Nasscom expects IT industry export growth to be flat in FY16

The Indian IT industry, according to lobby body NASSCOM‘s projections released on Tuesday, is on course to report good numbers in 2014/15. It will cobble up revenues of $146 billion, although $14 billion of this is e-commerce revenues. That’s a first – NASSCOM never tabulated e-commerce sector revenues before but has probably started doing it since e-commerce is enabled by technology, similar to the business process industry. It also makes the IT industry‘s domestic revenues look bulkier than before.

But what is interesting are the export numbers. NASSCOM says that in 2014/15, the industry’s exports will grow 13 per cent to $98.5 billion. This is not much different from last fiscal’s growth.

And what’s in store next year? Exports growth would be flat next year too. In fact, it may even slip a bit. The body is guiding a growth between 12 and 14 per cent in 2015/16.

That doesn’t seem like great news but is a reality the Indian IT industry needs to swallow. It would be difficult for the industry to grow its exports any faster for many reasons.

One is its scale – at nearly $100 billion, a large percentage growth from here on may not be the correct indicator of the sector’s health, What the industry adds in incremental revenues may be a better sign of things to come. If the industry grows at 14 per cent next year, it would add nearly $14 billion to its exports tally incrementally.

The other reason for the industry’s flat growth is changes in spending patterns. In previous decades, companies across industries spent much of their IT budget on customising enterprise software products they bought.

However, products have become much more robust, thereby reducing the implementation cycle. Shorter implementation cycles mean less manpower – the Indian outsourcing industry’s revenue models are still dominantly based around people. More people equal more revenues.

Of course, there is a geographical threat in 2015/16. Demand from Europe has softened due to currency movements and economic challenges.

Discretionary spending is suspect. There are sectoral challenges, too. Falling crude prices could slow down discretionary spending from the oil and gas industries. Can the US, where demand remains strong, make up for Europe’s softness? Or will banking offset a slowdown in oil and gas? It will be a while before these questions can be answered.

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