View from Delhi: Boom time again for India's IT industry

Another software company is about to join the prestigious billion-dollar club. Infosys Technologies of Bangalore, India's second largest software firm after TCS (Tata Consultancy Services) has produced stunning results for the second quarter, with profits rising 33 per cent on a revenue growth of 30 per cent.

The company expects to close the year with revenues exceeding Rs46 billion, which will take it past the one billion dollar mark.

TCS is a bigger and older company with a sales turnover of Rs52 billion last year. It is, however, a privately held company and will not go public until next year. The growth of Infosys has been phenomenal. Four years ago, its turnover was $250 million. It doubled to $500 million two years ago and is slated to double again this year to a billion dollars.

Like other software companies, Infosys does very little work for Indian clients. Almost all its clients, about 350 or so, are foreign. Despite hue and cry over job losses in the US and tightening of visa norms, there is no let-up in revenues. Infosys has said that its plans for expansion are unchanged and hopes to make forays into several new overseas markets including China.

China venture

The company is planning to set up a wholly-owned subsidiary in China with an investment of $5 million. A software development facility is being installed in Shanghai with a work force of 200 to begin with. It will offer end-to-end services to domestic and multinational firms in China and will also serve as a hub for software services in Asia-Pacific.

It is not just Infosys and similar companies that are booming, but the entire corporate sector. Most second-quarter results have been better than expected and have provided a big shot in the arm of the stock market which has been rising without a stop since April.

The sensex has soared by 50 per cent since the budget and is still climbing. It rose 90 points to 4,860 on Monday, two days after Infosys results were announced, the highest in the past three years.

The government is revising GDP growth estimates from time to time and now estimates the economy to rise by seven per cent. Many experts believe that this is an underestimate and growth could be as high as eight per cent, buoyed by the services sector. In fact, some have said that growth this year could outpace China's and climb as high as ten per cent.

Growth driver

Unlike China, it is not foreign direct investment (FDI) which is driving growth in India. In fact, FDI is still rather cautious about India and is not too keen to come here. There was actually a decline in FDI by as much as 60 per cent during April-July period over last year.

It amounted to only $500 million, against $1,200 million during the same period last year. On the other hand, foreign financial investors have all gone out to invest in the stock market and are behind the current boom.

Fears that a backlash in America might slow down software and other IT business from that country are being discounted at the moment.

It is hard to say what might happen in the future, but for the time being at least, it is boom time once again for India's IT business!

The writer is an India-based senior economic advisor.