India and China: Who is Headed in the Right Direction?

What do India and China have in common? The answer is a border. That's it? Yes, more or less.

India and China have experienced phenomenal growth over the past five-to-seven years… both emerging as global economic superpowers. But the two Asian nations have their distinct experiences and their success stories are quite different. To begin with, India has relied on its services sector in general and the IT sector in particular for growth, while growth in its neighboring country has been led by the manufacturing sector.

India's economic development has followed the text book case. Theory suggests that as an economy develops, there is a sharp downturn in the primary sector's (agriculture) contribution to the country's GDP. The contribution of the secondary sector (industry) first rises sharply and then stabilizes or declines. The tertiary sector (services) grows gradually, till its contribution to the country's GDP is significantly higher than that of the other two sectors. India's growth has followed this trajectory and its services sector contributes a much higher proportion of the GDP (more than half) than in China (around two-fifths).

Interestingly, although China's service sector contributes less to the GDP, it provides employment to a larger number of people than in India. A decline in employment in India's service sector can be attributed to an increase in productivity.

Even though India's economic growth is expected to decelerate, the services sector (which includes IT, entertainment, transport, trade, and communication) is expected to grow. In fact, a recent KPMG survey of the BRIC (Brazil, Russia, India and China) countries has shown that India's confidence in the service sector is the highest. Among the Indian firms, 60% expect activity to rise, while none of the firms anticipate a decline. In comparison, the Spring 2008 KPMG Business Outlook Survey reveals that around 59% of the Chinese firms expect a rise in activity, while 3% anticipate a decline.

Although India's outsourcing opportunities have been hurt by the plummeting dollar, around 42% of the respondents expected a rise in outsourced work. Only 16% of the service providers in China expect growth. India is also more bullish than China about an increase in employment opportunities by this sector. While almost 41% of the Indian firms expect an increase in employment, merely 27% of the Chinese firms anticipate this.

What does all this mean? Which country has the right formula to ensure sustainable growth? I guess both India and China have capitalized on their individual strengths and both have a lot to learn from each other. And both are huge markets. In my view, increased cooperation between these two superpowers can go a long way in ensuring sustainable high growth.

India would be the story for the next 20 years - K V Kamath, President, CII

CII would like to see Indian growth unimpaired Mumbai: At a press conference in Mumbai today, while charting out CII's initiatives in building a stronger global Indian economy, Mr K V Kamath, President - Confederation of Indian Industry (CII) and MD & CEO, ICICI Bank Ltd, highlighted that for a targeted growth of 10%, key focus on inclusive and equitable growth will and has to continue. With strong savings rate, domestic consumption, export performance and strong fiscal performance, the Indian economy is robust and geared up to meet growth challenges. While presenting the strong fundamentals of the Indian economy, he indicated that the government is taking active measures to curb inflation and address the various areas of concerns. He mentioned that for the next five years, India and China would continue to lead the growth and would have many success stories. Though rising prices of oil, food and commodities were matters of concern, the global context has to be referred, maintained Mr Kamath. Inspite of the rise in commodity and consumer prices, low agricultural productivity, increasing pressure on Balance of Payments and infrastructural bottlenecks, growth of 8%-9% is still achievable. The fiscal, monetary and supply chain measures being taken by the Government and the tremendous growth of the industries would enable the economy to curb inflation and sustain growth at these percentages. Viewing concerns in the global context, Mr Kamath cited that the inflation in developing countries is around 7%" and since the Indian economy is comparatively less dependent on exports, the impact of global slowdown would not be huge. An inclusive growth of 10% for the medium term with target increase in manufacturing share to 25% by 2020 is achievable. Also, that the GDP has accelerated from 5%-6% p.a. in the 80's and 90's to over 7% in the current decade is an encouragement. "We are not seeing slowdown in investment which is a sign of optimism", said Mr Kamath. To take the per capita income from $1000 to $1500, it will take us next 5 years and to double it would take 7-8 years. Talking about key risks in medium term, Mr Kamath stressed upon inadequate framework to handle urbanization process. "With about 300 million people migrating, reinventing urbanization specifically in Tier II and Tier III cities has become very crucial". The developmental agenda for the medium term would be to have better access to health, education, skilling, urban regeneration and wider access to financial products, emphasized the CII President. Highlighting the imperatives and enablers to achieve growth, Mr Kamath stressed that host of agricultural and labour reforms were the prerequisites. Also emphasizing on requisite of skilled manpower, the CII President mentioned that time has come to introduce vocational training in various institutes and universities to meet the demand of skilled jobs in the short term. Elaborating on CII's vision of India @ 75, Mr Kamath projected that by the year 2020, India should have world's largest pool of trained manpower, India to become world leaders in industry and commerce and to account for 10% of world trade. While achieving the desired goals, it is also essential for the Indian industry to adopt the practice of proper utilization of resources. To enable the industry with a model, CII has launched the "IGBC Green Home Rating System", and proposes to set up a Water Institute at Jaipur and develop a framework of Green Procurement Policy. Also in terms of building technology, CII is to develop technology vision for Indian and work on mission mode to push India up in the Global Technology Index. Taking the focus of skill building and Infrastructure ahead, Mr Banmali Agrawala, Chairman, CII Western Region & Executive Director – Strategy & business Development, Tata Power Co Ltd. mentioned CII's initiatives in running successful training programmes and grading courses offered by various universities and institutes. The various representations and partnerships between the State Government and CII would enable the industry to see improvisation in the various infrastructural concern areas, both physical and socio-economic.

