Indian IT sector sees only brief downturn pain

BANGALORE (Reuters) - India's information technology industry will face challenges in the short term as overseas clients cut spending due to financial turmoil and global economic downturn, an industry body said on Thursday.

But the long-term growth outlook is bullish as Western firms look to reduce costs by outsourcing more services to cheaper locations such as India, said Som Mittal, president of the National Association of Software and Service Companies (Nasscom).

"Surely there are changes happening, people are figuring out. I don't think the dust has settled fully but that will happen," he told Reuters. "I would believe that the next three to four quarters would probably be uncertain."

In July Nasscom said India's software and services exports would rise by 21 to 24 percent to around $50 billion in the year to March 2009, moderating from the previous year's 29 percent growth as a downturn in the U.S. economy squeezed demand.

Mittal said the association would release next month a revised export growth forecast for this year amid growing concerns that a U.S. recession will slash demand for information technology services, especially from the hard-hit financial sector, a key market.

"Even in today's circumstances, the industry is growing and I think it will continue to grow. The growth may be impacted. It may not be 30 percent," he said, referring to the sector's export growth in the last few years.

"We have said 21 to 24 percent this year. We will come out in December and tell you precise numbers - is it going to be 21 percent? Is it going to be less? Is it going to be more?"

India's large pool of English-speaking engineering workers and cheaper wages have helped to attract outsourcing from western firms such as Citigroup, ABN AMRO, Nortel, Goldman Sachs and Airbus.

But the economic slowdown in the United States, which accounts for more than half of the sector's export revenue, and turmoil in the global financial sector have halted its scorching pace of growth.

Last month bellwether Infosys Technologies cut its forecast for full-year dollar revenue growth due to the turmoil and the rise of the U.S. dollar against the euro and sterling, even as it beat forecasts with a 30 percent rise in quarterly profit.

Still, Mittal expected a sharp jump in the industry's growth in the long term as overseas companies take the knife to costs by shipping operations like system integration, consulting, account management and payroll processing to Indian service providers.

"Today, what the IT industry does is part of the delivery chain of a customer. If you pull the plug, somebody's operation will stop ... When you have a budget pressure you either buy less or you try and stretch your dollar to buy cheaper," he said.

"We see that this slowdown in our growth will be relatively temporary."

The lobby group chief said despite the sluggish growth there were no layoffs taking place in the industry that employs about 2 million people, most of them young and considered big spenders on things like houses to automobiles and mobile phones.

"There may be some situations where people are saying 'I will downsize in India', but they are very few and they (layoffs) are by hundreds. But the hiring is not by hundreds, they are by thousands or tens of thousands," he said.