Vote on Account 2014: IT sector likely to retain growth tempo over next decade

Growing importance of offshore business model, a sustained quality of deliverables, global competence, and favourable government policies helped India information technology (IT) companies grow rapidly over the past decade. The sector also played a crucial role in employment generation during this period at a time when the manufacturing sector, which was traditionally responsible for creating job opportunities came under pressure to rationalise workforce amidst increasing automation and rising cost of raw materials due to higher inflation.

Over the next decade, the sector is likely to retain the growth tempo given its export orientation even as the domestic economy continues to revive from a marked slowdown. But, the rate of employment generation is likely to taper with increasing focus on employees with multiple skill sets.

The journey ahead:

The Indian IT sector earns over 80% of revenue from exports with only one out of every five rupees coming from the domestic market. This reduces the dependence of the sector on the domestic economy. Given a gradual demand recovery in the US and European markets, which together form about 80% of the Indian IT exports, the sector is expected to sustain the growth momentum in the coming years notwithstanding the sluggishness in the domestic industrial activity.

The sector would however appreciate to have a better clarity on some of the intricate issues such as regulations pertaining to transfer pricing and the tax treatment given to the revenue earned in the overseas markets. The continuation of SEZ policy will help the smaller players to grow rapidly to gather critical mass. In addition, the sector would prefer to continue with the regime of liberal labour laws for the service sector since people are the biggest assets for these companies.