For mor info log on to   India Growth Story

India on track for 9 pct growth: govt official

NEW DELHI: India can still achieve average annual economic growth of nine percent despite the current slowdown while inflation will ease, a top economic policymaker forecast on Wednesday.

"I am very confident that India is at a position when it will get a higher growth rate in the days ahead," Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters in the Indian capital.

"A target of nine percent growth in the Eleventh Plan is not unreasonable," he said, referring to the five-year plan spanning the fiscal 2007 to 2012.

Ahluwalia, one of the senior economic advisors to Prime Minister Manmohan Singh, also predicted that inflation, riding at a 44-month high of 7.83 percent on the back of surging food and metal prices, will fall in coming months.

"Given a certain amount of patience, inflation will come down in three to four months significantly," he said on the sidelines of a business conference.

The Congress-led government has taken a series of steps in a bid to cool inflation to shield India's poverty-stricken masses from rising prices before it faces general elections due in a year.

It has reduced import levies and suspended futures trading in staple foods such as chickpeas and wheat. Futures contracts involve betting on future price movements of such items as commodities and shares.

The central bank has also been on an aggressive monetary tightening drive which has slowed the growth of Asia's third-largest economy.

Ahluwalia said apart from infrastructure and agriculture sectors, the country needs to focus on improving health, energy, water and employment to boost India's economic performance.

Forecasts for growth for the current financial year to March 31, 2009 range from seven percent to 9.5 percent. The government has estimated the economy grew by 8.7 percent last year.

At the same time, Ahluwalia stressed the need to make growth more inclusive in the country of more than 1.1 billion people, where hundreds of millions have been bypassed by India's new economic dynamism.

"A good (economic) policy, if does not incorporate inclusive growth, will not be sustainable in the long run," he said.

Last year, the prime minister said India aimed to achieve 10 percent economic growth by 2012 but warned that the country could not be "fully immune to international developments" such as financial market turmoil.

Economists have said that India needs double-digit growth to make a significant dent in poverty.

India a big part of Asian boom

AUSTRALIANS should know more of Shri Kamal Nath, India's long-serving Minister of Commerce and Industry and an apostle of India's burgeoning and globalising economy. Like other Indian cabinet ministers, Nath believes Australia will eventually sell uranium to India.

I'm not sure whether the Indian Government is in some doubt about the Rudd Government's policy against selling uranium to India, which reversed Howard government policy, or whether New Delhi believes the new Rudd policy is so manifestly ridiculous that it is bound to change ultimately.

