Inspired by the Indian IT-ITES success story, several other locations have been presented as alternate options for offshore outsourcing. However, feedback received from several MNCs having multi-country operations as well as syndicated analyses comparing the various sourcing locations has revealed that India continues to offer and deliver the best ‘bundle' of benefits sought from global sourcing.

With significant potential still untapped, it is expected that the global sourcing phenomenon will continue to expand in scope, scale and geographic coverage. As global delivery matures, multi-location strategies will become the norm and most sourcing destinations, including emerging locations, will grow in size. Building on its existing strengths, India will remain the leading destination and will continue to play an important role in most global sourcing strategies.

ECONOMY

India 's economy is on the fulcrum of an ever increasing growth curve. With positive indicators such as a stable 8 percent annual growth, rising foreign exchange reserves of close to US$ 140 billion, a booming capital market with the popular "Sensex" index topping the majestic 15,000 mark, flowing foreign direct investment (FDI) close to US$ 8 billion, and a more than 20 per cent surge in exports, it is easy to grasp why India is a leading destination for foreign investment.

Highlights of the Indian Economy in 2005-2006

The GDP grew by 7.4 per cent in the first quarter and 6.6 per cent in the second quarter of the current year, compared with 5.3 per cent and 8.6 per cent in the corresponding quarters of the previous year. The Economic Survey 2005-06 estimates that the GDP will grow at 8.1 per cent. Growth of Gross Domestic Product (GDP) at constant prices in excess of 8.0 per cent has been achieved by the economy in only five years of recorded history, and two out of these five are in the last three years.

Prospects of agricultural production in 2005-06 are considered to be reasonably bright due to near normal monsoon. The agricultural and allied sector's growth in 2005-06 is projected at 2.3 per cent. With a good crop prospects, food grain production is expected to increase to 209 million tonnes (MT) in 2005-06 from 204.6 MT in 2004-05. Some significant dimensions of the dynamic growth in recent years are: a new industrial resurgence; a pick up in investment; modest inflation in spite of spiralling global crude prices; rapid growth in exports and imports with a widening of the current account deficit; laying of some institutional foundations for faster development of physical infrastructure; progress in fiscal consolidation; and the launching of the National Rural Employment Guarantee (NREG) Scheme for inclusive growth and social security.

The industrial sector too has been on a high. The rate of growth of industrial sector as measured in terms of Index of Industrial Production (IIP) during April-December 2005-06 was 7.8 per cent. Impressive performance of the manufacturing sector, which grew at 8.9 per cent during this period, largely contributed to these figures.

STRENGTHS

Large Human Resource

Every year, approximately 19 million students are enrolled in high schools and 10 million students in pre-graduate degree courses across India . Moreover, 2.1 million graduates and 0.3 million post-graduates pass out of India 's non-engineering colleges.

While 2.5-3 percent of them find jobs in other fields or pursue further studies abroad, the rest opt for employment in the IT industry. If the flow from high schools to graduate courses increases even marginally, there will be a massive increase in the number of skilled workers available to the industry. Even at current rates, there will approximately be 17 million people available to the IT industry by 2008.

Indian Education System

The Indian education system places strong emphasis on mathematics and science, resulting in a large number of science and engineering graduates. Mastery over quantitative concepts coupled with English proficiency has resulted in a skill set that has enabled the country to take advantage of the current international demand for IT.

Quality Manpower

Indian programmers are known for their strong technical skills and their eagerness to accommodate clients. In some cases, clients outsource work to get access to more specialized engineering talent, particularly in the area of telecommunications. India also has one of the largest pools of English-speaking professionals.

Strengths at a Glance

•  Great history in software development

•  English Language proficiency

•  Government Support and policies

•  Cost advantage

•  Strong tertiary education

•  Process quality focus

•  Skilled workforce

•  Expertise in new technologies

•  Entrepreneurship

•  Reasonable technical innovations

•  Reverse brain drain

•  Existing long term relationships

•  Creation of global brands

•  BPO & Call center offerings

•  Expansion of existing relationships

•  Chinese domestic & export market

•  Leverage relationships in West to access overseas markets

•  Indian domestic-market growth

COMPETITIVE COST

The past few years have witnessed steady evolution in the ecosystem for global sourcing of IT-ITES. Outsourcers have graduated to basing their decisions on a larger set of factors such as service level maturity, scalability and sustainability, infrastructure availability and a favourable business environment – in addition to the financial benefits achievable from global sourcing. In parallel, global sourcing has been adapted to a combination of near-shore and offshore models that allow companies to maximise their gains.

