Global Slowdown Risk in IT "Alarmingly High", Indian Firms May See Uptick

A recent report from NASSCOM, India's National Association of Software and Service Companies found itself somewhat at odds with a report from the International Monetary Fund, as NASSCOM projected that the software exporting market would see a fair-sized expansion, while the IMF predicted an "alarmingly high" risk of protracted global slowdown. Moreover, the two reports are butting heads over just how bad the situation may ultimately prove.

The NASSCOM report suggests that India's software exporting market is likely to see an expansion of between 11 and 14 percent through the rest of this year and into March of next year, when their current fiscal year ends. That is, of course, something of a slowdown compared to recent results in its own right; last year, the market expanded 16 percent, and before the recent global financial crisis, the numbers were more around 30 percent.

But the IMF's warning did not fall on deaf ears, as the projections for an "alarmingly high" likelihood of global slowdown would affect Europe and the United States greatly, and that in turn would impact around 75 percent of India's software and service industry's revenue. Given that the software and service industry's revenue measure around $100 billion in real terms, any damage to that market that yields three quarters of their revenue is an issue that needs to be taken seriously.

While the IMF is taking something of a pessimistic outlook of the future, the Indian outlook is a bit brighter. The head of investment research for BNP Paribas Mutual Fund in Mumbai, Apurva Shah, said, "We are far from a situation that is reassuring, but the general view is that the economic situation, especially in the U.S., has improved in the last few months. Even though the IMF is not saying anything new, coming from them, people are bound to sit up and take notice. The worry is that any small thing can still suddenly take us back."

Indeed, that has to be something of a worry for India. When three quarters of a market is tied up in a comparatively limited geographical sector, anything that happens to that sector has a much larger corresponding impact on the Indian market. But considering that Shah isn't alone in his measured optimism--recently, the CEO of Offshore Insights, Sudin Apte, said that, "The mood is a bit upbeat now," and expected a corresponding increase in spending-- it's worth considering that maybe the IMF mood is a bit too dark for the situation. Indeed, recent figures suggest that even lower-grade IT companies in India are both out to get into the market and are aggressively targeting the European market in particular, a sign that, perhaps, the market for India's brand of lower-cost provision may be more valuable than expected.

Wise companies, at this stage, will have contingency plans in place for a slowdown, but current events do suggest at least some reason for a cautiously optimistic note. The Indian software export market should prove no different, hoping for the best, but likely making plans for the worst, including, perhaps, a bit more diversification in their target market.