On uranium Nath said: "We do ask the Australian Government to take a practical and realistic view of this. Australia is not the only source of uranium for India but (it should be considered) in the larger context of global warming and of the broader relationship between India and Australia." Nath points out that India is not formally asking Australia to sell it uranium because the nuclear co-operation deal between India and the US has not yet been finalised, not least at the International Atomic Energy Agency. Nath is optimistic the US-India nuclear deal will go through.

He said: "In India, things go through best on the basis of consensus. We are in the process of building a political consensus. Then we'll proceed with it."

Nath remains doggedly optimistic about this deal, which would separate India's peaceful nuclear energy program from its nuclear weapons and allow the US and others to supply India with nuclear technology and materials for peaceful purposes. However, Nath echoes a common Indian view that something like this deal with the US is inevitable, even if this specific deal fails.

"After all," he points out, "the previous (Indian) government wanted to pursue it." The parties then in government now campaign against the deal from opposition, but would pursue something similar if they returned to office.

New Delhi clearly believes the Rudd Government is obsessed with China in a way that unbalances its overall foreign policy. Naturally Nath would not be drawn on such contentious matters directly, but said: "The China story is an old story now and the India story is a new story."

"China opened up early so obviously it has a head start. But in all my discussions with Australians now people talk to me of China and India. Three years ago when I was here I was telling Australians the India business story but now they're already acting on it. The India-Australia relationship will come as a very natural relationship. We share so many values, such as democracy, and so many institutions. We greatly value our relationship with Australia."

Nath wants this relationship to intensify and he has highly ambitious, specific goals. He supports a free trade agreement between India and Australia, now subject to a joint feasibility study. He has an ambitious timetable for it: "The FTA is a realistic prospect as our two economies are so complementary. We should try and conclude it by mid-2010 or even by the end of next year, looking at goods, services and investment."

There are some very distinctive features of the Australia-India trade relationship. Almost every advanced industrial economy has a deficit in its services trade with India, because of call centres.

Australia, because of the 65,000-plus Indian students here, has a huge surplus in services. Of the $2.5 billion two-way services trade, some $2 billion is Australian exports to India. Australia's overall trade figures with India are already awesomely impressive. In the financial year 2006-07, India was our fourth largest export market, after Japan, China and South Korea. It was also by far our fastest growing market, with a five-year trend growth in exports of 35 per cent a year.

It is time lazy journalists and commentators stopped using the sloppy and inaccurate term, the China boom. There is an Asia boom. But in 2006-07 we sold 50per cent more exports to Japan than to China, so we should still call our prosperity a Japan boom, even though Japan is not booming. Australian exports to Japan and South Korea were in total more than double our exports to China. Exports to Japan and India were in total almost double our exports to China. China is booming, so are other parts of Asia, and Australia's wealth, even specifically our export wealth, does not derive solely or even primarily from China. But then hysteria is never derailed by facts.

Nath is himself a formidable deployer of facts and figures. He believes India will maintain its economic growth rate of 8 or 9 per cent even if the US experiences a downturn, in part because so much Indian economic growth is now driven by domestic demand and India has substantial domestic sources of investment.

He has recently written a book, India's Century, in which the figures are at times overwhelming.

Because India's economy is so big, and growing so fast, like China's, you can produce astounding figures simply through a little modest extrapolation.

For example, in his book Nath writes that manufacturing exports from India will reach $US300billion ($313 billion) by 2015. A year later it will produce four million passenger vehicles annually. By 2015 India will be the world's second largest steel producer, with a production of not less than 130 million tonnes. In 2006-07 India produced $US15 billion worth of auto parts, of which $US3 billion were exported. By 2015, auto part exports will be $US20 billion.

India already produces 22 per cent of the world's generic drugs in value terms, and twice that in volume terms. Total market capitalisation in India moved from 27per cent of GDP in 2001 to 92percent in 2007.

