London: An ILO report has questioned India's ability to sustain its decade-long momentum in the software business, while acknowledging its "striking progress" in this sector. In its World Employment Report 2001, the ILO sees India as the first poor country to have taken giant strides in software development and suggested that this could one of factors responsible for the Indian government making `ambitious projections.' But in its study titled "Life and Work in the Information Economy", it raises the question of "whether the momentum generated over the past decade can be sustained in future in view of growing skill scarcity, rising costs and emerging competition." Among the difficulties it predicts for India are "the rising scarcity of trained manpower, eroding labor cost advantage, emerging competition from other countries, infrastructure bottlenecks and low research and development thrust.""Software accounts for eight per cent of India's exports of goods and services, but the net foreign exchange realisation is much smaller because of substantial foreign exchange expenditure on onsite delivery of these services," the report says. "Although foreign exchange utilisation per unit of exports has increased since 1996, net export realisation is still less than 52 per cent of gross exports," it adds. The ILO also says the software business has not helped to generate employment significantly. "The industry, despite all euphoria, creates jobs for 60,000 to 70,000 highly talented engineering graduates per year." The projections are that the industry can create another million jobs by 2008 of the "backroom" kind, but these will be of a "footloose nature" and "will move away from India as wages rise and cheaper locations emerge." It warns that India's strength could also become its weakness. "The growing scarcity of IT manpower in the western countries has led them to turn their attention to India assource of trained manpower.
This threatens to lead to a fresh rise in brain drain from India and in the process adversely affect the competitiveness of Indian industry by aggravating their growing scarcity for talent," the ILO report says. The "export enclave nature of the industry has generated "little if at all vertical inter-firm linkages with the rest of the domestic economy," the report says, adding that "There is also evidence that by sucking up the bulk of the engineering graduates the industry has affected the other engineering industries adversely, although the precise impact is not yet clear." The industry is clustered in six to seven cities in India and "its impact in reducing regional disparities is negligible if at all," it says further. On the positive side, however, the ILO says, "there is evidence of an improvement in the proportion of net exports, in labor productivity and in profit margins over the past couple of years." Companies are attempting to move up the value chain towards offshore development by focusing ondomain expertise, high-end consulting and proprietary packages, and value pricing strategies. Indian software services now account for a "significant share of the world market in outsourced software services," the report says.
India Abroad News Service
Copyright © 2001 Indian Express Newspapers (Bombay) Ltd.
