India's business services and information technology exports are expected to surge more than 25 per cent a year to $60 billion by 2010, but the industry faces tough hurdles.
The projection, in a study released by consultancy McKinsey and India's IT association, Nasscom, is roughly in line with the 30 per cent annual rise in the past three years and earlier forecasts of $50 billion in exports by end-2008.
At $60 billion, India would have almost half the world's IT and business process outsourcing (BPO) exports by 2010 and could add an extra $15 billion to $20 billion over five to ten years from 2005 through innovation and technological advances, the report said.
While India will remain the biggest pool of low-cost global knowledge workers for the foreseeable future, with more than double the combined total in its nearest rivals, China and Russia, it faces a shortfall of 500,000 people by 2010 unless it steps up training.
"The reality is that this shortfall can be fairly easily met by industry," McKinsey's Noshir Kaka said in New Delhi, citing India's 2.5 million graduates a year. IT/BPO sector jobs will grow from 700,000 to 2.3 million and indirect employment from 2.5 million to 6.5 million - adding more work than the communist-backed Congress government's four biggest labour creation programmes, the report said.
A bigger hurdle is India's creaking infrastructure, where even leading cities such as Bangalore, Mumbai and New Delhi have massive problems with power, transport and other basic services.
McKinsey's Jayant Sinha said the government and business must go on "a warfooting" to solve the infrastructure crisis, which economists say is also a major brake on broader economic growth.
To get around this, the report urges the creation of ten to 12 new townships or satellite cities across the country, with their own airports, roads, real estate development and other services. It also proposes special education zones and school reforms.
McKinsey and Nasscom estimate barely ten per cent of the potential $300-billion-a-year world market for global offshoring is being tapped, but they expect radical changes.
"We have no doubt that this industry will become the largest export-led industry in the world, rivalling oil from Saudi Arabia or automobiles from Japan," Kaka said.
McKinsey and Nasscom publish their outlook for India's fastest growing industry every three years. This is their third.
They see the sector's export share of gross domestic product - itself growing about eight per cent year - more than doubling from three per cent to seven per cent by 2010.
The report said the face of the IT/BPO sector will change as its traditional engines of growth, such as application and software development and research and development, slow and customers expect more innovation and value-added services.
"Looking forward, the more traditional IT outsourcing lines such as hardware and software maintenance, network administration and help desk services will account for 45 per cent of the total addressable market for offshoring and are likely to drive the next wave of growth," it said.
This will be focused in areas such as banking, human resources and finance.
Meanwhile, China surpassed the United States as the world's top exporter of laptop computers, mobile phones and other information and communications technology devices in 2004, the Organisation for Economic Co-operation and Development said.
China exported $180 billion worth of so-called ICT goods in 2004, compared with US exports of $149 billion, the OECD said.
OECD officials said that China was likely to take top spot in 2005 too, but hard proof would take many months to collect.
The United States was world leader in 2003 with $137 billion worth of exports of ICT goods, followed by China with $123 billion, the OECD said in a statement.
"The data show a shift towards more trade between China and other Asian countries, with a corresponding decline in ICT imports to this region from the European Union and the US," it said.