If not IT, what is India's next growth engine?

If not IT, what is India's next growth engine?

Summary: When you are used to double-digit growth rates (ranging from 13 to 50 percent per annum), a growth forecast of 4 to 7 percent definitely comes as a surprise. At Chennai today, Nasscom (the trade body of Indian IT-BPO industry) announced that the industry is estimated to grow by 4 to 7 percent in the current financial year (2009-10).

SHARE:

When you are used to double-digit growth rates (ranging from 13 to 50 percent per annum), a growth forecast of 4 to 7 percent definitely comes as a surprise. At Chennai today, Nasscom (the trade body of Indian IT-BPO industry) announced that the industry is estimated to grow by 4 to 7 percent in the current financial year (2009-10).

Ironically, around the same time, a Reuters news report said investment bank Morgan Stanley expects the Indian economy to grow by 6.5 percent in the current financial year ending March 2010, above the country's apex bank Reserve Bank of India's revised growth estimate of 6 percent. "We believe that higher than expected industry sector growth will offset the negative impact of lower agriculture output due to poor monsoons," Cretan Aye and Tame Gupta, economists at the bank said in the report.

Both these reports point to the fact that Indian IT may grow at a slower pace than the Indian economy.

According to the Nasscom survey, the sector reached US$58.8 billion in financial year (FY) 2008-09, up from US$52 billion in FY2007-08. Export revenues for the Indian IT-BPO industry recorded growth of 16.3 percent and clocked revenues of US$46.3 billion in FY2008-09, up from US$40.4 billion in FY2007-08. The domestic segment grew by 21 percent to register revenues of INR570 billion (US$11.8 billion) in FY2008-09 from INR470 billion (US$9.75 billion) in FY2007-08.

The Nasscom survey estimates the IT-BPO export revenues will grow by around 4 to 7 percent to reach US$48 billion to US$50 billion in FY2009-10. The domestic market is expected to grow a lot faster--at 15 percent to 18 percent--to reach INR650 billion to INR670 billion (US$13.5 billion to 13.9 billion).

The tide seems to have turned for Indian IT-BPO industry. Till recently, it was termed the growth engine of the Indian economy. But today, that label surely doesn't stand true.

The industry had grown by leaps and bounds over the last decade--from US$5 billion in 2000 to about US$58.8 billion in 2008-2009. Today, the industry is India's biggest earner of foreign exchange, with exports of almost US$46.3 billion. Equally important, it provides direct employment to some 2 million workers and indirect employment to almost four times that number.

Sometimes numbers can get really confusing. Clearly, agriculture--which in a country like India is largely rain-fed--cannot post magical numbers. Poor monsoons this year have already impacted several crops. Manufacturing may show some growth, but will it be enough to compensate the low growth in agriculture sector?

With Indian IT no longer the engine of growth, it will be interesting to see which sector emerges as the new engine for the Indian economy. Any guesses?

Topics: Tech Industry, Banking, Hardware, Asean, India

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

1 comment
Log in or register to join the discussion
  • If not IT, what is India's next growth engine?

    Dear Swati:

    IT/ITES sector's contribution to Indian GDP is around 5-6% only and nearly same contribution is that of Infrastructure sector. No doubt IT has been great saviour, atleast for people like me (with architecture degree but earning bread from IT) in the last decade and will continue to do so, may be at a slower pace. I guess Infra sector will take the lead from here and compensate for the growth slowdown as well as GDP contribution from IT.
    anonymous