According to the latest industry report by NASSCOM, India’s revenue from back-office outsourcing is expected to surge nearly five-fold to $50 billion by 2012 despite a possible recession in the key United States market.
However a skills shortage, creaky infrastructure in smaller towns and cities and rapidly rising wages will be posing the biggest challenges.
The IT sector has logged 35 percent annual growth over the last five years to hit annual revenues of about $11 billion, with the bulk coming from exports, said the study by leading IT lobby group Nasscom and consulting firm Everest.
The sector employs 700,000 people and is expected to provide direct employment to about 2 million by 2012.
The study said while the United States would continue to be the largest BPO opportunity for India up to 2012, there were significant untapped opportunities in Britain, Europe and Asia Pacific.
The domestic market also offers huge potential for BPO companies as banks, retail, insurance, telecom and government departments look to cut costs and boost efficiency, it said.
About four-fifths of the world’s 500 largest companies already farm out some work to India, and outsourcing to Asia’s third-largest economy can typically generate cost savings of between 35 and 50 percent.
Talent is an issue.
India produces about 2.5 million graduates every year, but only about 15 percent are suitable for employment in the BPO sector. The skills shortage has stoked wages that are rising by 10-15 percent a year.
The study said India would also have to gear up to face increased competition from emerging back-office services destinations like China, the Philippines and Vietnam.
Leading Indian outsourcing firms include companies like Genpact, TCS, Infosys, HCL, Patni etc.