringent budgets. The low wage bill of the private limited companies keeps the Indian IT sector competitive. It is estimated that the total work workforce directly employed in the IT sector stood at 40 lakhs or 4 million, while those indirectly employed stood at 1.3 crore or 10.3 million in 2017. The IT sector should be expanding and growing in terms of technology upscaling, but India is not the leader in this field.

IT sector will generate disproportionate foreign exchange earnings compared to its capacity to create jobs. India’s growth story cannot depend on IT alone. Policy-makers recognize it and they have been flailing their hands desperately to boost manufacturing and agriculture. Due to unavoidable reasons, India is unable to find a way out of the logjam in the primary and secondary sectors. The Indian economy looks like a skyscraper standing on stilts. Not an assuring sight.

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