Supporting India's upcoming small-town boom

In the last one month, Nasscom--India's trade body and "voice" of the country's IT-BPO industry--has partnered two consulting firms, AT Kearney and the Everest Group, to produce two reports that identify potential hubs for IT and BPO operations in India.

The first, released on Apr. 17, 2008 (along with the Everest Group) looked at potential BPO hubs in India. It also looked at tier 2 and tier 3 cities in India that can be developed as specialized hubs or clusters for financial services, manufacturing, pharmaceuticals and technology and telecom.

The second study, titled "Location Roadmap for IT-BPO Growth: Assessment of 50 Leading Cities", was conducted with AT Kearney and released two days ago. It analyzes the attractiveness of top 50 locations across India as potential hubs for IT and BPO operations.

Both the studies highlight one thing--the urgency for Indian states and IT companies to identify new hubs for IT-BPO operations and move beyond the major cities (Delhi, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad and Pune) in order to draw more jobs into the country, and keep India's growth engine running at a fast pace.

Currently, the IT-BPO industry employs over 2 million people, and 90 percent of these are captured by the seven major cities mentioned above.

Last year, a report titled "India's New Opportunity--2020" and released by the All India Management Association (AIMA), the Boston Consulting Group (BCG), the High Level Strategic Group and the CII, pointed out that by 2020, the developed world will have a shortage of 40 million working people. This clearly means that a lot many more jobs will be offshored to countries like India.

But the seven major IT-BPO hubs are getting increasingly costly and overpopulated, thereby eroding some of the cost advantages of running offshore centers in India.

As per the Nasscom-AT Kearney report, the opportunity over the next decade is huge. "The employment in the sector grew at over 25 percent per annum over the last decade," the report said. "Over the next decade, even a conservative 15 percent growth rate of employment in IT-BPO industry will lead direct employment in the sector to about 8 million by 2018, an increase of about 6 million. In addition, if a direct to indirect employment ratio of 1:3 is assumed, this translates to incremental indirect employment of 18 million."

Since time immemorial, the talented youth from the smaller towns of India have migrated to cities like Delhi and Mumbai, in order to look for job opportunities. With the outsourcing boom, Bangalore and Hyderabad also began to attract talent.

For these small cities to emerge as IT-BPO hubs, India will need better educational institutes and improved infrastructure. For instance, at a recent conference in Aurangabad (located in Maharashtra, India), delegates realized that their Blackberry phones could not work.

Without good roads, better power supply, connectivity and availability of "employable" talent, we can't dream of creating mini-Bangalores out of India's small towns.