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India aims to become back-office of the world

April 30, 2003 11:39 IST

If China is the workshop of the world, then India is becoming the global back-office.

From British companies opening call centres to US banks setting up number-crunching operations, more and more firms are cutting costs by tapping India's deep pool of computer-literate, English-speaking and -- above all -- relatively cheap graduates.

The explosive growth in such information technology-enabled services, building on India's success in software and IT proper, underscores the growing embrace of globalisation by an economy that not long ago made a point of turning its back on the world.

Officials and economists go further: by honing its efficiency, Indian industry -- not just in IT services but across a broad spectrum -- now feels more confident about taking on the rest of the world instead of clamouring for tariff protection.

"They've stopped squealing now because they find they can actually compete," said Saumitra Chaudhuri, economic adviser to ratings agency ICRA Ltd in New Delhi.

Chaudhuri said he had witnessed a wave of consolidation, restructuring and cost-cutting by private-sector companies since 1998 that he called unprecedented by Indian standards.

China especially no longer holds the same fear that prevailed among policymakers and industrialists just two years ago.

"Indian companies have met the enemy and suddenly realised they were not quite as weak as they thought they were," said Pronob Sen, an adviser to the Planning Commission. "There's a perceptible improvement in confidence."

Sen traced the change in mindset to the removal of remaining quantitative restrictions on imports in 2001. "That was looked upon almost as the last bastion that was protecting us from the Huns. And when it fell, nothing happened."

T K Bhaumik at the Confederation of Indian Industry agreed.

"Indian industry has survived 50 years of strangulating controls and regulations," he said. "If an industry has faced so many controls, do you think it can't face competition? Of course it can. Indian industry knows how to survive."

Not just brave talk

The brave talk is backed up hard figures. India recorded its first current account surplus in 23 years in the year to March 2002, and in the latest fiscal year exports grew 18 per cent to $51.7 billion, crossing the $50 billion mark for the first time despite a weak global environment.

Services exports have been buoyant and not just in IT; animation for the Russell Crowe swords-and-sandals epic Gladiator and for parts of Spider-Man was done in India.

Among merchandise exports, sales of everything from gems to car parts, steel to specialty chemicals, have climbed sharply.

"There is a changing mindset towards the global market which did not exist before. That is connected to internal changes, because only when you are efficient can you export," said Amit Mitra, secretary-general of the Federation of Indian Chambers of Commerce and Industry.

Deutsche Bank also takes the view that India's manufacturing

sector has become very competitive in the last two years.

As long as global outsourcing is a key to survival for multinational firms, newly efficient, private-sector India will become a big part of their business model, Deutsche economists Michael Spencer and Sanjeev Sanyal said in a recent study entitled 'Will India Challenge China?'.

"Just as foreign direct investment has played a key role in China's economic development, so too can it play an important role in India's future," they wrote.

IT hotspot

For now, the outsourcing model is proving most successful in the software and IT services sector.

Just last week, investment bank J P Morgan said it planned to set up an offshore research department in Mumbai to perform tasks like data collection and basic financial modelling. Even the World Bank has a 100-strong back-office in Chennai.

One of India's "business process outsourcing" hotspots is Gurgaon on the fringes of New Delhi, where the dusty streets are packed every evening with minibuses ferrying thousands of Indians, most in their early 20s, to their overnight shift.

Sitting at banks of computers, they transcribe medical records, conduct tele-marketing or soothingly talk customers half a world away through an insurance claim or an Internet glitch.

At one shiny 1,200-strong centre operated by Daksh eServices Pte Ltd, recruits adopt an easy-to-understand Western name and undergo extensive dialect training to acquire a "global accent" that will be grasped as easily in Louisiana as in Lancashire.

"They're essentially taught to wear a mask when they're servicing clients," said Daksh spokeswoman Vandana Ranganathan.

Although recent earnings from market bellwether Infosys Technologies showed shrinking margins as competition grows, India's software association is sticking to its target of $50 billion in exports of software and allied services by 2008. Exports last year increased nearly 30 per cent to $10 billion.

Apart from competition from the Philippines today and possibly China tomorrow, one cloud hanging over the back-office boom is the risk of a political backlash in the West.

To the fury of unions, British insurers Aviva Plc and Prudential Plc along with phone company BT Group Plc are opening Indian call centres and shedding jobs at home.

Some US states are even considering banning the outsourcing of public-sector contracts. The furore is prompting one small US firm that opened a call centre in Mumbai to handle welfare payments for New Jersey to move the operation to New Jersey, which reports say will pay the extra cost of $70,000 a month.

Indian officials may seethe at what they see as protectionism but are hopeful that cost-conscious taxpayers and consumers will come to see outsourcing as mutually beneficial.

"It will soon be recognised that a lot of what is being outsourced is not very high value-added and that there will be complementarity, not conflict, from activities of this nature," said N K Singh, Member, Planning Commission.

Alan Wheatley in Gurgaon