July 9, 2009 8:45 pm

India’s IT sector gains lift from outsourcing

India’s information technology sector, which rose to prominence by targeting overseas markets, has found an unexpected way to offset the global economic crisis: tapping the country’s growing domestic appetite for outsourcing.

The country’s top computer services groups, such as Wipro Technologies, are hauling in larger and more complex contracts from India’s booming mobile telephony industry and from an initiative in the central and state governments to upgrade systems.

“A 40-50 per cent compound annual growth rate over the last three years – that is the sort of growth we have been driving in India,” said Suresh Vaswani, joint chief executive of Wipro, the country’s third largest IT outsourcing group.

India’s outsourcing industry has risen to become the foundation of the country’s modern economy through aggressive targeting of export earnings, which reached an estimated $47.3bn in the year ended March, up 15.8 per cent against a year earlier.

But the growth of India’s modern economy is bringing this cycle full circle, with the domestic information technology outsourcing market beginning to provide more opportunities for Wipro and peers such as Tata Consultancy Services.

The National Association of Software Services Companies, India’s IT industry body, calculates that annual sales in the domestic outsourcing sector have grown to $24.3bn from $13.2bn just three years ago.

While Wipro does not break out its India revenue, it says the domestic market accounts for a substantial portion of the 20 per cent of its sales it earns from emerging markets.

Tata Consultancy Services, the industry leader, earns about 8 per cent of revenue from India while Infosys, the number two provider, earns only a small portion but has a banking IT product, Finacle, which is widely used in India.

“The domestic market will never be an alternative for the revenue shortfall they might have from developed economies but it is definitely a capability boost as well as a nice hedge or a stable revenue earner for these companies,” said Milan Sheth, a partner at Ernst & Young, the professional services firm.

Contracts won by Wipro in India recently include the roll-out of technology for greenfield telecom operator Unitech Wireless, partly controlled by Norway’s Telenor.

Wipro has said that the contract is worth “multi-hundred millions” of dollars but the domestic media has reported its value at about $500m over nine years. Unlike many overseas jobs, Wipro will build from scratch many of the IT systems for Unitech Wireless.

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