India: back office to the world - a discussion of the development of the Indian economy, which is focusing on office operations

Contemporary Review, April, 2003 by Alex Ninian

Economic Effects in India

Economists and practitioners in this field often refer to it as 'information technology enabled services' or ITES and they see India as far and away the world leader in ITES, being at least five times the size of its nearest rival, the Philippines.

It currently employs over 100,000 people and accounts for nearly $2 billion in revenues which are virtually all hard currency foreign earnings. Its annual growth rate over the last two years has been over 50 per cent per annum which puts it as the fastest growing industry in the country and the nation's fastest growing foreign currency earner.

It is still in its start-up phase, going from almost nothing to having 400 centres in the last five years and adding 50 more per year and, by all accounts, it still has a very long way to go. A report prepared in 2002 by the National Association of Software and Service Companies (NASSCOM) and McKinsey has forecast that in five years the ITES sector in India could amount to $24 billion, or 3 per cent of the country's GDP, and employ up to 1.5 million workers. If the forecasts are anything like correct it means that ITES will account for 30 per cent of foreign exchange inflows.

Apart from the human and personal effects of all this innovation there are further economic knock-on effects. Most of the employees in the industry are in their twenties and thirties and their new earnings are having an impact on the providers of products and services to this specific age group. Furthermore, they mostly work for and with Western organisations and spend much of their lives in contact, albeit remotely, with Westerners and this results in tastes and purchasing habits becoming increasingly American or European. This, in turn, drives demand for jeans, trainers, music, videos, and fast food and drink.

Property is another sector experiencing the ripple effect from ITES, mainly through the demand for modern offices and open plan work centres. Technology parks are springing up in and around the major cities creating new demand for land for the creation of suitable modern premises and old, single-storied slums like Gurgaon and Malad in Mumbai are being transformed into vast, shiny, air-conditioned office complexes.

Infrastructure

While India has so many features going for it, it does have increasing competition, mainly from the Philippines and China, and the government is having to take an overview of its strategic position. Its endemic bureaucracy requires that new developments have to obtain a mass of consents and approvals with the inevitable risk of corruption, and a serious reduction in red tape is required. Electricity supply is still too erratic and subject to blackouts, and measures are required to improve power reliability. The telecoms industry has too little competition and telecom rates are relatively high by international comparisons. Further reform and liberalisation need to be accelerated. Employers in the industry are pressing for new college and university vocational courses and qualifications, specific to ITES, and for the setting up of vocational institutes for the outsourcing sector.