Nath doesn't downplay the enormous reforms still needed in India, especially in agriculture. Hundreds of thousands of tonnes of India's food are eaten by rats each year and more than a third of its fruit and vegetables rot. But this is amenable to radical improvement with good infrastructure.

Despite Nath's politeness and positive statements, Australia has not done particularly well in India, though John Howard was a champion of the Indian relationship.

The Rudd Government says it wants a new frontier in relations with India but keeps taking decisions, such as banning uranium exports, which contradict India's interests. Australia has not been visited by an Indian prime minister in 20 years and there are but two fleeting references to Australia in Nath's book. Rudd himself made a huge point of visiting China for four days but has still not scheduled a visit to India.

If we want to join this Indian locomotive, we need to hurry up.

Pacts with developed nations to take Indian trade into new era

AGREEMENTS WOULD BENEFIT NOT ONLY CONSUMERS BUT ECONOMY AS A WHOLE

K G Narendranath NEW DELHI

INDIA is currently negotiating preferential trade and investment agreements with some developed countries — the European Union, Japan and Korea. It is also contemplating similar agreements with Australia and New Zealand. If these agreements materialise (they are most likely to), it would mark a new era in not only India's global trade but also its globalisation per se.
    All of India's present bilateral agreements for trade liberalisation are with under-developed or developing countries (barring the Comprehensive Economic Cooperation Agreement with the citystate of Singapore, which, essentially, is a trading economy, and not of the likes of EU or Japan that are strong in manufacturing and large markets themselves). The extant arrangements — including time-tested FTA with Sri Lanka, the trade treaties with Nepal and Bhutan and the agreement with Bangladesh — are essentially political and so, economic objectives are only secondary in their construct. (Under the pacts with Nepal, Bhutan and Bangladesh, India gives tariff-free access to their products as an act of neighbourly camaraderie, without any reciprocity for that matter).
    Even the early harvest scheme with Thailand (to be converted into a full-fledged FTA), the fledgling SAFTA dispensation, the older APTA and SAPTA frameworks, and a clutch of bilateral pacts on the cards with South Asian (Indonesia, Malaysia), the Gulf (GCC) and Latin American (Mercosur) countries have strong political undertones. The proposed much-touted India-Asean trade and investment agreement also has a robust political content, which could undermine economic right-thinking in defining its contours.
    Here's where the agreements being negotiated now with the likes of EU, Japan and Korea differ in substance. They are almost totally to be products of hard bargaining based on economic self-interests of the parties concerned. Another way to describe these pacts in the offing is as antibodies being administered to the Indian economy to prepare it for the impending comprehensive and near-total opening up, to be culminated in the full float of rupee. Once these bilateral agreements are operational, the Indian industry can more than get a taste of imports free from tariffs from highly competitive economies and foreign investments treated at par with its own by the country's policymakers. The question is what more would we get from these pacts?
    The relevance of these bilateral pacts would anyway diminish if liberalisation happens under the multinational WTO framework. But going by the way the WTO talks are being directed, the most likely scenario will be a crumbling of tariff walls facing goods trade, to precede any WTO-mandated reduction of national regulatory curbs on trade in services, cross-border investments or a weakening of autonomous (national) regimes on competition and IPR policies. To speak more plainly, there's no guarantee that areas such as investment and competition and IPR policies would witness WTO-driven mandatory liberalisation any time soon.
