The Indian software industry's potential has already come to the notice of global IT giants. Some of them have already set up development centres to leverage the immense talent pool of high quality programming and software development skills available at a fraction of the cost in the West. This upbeat note is felt in the Indian capital  market, the barometer of how companies perform in giving returns to the shareholder. Software stocks are the favourities of the investors although the market is bearish.

    Most of the suggestions of the Task Force, which came up with a set of 108 recommendations, have been adopted by the Government including fiscal incentives which were announced by the Finance Minister, Shri Yashwant Sinha.
 

Aiming High

    The Government aims at removing bottlenecks in the path towards making India a global IT leader."This is the first time that any Government or Finance Minister has given so many concession to the IT sector as one package," says the Task Force spokesman, Shri Dewang Mehta.The incentives would spur India+s annual software exports to grow to US $10 billion in four years and at least US $2.7 billion in the current year itself.

    The implementation of the Task Force's recommendations is expected to create 1,00,000 new jobs. There is a conscious effort to remove the elitist tag from IT. Through people's participation in IT, the Government intends to put the country on a high-growth path.
 

More jobs, higher exports

    Industry analysts say that software companies are expected to mushroom even in smaller towns and cities. It is estimated that IT enabling services alone is expected to provide one million new jobs and more than US$15 billion of cumulative exports in the next five years.

    Driving this growth is a qualitatively improved work force who would get the benefit of the Indian Institutes of Information Technologies (IIITs), the first of its kind is coming up in Hyderabad. This will see a new paradigm of industry-academic interaction with emphasis on innovation and entrepreneurship development.

    Although the software industry is the only segment of the economy which has been consistently showing a growth rate of over 50 per cent, India's share of the global IT market of US$600 billion is less than 0.04 per cent. Achieving a market-share of 5 per cent is an immediate possibility, but the only drag on such growth prospects is the low penetration of personal computer (PC) in the country.
 

Global Potential

    India produces only 0.35 million PCs a year compared to a small country such as Taiwan which makes 4 million desktop machines annually. The Indian IT industry has already launched a programme to proliferate computer use by making available one million PCs in the shortest possible time from the current level of 6,00,000.

    Recognising the talent available in India, global IT majors are hurrying to set up their own development centres in India. Over 140 of the fortune 500 companies are already sourcing software work to Indian companies which have received globally recognised quality standards. The world's top software firms such as Microsoft, Novell, Bann, Texas Instruments, Motorola, Intel and IBM have already set up centres for research and development.
 

Balancing Act

    Sensing the growth potential of the Indian IT segment in the economy the capital market, which has been showing bearish trend for the last few years, has been bullish on software stocks. These stocks have bucked the current trend of a bearish market.
 

Software Stocks

    The entry of software stocks in the restructured Sensex, the benchmark sensitive index of 30 Scripps on the Bombay Stock Exchange (BSE), reinforces the fact that IT shares have become the favourites of Indian and foreign institutional investors.

    The restructured Sensex, which is to become effective from November this year, comes closely on the heels of Morgan Stanley Capital International (MSCI) deciding to incorporate some of the Indian IT stocks into its indices. This is a signal to global investors that Indian IT has come of age. About 84 per cent of the world's top fund managers benchmark their investments against MSCI whose market capitalisation is close to US$13 trillion.

    With the induction of the shares of two Indian software companies in the Sensex in October, the indices' market capitalisation is estimated at Rs. 1655.58 billion representing 34.5 per cent of BSE's total market capitalisation.

    Analysts say that software companies are going to rule the roost in the capital market as there is a large number of small but unlisted software companies which may like to tap the market. These companies are sure to be welcomed as these firms are riding an export boom. Their entry would add strength to the capital market which has seen a steep fall in resource mobilisation.The next three years are set to see a further boom in software stocks because Indian firms have won several orders to set right the Millennium Bug or Year 2000 correction work and the Euro conversion project, say the analysts..

    The current composition of exports by Indian software companies shows that professional services constitute half the earnings while consultancy about 26 per cent and data processing 12 per cent. The trend shows that by 2002 the proportion of offshore services is expected to constitute 41 per cent.

    Taken along with offshore development of packages, the Indian software industry's earnings from this would be as much as 60 per cent. This will be in contrast to the present situation where 60 per cent is accounted for low-revenue yielding on-site services.
 

Bright Future

    Analysts say that the Indian software industry has a bright future, but admit that it has a long way to go . The development of domestic IT market is critical for realising its true potential, they said. At present IT spending as a percentage of GDP is less than 1 per cent compared to 35 per cent in the United States.

    According to analysts the growth in IT will be driven by increasing demand for PCs and the widespread Internet coverage when independent service providers (ISPs) get into the market. PC sales in 1997-98 were more than 6,30,000 units while their installed base is about 2.3 million. Thus the PC penetration rate is only two computers for every 1,000 people.

    With 1,15,000 engineering graduates coming out from educational institutions annually, India can certainly raise its share in the US$307 billion global software and service market from the present level of just over US$2 billion. A World Bank funded survey of software companies in the United States has shown that India is their number one choice for outsourcing software development.

    With the firm commitment of the Government to strengthen Indian IT, the country has begun in earnest its cruise on the information super highway. (PIB)