India has successfully leveraged its fundamental advantages of abundant talent, a keen focus on quality and low costs coupled with an enabling business environment to attain the leadership position in this space. This is reflected in India 's dominant and growing share of the global IT-ITES pie. Over FY 2001-05, India 's share in global sourcing has grown from 62 per cent to 65 per cent for IT and 39 per cent to 46 per cent for ITES-BPO. India 's leadership is also reflected in the strong preference shown by customers for sourcing various services from the country. As depicted in the following chart, India remains the most preferred offshore location for sourcing a broad range of business services.

The visibly higher preference for India is driven by its unmatched superiority when measured across a range of parameters that influence the choice of a sourcing location. As depicted in the following table, India ranks highest in a detailed analysis comparing 40 sourcing destinations across the world.

This analysis draws from the latest (November 2005) update of an annual sourcing location attractiveness index prepared by A.T. Kearney. The following chart compares the country rating accorded to the top 25 countries in last year's (2004) analysis with their respective positions in 2005.

The global sourcing phenomenon will continue to expand in scope, scale and geographic coverage; and while most offshore markets will grow in size, India will remain the leading destination.

The maturing ecosystem of offshore service delivery has witnessed a growing number of locations emerging as contenders for a piece of the global sourcing pie. With global sourcing demand estimated to increase ten-fold, it is expected that this phenomenon will continue to expand in scope, scale as well as geographic coverage. As a result, most offshore markets – both established as well as emerging – are expected to record significant growth over the next few years.

India is well positioned to further extend its leadership in the global IT-ITES industry by leveraging its fundamental advantages of a disproportionately large talent pool, developed depth of service offerings and demonstrated process excellence at a continued cost advantage.

INFRASTRUCTURE SCENARIO

Credit for India 's rapid growth in the IT software services and ITES/BPO domains must go in part to the availability of a robust infrastructure (telecom, power and Roads) in the country. Relevant telecom facilities are an important prerequisite for the success of the software industry and over the years, the Government has taken steps to ensure that telecom remains a priority area.

Similarly, regular, reliable, uninterrupted power, a major necessity for running IT software and services businesses, has also received substantial attention from the Government. Recent steps to privatize the distribution of power and bring in greater efficiencies and customer centricity in the market, have been welcomed by the ICT industry.

The overall roads and highways scenario in India has also witnessed major improvements over the last few years. Most cities and fist and second tier towns are connected and interlinked to each other. Major investments have gone into the development of highways, both on the side of the central and state Governments. Clearly, the Indian Government has understood the importance of infrastructure to industries such as IT and created a conducive environment for its development and expansion.

KNOWLEDGE PROFESSIONAL

Indian software and services industry's strong value proposition – existence of a large, English speaking, technically qualified manpower, competitive billing, high productivity gains and scalability - which had helped the country emerge as a key IT services outsourcing destination, continue to hold India in good stead. These intrinsic strengths and advantages gave India a leg up in the burgeoning ITES-BPO space as well, taking it beyond the realms of IT services.

The country is at an important juncture in its history, having completed the transition from an agrarian economy to a fully-fledged, first-world economy, operating at the leading edge of contemporary technology. A key element in taking the country forward and maintaining its growth momentum will be the provision of a highly skilled and competent global workforce.

Having apt IT and management skills, in fact, is assuming an ever-greater importance, in the current day environment, where the IT sector is emerging as a major driver of the Indian economy. IT manpower development today, is not only crucial for sustaining the growth of the Indian economy, it is also important for maintaining the country's edge in the global markets, where competition is on the rise.

Growth of IT and ITeS Professionals in India

The total number of IT and ITES professionals employed in India has grown from 284,000 in 1999-2000 to over 1 million in 2004-05, growing by over 200,000 in the last year alone.

With India poised to be US$ 70 billion software market in 2009, providing direct employment to more than 2.2 million (and nearly twice the number by way of indirect employment), it is essential to strengthen professional education (through curricula, faculty, infrastructure, pedagogy improvements) in line with the IT industry's requirements and further catalyze the interface between the academia and corporate/industry.

