Other Sectors Must Emulate IT Sector

A new report by CLSA entitled Chain Reaction by Bhavtosh Vajpayee and Anshu Govil has appeared.

The report tries to put in figure the implications of strong IT sector growth across the economy. Some of its data are fascinating and other sectors such as textiles, pharma, or auto components and leather must emulate it for creating an all-out growth, employment and alleviation of poverty.

Export: IT/BPO exports have reached about $30 billion in the financial year 2006-07. Over the next three years the industry will double ($60 billion export target in 2010). Its incremental impact over the coming three years will be similar to what it has achieved over the last 20 years. (Interestingly, President Kalam wishes the figure to be $100 billion by 2010. And one can imagine the implications with that.)

Job creation: The industry is expected to create over 1.7 million new jobs directly and using a conservative multiplier of 1.4 (every IT job is expected to create 1.4 new jobs in other sectors), about 2.3 million indirect jobs over 3-4 years. Thus the IT industry will absorb 80-85 per cent of all the employable engineers and about 60 per cent of all quality graduates.

From about 4 million people entering the job market in urban India every year, the IT industry (both directly and indirectly) will absorb nearly 35 per cent over the coming 3-4 years. About 13-14 million people enter the working age population annually taking both urban and rural India together. And the IT industry has the potential to employ 10 per cent of these people.

Real estate: Based on a Cushman & Wakefield projection of 850 million square feet of residential demand till 2010, 70-75 per cent of this incremental residential demand will cater only to the IT sector (for both rental-cum- owned housing).

Commercial space: The demand projection is for 155 million square feet of commercial space in India till 2010. The IT sector alone will account for about 65 per cent of this, even after assuming that the sector builds about 50 per cent of its own space and leases only 50 per cent.

Middle Class Creation: Between 2002 and 2010, India will add 4.4 million households to the upper middle class, of which about 20 per cent will be accounted for by IT. Between 2002 and 2010, the report points out 21 million households will be lifted out of the category earning less than Rs 100,000 per year, and the IT industry through indirect job creation will account for at least 20 per cent of this uplift.

Tax collection: Over the next 3-4 years, 13-14 per cent of all income tax collections will come from IT employees. 20-25 per cent of India’s nominal GDP expansion over the next three years will come from the direct and indirect impact of the IT sector.

A recent analysis by the Asian Development Bank, based on the numbers in the latest National Sample Survey Organisation report on employment creations during 1999-200 and 2004 proves the point.

“Those who have studied till middle school seem to be the biggest gainers from the growth in employment, cornering nearly 42% of the 70 million jobs that came up between 1999-2000 and 2004. It means over 29 million new jobs during the five-year period have gone to those who have studied till middle school.

Next in line are those who have completed primary school, bagging over a quarter or 18 million new jobs that were up for grabs. While their educational qualifications would have made them eligible only for blue-collar jobs in factories, these two segments also fared well in the services sector.”

However, IT sector is playing a role model for companies as well as individuals. IT sector proved beyond doubt that even technocrats and not only those born with silver or gold spoon in their mouth can be entrepreneur and rich. It also created larger number of millionaires among its employees by sharing the wealth so that they can help it grow wealthier. The sector also gave a new meaning to investing public and changed the goalpost of investor expectations. It brought a new standard for the quality of life both at home and at workplace. And wherever IT clusters grew, the overall standard of that city got transformed, be it Bangalore, Hyderabad, Pune, Noida, Gurgaon, or Sector 5 of Salt Lake City in Kolkata.

While IT industry has shown how one can deliver despite all the infrastructural and procedural bottlenecks and why the corporate India must stop hiding behind those excuses. It demonstrated that if freed of governmental interference and outdated legislation, Indian companies can be world-class.

This is where India’s globally recognized superiority in IT and ITeS sector provides a better value for the country and its people at large than what the manufacturing sector has brought to China, as both in the entry salary as well as the annual increments, IT sector is better off.

The generic pharma, auto components and auto manufacturing, and the leather, textiles and apparel industry all have similar potentials to create employment and prosperity for the youth joining workforce. Just take one example from the trends in auto sector. The penetration of midsize cars is gradually increasing, and it means the need of more and more drivers in Indian scenario. (“The increased affluence leads to a greater propensity to employ drivers.” According to projections of JD Power.) Against the estimated 238,000 units of mid-size cars sold in 2006, the number is likely to grow to 555,000 by 2012. And the small cars would grow from 778,000 in 2006 to 10,50,000 by 2012. All that means huge employment of all skill categories.

Retail and financial services are the two new sectors, which have the potential to employ at least 5 million in 5-7 years and really broad base growth across regions and skill sets.

However, It only confirms India must grow at higher rate without getting complacent about it.

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