Impact of the global financial crisis on the Indian software industry

Abstract

The growth of the Indian software industry has been possible due to some competitive advantages that the country enjoys including a huge manpower base that is highly skilled and relatively cheap when compared to global standards, knowledge of the English language, proactive government policies, improvement in the existing telecom infrastructure (even though it still is not up to the global levels in terms of the quality of service) etc. The private training institutes have been a major reason for this continuous supply of skilled manpower. Continuing in the rich Indian tradition of imparting knowledge to the world, these institutes (at least a majority of them) strive to bridge the inadequacies in the conventional educational system by offering students access to the latest technologies. However, IT spend, as a proportion of Gross Domestic Product (GDP), continues to be low when compared to other global markets. For instance, in the year 1999, while India's IT spend as a proportion of its GDP was around 1.7, the US had a ratio of around 6.1, the UK had a higher ratio of around 6.3. Even smaller countries such as Ireland and Israel had higher IT spend ratios of around 3.2 and 3.7, respectivelyi. The most prominent IT hub is in Bangalore, dubbed as India's IT capital. The other emerging destinations are Chennai, Hyderabad, Kolkata, Pune, Mumbai, NCR and Kochi. Technically proficient immigrants from India sought jobs in the western world from the 1950s onwards as India's education system produced more engineers than its industry could absorb. India's growing stature in the information age enabled it to form close ties with both the United States of America and the European Union. However, the recent global financial crisis has deeply impacted the Indian IT companies as well as global companies. As a result hiring has dropped sharply and employees are looking at different sectors like the financial service, telecommunications, and manufacturing industries, which have been growing phenomenally over the last few years. India's fundamental advantages are the abundant talent and cost advantages. With a young demographic profile and over 3.5 million graduates and postgraduates that are added annually to the talent base, no other country offers a similar mix and scale of human resources.