    So, India ought to focus on making maximum use of the proposed bilateral pacts with the developed countries for the liberalisation of their policies on foreign trade in services and investment. That doesn't mean we have nothing to gain from these pacts in the area of goods trade. It's myth that tariff walls seldom exist in the developed world. True, the EU's average level of Customs duty protection is around 4% on industrial goods, taking into account Most Favoured Nation (MFN) rates. But tariff levels are 10% and more on many items of export interest to India, like textiles and clothing and processed agricultural goods. Then, there is the issue of tariff escalation which curbs export of value-added products to the EU countries. Similarly, Japan maintains zero Customs duty on 30% of its imports, but the tariffs are very high for certain farm goods. For example, the duty on some varieties of rice is 1,200%.
    It is reasonable to believe that preferential trade pacts with developed countries would immensely benefit not only Indian consumers but the economy as a whole. Let us consider India-EU trade, which is currently $50 billion-plus and is growing at a brisk pace. EU's imports from India consist mainly of textiles, clothing, chemicals, agro- and marine products. EU, on the other hand, exports machinery and high value consumer items like gems to India. "Manufacturing systems of developed countries are very different from ours. They (developed countries) make high-tech and valueadded items whereas we have strong and potentially strong employment-intensive industries," says former commerce secretary S N Menon. He notes that an India-EU free trade pact would "really bring down" the EU textile tariffs vis-a-vis India and even "equate" these tariffs with the rates prevailing for our competitors in the area of textile exports like Pakistan and Bangladesh, that currently take advantage of the EU's Generalised System of Preference (GSP) and tariff suspension regimes.
    The thorny issues involved in the finalisation of India-EU economic pact make it a mirror image of the ongoing WTO talks. The two sides have flagged their separate "negative lists" (items for which tariff concessions wouldn't offered in the light of respective domestic sensitivities) and the negotiations for the pruning of these lists to make the pact meaningful are now underway. The India-EU pact is much more feasible than an India-US pact on this score where the divergence over the sensitive lists could be wider.
    But tariffs are only one thing. When it comes to trading with developed countries, India, like many other developing countries, faces the former's indiscriminate invocation of the tool of non-tariff barriers (NTBs) to deny market access. "Targetting NTBs is already a priority for Indian interlocutors as far as the proposed pact with EU is concerned," says Biswajit Dhar of Indian Institute of Foreign Trade. Mr Dhar, however, says New Delhi should be wary about taking positions on areas other than trade in goods and services in the India-EU pact. "If the agreement is confined to traditional area of trade, it is well and good. If other areas such as investment and competition policies are also to included, we do have certain amount of sensitivities, as our autonomous policy regime is still in a flux. Giving binding commitments to a major trading partner like EU is hazardous at this juncture," cautions Mr Dhar. The contrarian view is that India is anyway mulling to open up sectors such as financial services where foreign investment restrictions exist. "I think the proposed economic pacts with the developed world would make eminent sense if we are able to get market access for products such as textiles, leather and processed agricultural goods, and also facilitate short-term contractual movement of our professionals to the partner countries. We are very much in a position to liberalise foreign investment in financial services," says Mr Menon.
    The moot point is that with industrial tariffs likely to be close to zero even in India in the next few years, the proposed bilateral economic pacts with developed countries would be more pertinent in the area of trade in services, investment and competition policies. Whether these pacts are a gain for India in the final analysis would depend on the fine print of the agreements. The outcome of the current talks should be of our genuine liking.

