India’s IT industry will feel the ripples of the down turn in the US. The National Association of Software and Services Companies (Nasscom), an apex body for Indian IT firms, is likely to cut its original growth forecast for FY 09 by a few percentage points.
Going by the original forecast, the IT industry was expected to grow at 21-24% in FY 09 as against 28% in FY08. Last fiscal, the industry had clocked revenues of $52 billion, up from $ 39.6 billion in FY07. “We were expecting the industry to grow at over 20%. But, we will come out with a revised forecast in the first week of December after analysing the situation,” said Som Mittal, chairman of Nasscom. He attributed the slowdown in hiring to high utilisation levels and process automation. “The industry is moving away from a linear model of growth. Our attrition has also come down leading to a reduction in hiring. Earlier, our utilisation rate was about 71-72% and now it has gone up significantly. Some companies have utilisation rates of over 80%. If there is a 3% increase in utilisation in the industry, the overall hiring will come down by 60,000,” he said.
However, companies have stopped hiring in large numbers, as they do not expect big-ticket projects due to the global financial crisis. According to Ganesh Natarajan, vice chairman of Nasscom, all companies have also honoured their campus recruitment offers. “Some companies have resorted to deferrals in appointments as they did not have training capacity to accommodate all the entry level people,” he said.
The industry body has also started lobbying for an extension of STPI scheme where companies get tax breaks on their export profits. The scheme will end next year.
It is reckoned that with earnings showing a declining trend, the IT sectors profit margins will erode drastically if they are asked to cough up tax.
“With new geographies emerging as possible IT destination, it is very important for the government to ensure that our industry is competent. The industry is still in its nascent stages and we expect the government to extend STPI tax breaks. In fact, we have one year’s time to hold discussions with the government to come out with a tax policy that could help the industry,” said Mittal.
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