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Myth of India as an IT Superpower - - True or False?


The $150 billion software export industry has always been a self-created illusion perpetuated by both, the industry and the Government.  In 1988, when the Indians started exporting software engineers on business visas to carry out the programming jobs on-site during the Y2K and dot-com boom, the export of workforce reached its peak.  And suddenly, in the year 2001, the Indian IT industry faced its first jolt, when planeloads of software engineers returned to India because the on-site party had crashed in America.


Indians always got most of their revenue from software maintenance services. The model of income was simple, like labor contracting in any other field, billing the customer on hourly or a monthly basis.  With the on-site party suddenly drying up in 2001, Indian software companies were ingenious enough to convert the same model of billing from on-site to offshore.  However, till date, nothing much has changed in the offshore billing model. The continuance of this model brought down billing prices and margins.  The industry, which was used to 30% plus margins started settling down to 10-12% margin in the hybrid billing of on-site and offshore.


In the last three years, with the advent of substantial changes in technology and the “Trump Factor” of discouraging on-site work, Indian companies are facing an existential crisis.  It is not to say that the existence of the industry is under threat, but we can safely say that the aura of India as a software superpower has been busted. The only advantage of the Indian Software export sector has been cost-effectiveness and availability of a large pool of workforce at a fraction of salaries in India than what is payable in the Western field. The scenario has the following implications for the industry:


1)  Margins will always be under pressure and salaries will never be the best in this sector.


2)  The ambition of many Indians to make the US as their permanent home is increasingly difficult.  The route of H1B to a Green Card to the coveted US citizenship will be available only to highly skilled people.


3)  Outsourcing to India will continue, the software export sector will keep adding net workforce, albeit the numbers will come down substantially.


4) Those software engineers/middle/senior management professionals, who can’t add value to these organizations will always be under the threat of losing their jobs.


5) With tremendous cost pressure, salary increase will remain depressed for 

at least 3-5 years to come as the Indian industry goes through this churn to arrive at a new equilibrium.


 The new equilibrium is a few years away and can bring growth and prosperity to this industry once again. That will probably be the emergence of India as a "Real Software Super Power”.



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