QUALITY

The quality practices in the Indian IT industry have evolved through three distinct stages. The first stage was the creation of basic processes to handle all activities relating to order fulfillment. Many companies demonstrated this by aligning their Quality Management Systems (QMS) with ISO 9000 standards. This ensured consistent and orderly execution of customer engagements and provided a framework for measurable improvement.

The second stage was associated with a focus on software engineering, which was often achieved by companies aligning their QMS with the CMM framework and undergoing one or more assessments at increasing levels of maturity.

The third stage was driven by the desire to institute processes, metrics and a framework for improvement in all areas including those relating to sales, billing and collection, people management and after sales support. This was characterised by companies aligning their internal practices with the People CMM framework and by the use of the Six Sigma methodology for reducing variation and assuring ‘end-to-end' quality in all company operations.

The journey through these stages has ensured progressively greater engagement of the workforce both in terms of numbers as well as the degree, making the quality culture increasingly pervasive. This increasing engagement has also meant greater use of friendly and accessible tools to automate workflow, to collect and process metrics and to facilitate collaboration across geographically dispersed teams. The journey has also led to the emergence of a culture of managing increasingly by numbers.

The stages have not been strictly linear, as organisations have continued to build on accomplishments even as they moved on to the next stage. For instance, organisations certified to the ISO 9000 family are migrating to the new ISO 9001:2000 standards. Organisations assessed on the CMM framework are aligning their QMS to the new CMMI framework. Finally, organisations working on ‘end-to-end' quality are continuing to invest and upgrade their CRM and ERP initiatives, to deepen the rigor and consistency of their internal and customer-facing processes.

The emphasis on quality is just as predominant in the ITES-BPO industry. Most Indian ITES-BPO companies adhere to world class quality standards, have a dedicated quality department responsible for developing and deploying the organisation's quality policies and undertake periodic reviews of their quality processes – which are conducted by their own senior management team as well as members from the client organisations.

Today, a majority of the companies in India have already aligned their internal processes and practices to international standards such as ISO, CMM, Six Sigma, etc., which has helped establish India as a credible sourcing destination. As of December 2005, over 400 Indian companies had acquired quality certifications with 82 companies certified at SEI CMM Level 5 – higher than any other country in the world. 

TAXATION

India has a well developed tax structure, with the authority to levy taxes divided between the Central government and the State Governments. The Central Government levies direct taxes such as personal income tax and corporate tax and indirect taxes such as customs duty, excise duty and the service tax. The States impose local and state sales taxes along side others.

The tax system in India has undergone considerable reform in the past few years. Tax rates have been rationalized and tax laws have been simplified. Tax revenue as a percentage of GDP has been consistently increasing. During fiscal year 2002-03, it was 25.3 percent.

Taxes

Any company incorporated in India or having its entire management and control in India is considered a domestic company and has to pay 33.66  percent tax to the central government. A non-resident (foreign) corporation is taxed at 41.82 percent, only on income derived in India from Indian operations, income that is accounted to arise in India and income that is received in India .

The Indian law requires withholding of tax from certain payments and all payments made to non-residents at rates specified as follows:  

Tax Incentives  

The Indian government offers many incentives to investors in India to promote growth and development:

Infrastructure

A ten-year tax holiday is available to ventures engaged in developing or operating and maintaining or developing, operating and maintaining an infrastructure facility.

Power

A ten-year tax holiday is also applicable to undertakings, which generate or generate and distribute power. Time limit for setting  up of undertaking engaged in generation or generation and distribution , transmission or distribution of power or which undertakes substantial revision of existing network proposed to be extended to 31st March, 2010 instead of 31st March, 2006 by Finance Act, 2006.

Industrial Parks and Special Economic Zones

A ten-year tax holiday is applicable to undertaking that develops, develops and operates or maintains and operates notified industrial parks and special economic zones.  (for further details refer SEZ section of the site)

Other Industries

A five-year tax holiday for new industrial units set up in backward states and districts is available.

Venture Capital

Any income of a venture capital fund or company is exempt from tax, in the event the income is derived from investment in a venture capital undertaking.

Other Incentives

Weighted deduction of 150 percent is available for expenditure incurred towards scientific research and development.