SOFTWARE IS SOFT ENOUGH TO BE INFECTED
Software industries in India have been on boom owing to opening of up of socialistic pattern of erstwhile economy in 1990s. This sector (IT-BPO) has been experiencing a growth of more than 80% for the last decade except a few exceptions. Today IT giants like WIPRO, TCS, and INFOSYS etc have made a respectable place for themselves on the globe.
The robust growth of Indian economy at the rate of 8-9% per annum has changed ‘Hindu growth rate’ stereotype image of Indian economy in the west including America.
This changed perceptions resulted in massive inflow of Foreign Direct Investment (FDI) and External Commercial Borrowings (ECB) over a period of time. The boom in the Stock Markets pushed the Sensex from unimpressive 8,000 points to spectacular 21,000 points in recent years. Many savviest investors believe that the massive inflow of FDI has triggered the growth rate of many software and service sector industries to a sky soaring level.
But the recent report released by the RBI, has raised eye brows of many economic pundits. The impact of slowdown in world economy is slowly making its throes felt in India also.
The report suggests that the rate of inflow of FDI is fast decelerating in a couple of months. For instance it has reduced from 283 crores in September, 2008 to 112.52 crores in October, 2008 making a 30% decline.
In fact, the total FDI had risen from 95,639 crores in 2003 to a spectacular 6, 54,949 crores in 2007. This massive inflow of FDI has contributed a lot in accelerating the overall growth rate of economy.
But the slump in the bourses, which started in September, 2008 has started slowly but steadily spreading in the world market. Now when the USA, UK, France, Japan and many other G-8 nations have officially entered into recession, this contagion have started engulfing many Nations hitherto unaffected.
In India, two sectors which are likely to be affected most, are Software and service sectors. For instance, whereas; in 2007, the total FDI in software sector was 10,215 crores, it has reduced drastically to 5727 crores only (in seven months of 2008) registering a decline from 15.6% in 2007 to 5.8% in 2008.
The external commercial borrowings (ECB) are also likely to go down in a couple of months. This would manifest in the downward trend of export also which was 8.4 billion USD in 2007-08 in this sector.
Many software industries have started giving PINK SLIPS to the GUYS ON BENCH. The exact figure of such retrenchment is no known, but this decline in inflow would definitely dwindle the job opportunities in IT sectors which has given direct employment to 5, 60,000 ‘Smart English speaking IT guys.’
The services sector however don’t show any sign of RECESSION right now, because the report of RBI suggests that flow of FDI in this sector has risen from 22% in 2007 to 23.2 % in 2008. This sector which contributes about 50% to the GDP has emerged as the saviour of giant economy of India. As a matter of fact, this sector has attracted 13,903 crores FDI in 2003 and has spectacularly swelled to 1, 43,776 crores in 2007 registering about 20-22% annual growth.
But it too would be affected by this down ward trend of FDI and ECB. Timely intervention of RBI and Ministry of Finance has so far been producing encouraging results, but these stop gap arrangements would have to be institutionalised financially. The heavy dependence on FDI and ECB would not help our economy protected from contagion for a long time.
