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Pressure on outsourcing

James Fontanella-Khan | February 07, 2009

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India's celebrated IT outsourcing industry, which contributes about 25 per cent of the country's total exports, is feeling the pinch as it struggles to deal with the avalanche effects of the global financial crisis.

The National Association of Software Services Companies (Nasscom), India's software services lobby, this week added to the gloom by downgrading the sector's export revenue growth to 17 per cent from 21 per cent for the year ending March 2009, as demand from developed markets fell.

IT executives are trying to talk down the revised growth outlook, as they argue that their companies are still outperforming other industries in India. However, this did not stop Ganesh Natarajan, the chairman of the Nasscom, from asking the government for help to stimulate growth "by extending fiscal incentives to this industry".

Mr Natarajan's demand for state aid suggests there could be more bad news in the pipeline for an industry whose corporate integrity has been questioned after revelations of an alleged $1bn fraud at Satyam Computer Services [Get Quote].

Several IT services analysts believe that a 10 per cent growth rate for the sector is a more realistic figure, as demand from the US, which accounts for more than 60 per cent of the industry's export revenue, is not going to pick up until late 2009. Industry leaders, such as Infosys [Get Quote] and Tata Consultancy Services [Get Quote], will have to be creative to outperform their expectation.

Copyright The Financial Times Limited 2009

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