Growth in India's offshore services market slows

India's revenue from outsourcing services to clients abroad will grow by about 4 to 7 percent in the Indian fiscal year to March 31, 2010, the National Association of Software and Service Companies (Nasscom) said on Wednesday.

The country's outsourcing revenue from abroad is expected to be between US$48 billion and $50 billion. The exports figure includes Indian outsourcers revenue and that of local subsidiaries of multinational companies that outsource software development and BPO (business process outsourcing) work to India.

The trade body also announced on Wednesday that offshore outsourcing revenue grew by 16.3 percent to US$46.3 billion in the fiscal year to March 31, 2009. This figure is only an estimate until the accounts of Satyam Computer Services are re-stated. Satyam's accounts were ordered to be re-stated after its founder B. Ramalinga Raju said in January that the company's revenue and profits were inflated for several years.

India's offshore outsourcing business has been affected this year by the economic downturn, as its customers in key markets like the U.S. have deferred decisions on new projects.

Some analysts have forecast that growth in revenue from exports will not return after the economic recovery to the high levels of over 28 percent in earlier years. The large growth seen in previous years was because customers abroad were just getting into offshoring to India, they said.

Nasscom's president Som Mittal said earlier this month in an interview that exports by India's outsourcing industry will likely grow by below 10 percent in U.S. dollar terms in the year to March 31, 2010.

Customers are attempting to bring down prices, and some of them are introducing benefit sharing programs that will typically reduce the outsourcer's revenue from a contract, Mittal said. Also as outsourcers do more of the work offshore in India than on-shore at client sites, revenue from that work will fall, he added.

Large Indian outsourcing companies like Tata Consultancy Services, Infosys Technologies, and Wipro reported this month flat or declining revenue in U.S. dollar terms for the quarter ended June 30. Their revenue and profits however grew in Indian rupees because of a long-term depreciation of the rupee against the U.S. dollar.

Close to 70 percent of the revenue of these outsourcers is denominated in U.S. dollars, said Siddharth Pai, a partner at outsourcing consultancy firm, Technology Partners International (TPI).

Even as exports are getting hit, the much smaller domestic market for outsourcing services appears to be still growing strongly. Nasscom forecasts that the domestic market for BPO and IT services will grow this fiscal year by about 15 to 18 percent to about 670 billion rupees ($14 billion). Domestic business grew by 21 percent to 570 billion rupees in the fiscal year to March 31, 2009.

Copyright © 2009 IDG Communications, Inc.

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