India's information technology industry is set to post another year of healthy growth. But as Anjana Pasricha reports from New Delhi, the industry is also confronting new challenges.
As India's information technology sector adds up the numbers for its earnings this year, the news is good. An industry group, Nasscom, estimates that IT firms will earn revenues of $64 billion in the financial year that ends March 31 - up 33 percent from the previous year.
However, the celebrations are muted. IT companies say they have to gear up for new challenges if they are to stay competitive, and continue to win business from Western customers.
The companies say the cost of doing business has gone up sharply in a sector that has blossomed largely on the availability of relatively cheap, skilled talent in India. Software engineers now command much larger salaries than they did some years ago, thanks to the growing demand.
Partha Iyengar, Vice President at Gartner Analysts in India, says the availability of skilled manpower poses a real problem. Although India produces tens of thousands of graduates every year, not all of them are ready to join the workforce without further training.
"The biggest problem in India is not one of numbers, but of quality," said Iyengar. "My estimate is that only 25 percent of the graduate pool is employable, which is a very small number given the demand that exists."
There are other problems. The value of the dollar against the rupee has eroded nearly 14 percent in the past year, trimming profits of companies that rely heavily on U.S.-based companies.
Competition is also beginning to emerge from countries like the Philippines and China, which are encouraging the development of a technology sector.
However, Iyengar, says despite the new challenges of rising costs and a falling dollar, India's IT sector is still in good shape - and far ahead of other countries.
"They are a challenge, but in my mind, they are more of a tactical challenge as opposed to the death knell that it sometimes is made out to be," said Iyengar. "I believe there is significant headroom still to continue to manage these pressures. There will be some constraints, but it is not going to be a systemic or an endemic kind of hit."
Nasscom estimates that the IT sector will earn revenues of $75 billion by 2010. The sector now contributes five percent to India's gross domestic product, compared to a little over one percent a decade ago.