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India’s IT future threatened by the war

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CIOL Bureau
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MUMBAI: India and neighbor Pakistan -- both nuclear capable -- are locked in

a military impasse with a million soldiers massed along their borders.

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Tension, high since Islamic militants attacked the Indian parliament in

December, rose again after a May 14 on an Indian army camp in Kashmir, India's

only Muslim-dominated state.

"The perception that India is an unstable country, or in an unstable

region, might hurt outsourcing," says Richard Rothman, the US trade

commissioner for western India. Business process outsourcing or BPO has become

the mantra of companies seeking to lower costs.

India's huge pool of English-speaking, computer-literate workers has helped

it draw business from scores of multinationals contracting out their accounting,

documentation, and financial claims and payroll processing.

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India's software industry trade group estimates that outsourcing to India

saves companies up to 40 percent in costs, depending on the type and amount of

work. The country's software and IT service industry could grow to $87 billion

by 2008, according to a study by consultant McKinsey and India's top software

association Nasscom. The report, issued in 1999, is expected to be updated next

week.

Industry revenue in the past year to March is estimated at $13.1 billion. To

achieve the ambitious 2008 target, India must succeed in becoming the

"world's back office," the service industry counterpart to China's

success in becoming a manufacturing powerhouse.

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Best shot



Until now, domestic and international troubles have only slowed the growth
of the IT sector, India's best shot at creating hundreds of thousands of good

jobs.

India's software service exports rose 29 percent last year, to $7.5 billion,

accounting for 16 percent of overall exports and the fastest growing sector.

Revenue from remote processing services soared 70 percent to $1.5 billion.

War risk could slow the growth of the nascent BPO industry by threatening to

disrupt operations that keep companies running. BPO centers are labor-intensive,

operate non-stop and cannot be shifted easily or quickly from one location to

another.

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"This is a system of mass labor migration," says Sujay Chohan, the

India head of tech researcher Gartner.

Chohan says this makes BPO a "much different animal" from the

project management services that fuelled the explosive growth the past decade of

companies like Wipro Ltd. and Infosys Technologies Ltd., India's second and

third-largest software exporters.

The military stand-off means "a lot of projects might be put on hold,

exactly like what happened post 9/11," Chohan said, referring to the

September 11 attacks on United States landmarks.

(C) Reuters Limited.

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