India’s IT Boom is Over for the Foreseeable Future

The IT boom in India, which really took off around the mid 1990s, was based on a few key factors. These were:

1. India had a huge pool of graduates in science and engineering who were finding it difficult to get jobs which came up to anywhere near their expectations, since employment generation in the organized sector, pertaining to these disciplines, was sluggish at best.

2. Given their difficulties in landing a job after graduation, they were willing to lower their sights and learn new skills which would help them to secure employment, in any other sector.

3. Most of them were reasonably proficient in English.

4. The business software sector got a major fillip in the early 90s in the U.S. initially and a little later in Europe to an extent, owing to the availability of relatively low cost hardware, aided by the boom in PCs and servers. Development of software products and packages, by vendors, also gave rise to a major requirement for maintenance of existing products and packages, as well as periodic upgrades.

5. Owing to the steadily declining cost of hardware, end-user organizations also warmed up both to development of customized solutions as well as customization of various ERP products.

6. The Y2K scare, during the second half of the 1990s, added to the huge requirement of qualified folks, onsite, offsite and offshore, needed to take care of the burgeoning requirements for Y2K fixes, particularly for legacy systems, across different sectors.

7. Indian professionals, many of them overqualified for the job of coding and rudimentary business analysis, turned out to be good value for money, given their skill levels and their basic proficiency in English. Whether onsite or offshore, they costed significantly less than their counterparts in the U.S or Europe.

This was the basis of the Indian I.T boom which led to the rise of some biggies in the Indian I.T. sector, who were ideally poised to take advantage of this demand scenario and had the financial muscle to both hire large teams and maintain sizeable ‘bench strengths’ for a while before deploying people on the bench for the next assignment, offshore or onsite.

While the dot-com bust at the turn of the century dampened the demand for a while, the internet as well as developments in telecommunications made it possible to take up and execute a large range of assignments offshore and also take up testing and maintenance work which could be done offsite or offshore.

Owing to the large number of projects executed by the biggies, they started talking of ‘solutions’ in various domains like Finance, Supply Chain, Distribution and Manufacturing, though hardly any of them made any major investments in developing a product or package which they could market and implement globally. However, while they generally talked of solutions in these sectors, in reality, they possibly had 20–30% of the requirements for a particular customer already available with them and thus enjoyed advantages both in terms of time and costs in developing the balance 70% — 80% needed.

Owing to the cost advantages and the connectivity afforded by developments in the internet and telecommunication technologies,Business Process Outsourcing (BPOs) flourished and IT Enabled Services (ITES), which could be executed remotely became another area of focus both for the IT biggies and for a number of startups as well as existing SMBs (Small & Medium Businesses) in India.

With the opening up of the Indian economy and the resultant demand and supply situation in terms of skilled manpower availability, a couple of significant changes happened over a period. A fairly high rate of inflation together with rapidly rising wage bills kept chipping away at India’s cost competitiveness in the sectors mentioned. Also, with the opening up of Asian and European markets, mere English language proficiency was not good enough to cater to different sections of customers in Asia — Pacific or Europe.

Given these factors, BPO & ITES businesses started springing up newly or even migrating to countries like Malaysia, Philippines, Ireland and several others in the region. Both in terms of costs and language requirements of call centre and helpdesk personnel, Indian BPOs & ITES organizations started losing out to these competitors across APAC & Europe.

Meanwhile, the development of technology and platforms like Cloud Computing Services, SaaS (Software -as-a-Service), machine learning, automation as well as smart algorithms, code generators and analytics, significantly reduced the need for programmers with a certain set of skills and opened up demands in newer, specialized areas which were in short supply the world over, India included.

During all this period, the Indian biggies as well as startups made little or no effort to either develop world-class products, services or platforms and hubs like some of the most popular Social Media networks today.

While it is not all doom and gloom immediately, the Indian IT biggies clearly failed to look ahead and anticipate these changes or move up the value chain in terms of products and services offered. The Indian education system, out-of-step with industry requirements quite often, failed to look ahead and develop needed manpower in these new and emerging domains.

The party is therefore well and truly over and given the new consciousness re: productivities and revenue generation requirements per person, mass employment in the IT and ITES sectors can be truly said to be a thing of the past.

The current scenario as well as the likely future scenarios have been outlined succinctly by Ravi Venkatesan, erstwhile Head of Microsoft India, in this recent article (take the jump to the link just below to read it ).
http://goo.gl/nPZOxe

Edit Update: Comments made by me in response to some queries on a SM network where this was shared.

Data Science won’t ever need the nos. that coding & maintenance work needed. In any case for meaningful work in areas like analytics, including Big Data, the demand would be skewed towards postgraduates & Ph.Ds. A fair amount of the work would be done in-house, onsite, because, despite confidentiality & privacy agreements, many organisations are highly unwilling to let their major databases with live and sensitive data be accessed offshore.
Understanding & using Hadoop for example appropriately is a lot more complex & difficult than say Java or C++. Also Hadoop in its original form is gradually finding less and less use for good reasons and folks would need to learn the variant of Hadoop being utilized for a particular situation together with the specialized tools sitting atop Hadoop to do meaningful work.

In summary, the numbers will be significantly reduced, though the process would be a gradual one. In the years to come, IT will not be the place where millions find employment in India, any longer.

The original post, together with many of the incisive comments on Social Media, can be viewed here

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