Can Indian telcos succeed overseas?

Alok Shende Director (Consulting)Datamonitor

That Bharti Airtel is in exploratory talks with MTN of South Africa for the possible acquisition has aroused considerable interest amongst investors, constituents of telecom industry and public at large. Reactions from industry analysts and media have been sanguine to hagiographic where as the reactions from investors appears lacklustre in light of incomplete information. The genesis of the two contrary viewpoints can be best coalesced as follows: when the going is so good in the domestic market, should Indian players expand overseas? If yes, is there a value in transmuting the Indian business model to Africa?

And if yes again, what are the upsides and risks.
Predominantly, the strategic rationale for telcos entering new geographies is that, while they have leading market share and peak cash flows in their home market, their home markets are, in turn, reaching the stage of near saturation. The spectrum of limited upside on growth as well as deflating investor expectations is real; prompting telcos to scurry abroad.

With monthly additions of 6-8 million subscribers, India's growth story is far from running out of steam. However, with the subscribers expected to reach 500 million by 2010, telcos will have to cast the net disproportionately wide to clock the same growth rates, adding pressures on ARPU that are already one of the lowest in the world and simultaneously raising capex as telcos target geographically sparse rural population.

While inflection on the S shaped subscriber trajectory is only one reason for Indian telcos to scour opportunities abroad, equally important driver that will facilitate international expansion is their autodidactic business model that veers on the revolutionary. With one of the lowest call rates and ARPU in the world, Indian telcos have induced innovations on cost structure that is unique. This together, reflects in EBITDA margins of 41% as well as increasing price elasticity of demand leading to increasing minute of usage.

For the Indian telcos, the Africa continent represents the brave new world. There are numerous homologous parallels' between the two markets. Africa, like India, is a heterogeneous market. The mobile penetration, as of 2007, ranged from 92% in South Africa to 2% in Ethiopia and Eritreia. With an overall mobile subscriber growth of 40% in 2007, Africa was world's fastest growing region. Africa's ARPU of $13.23 compares favourably with India's ARPU of $8.85 in Q4 2007. The unequal income distribution and high proportion of low income population for Africa resembles India's. In Africa, as in India, higher degree of poverty is not synonymous with low adoption rates.
Large distances, high degree of informal job market and lower penetration of fixed line telephony have increased the importance of mobile phone in citizen's life. Most operators in Africa, 72% at the end of 2007, have less than 1 million subscribers, providing potential for consolidation and creation of pan regional play.

Indian players, who have thrived on such demand and supply side scenarios. While savings in technology cost and consolidation of business processes will be the first driver for the acquisition, the second level of savings will come from transplanting the best practices and cost model that Indian players have developed in serving low income subscriber to the African market.

Historically, the biggest risk in telecom acquisition remains that of paying a steep strategic premium, particularly in light of competitive bidding that may emerge. While political instability and country risk remain high, regulatory risks are reasonable: Africa is inviting foreign investments and there's adequate spectrum available. Currency risks have been touted as another risk, however diversified operations across the continent is likely to cancel out the fluctuations. With the panning out of both the positives and negatives, there exists a possibility of significant value creation from this deal. Bharti should conclude MTN's acquisition under conditions of fair valuation.

Alok Shende Director (Consulting)Datamonitor

IN WHAT is the world’s largest-ever order for GSM lines, state-owned BSNL has floated a tender for 93 million GSM lines. BSNL executives say the total value of the contract could be about Rs 40,000 crore. Of these, about 21 million lines are reserved for third-generation (3G) services. The tender details have already been sent to all global network majors who are slated to bid for the project including Ericsson, Nokia Siemens, Motorola, Nortel, Alcatel Lucent, Huawei and ZTE, company sources said. The bids of all companies will be opened on July 16, 2008.
The BSNL contract is split into three parts of 25 million each for the North, South and West Zones and 18 million for the East Zone. The tender conditions also stipulate that one company cannot be awarded more than two zones — this implies that the maximum order an equipment major can bag is for 50 million lines.
In a bid to infuse additional competition, BSNL has divided the tender into four components — 2G lines, 3G lines, infrastructure and operating and business support systems (OSS & BSS). This implies companies can bid individually for any of the four components, or a single company can also bid for all the components combined.
“This tender is unique in many ways — infrastructure companies, or standalone tower companies, can bid only for the infrastructure part. Similarly, IT companies can bid for providing the operational support systems and the business support systems,” explained a top BSNL executive. “In the past, we had experiences where network majors bid for the entire contract and in turn gave a raw deal to the third party infrastructure and IT service providers. These clauses will safeguard the interests of these smaller companies,” the BSNL executive added.
To put this tender size in perspective, consider this. BSNL currently has a mobile subscriber base of 36 million, while the country’s largest telco Bharti Airtel has a subscriber base of about 64 million. The total CDMA subscriber base in the country is about 75 million. The BSNL contract is equivalent to about 40% of the country’s current mobile subscriber base which had crossed the 260 million mark in March 2008.
Another BSNL executive said about 30% of the contract size, which is equivalent to 31 million lines, could be reserved for stateowned ITI. However, the executive did not clarify if these 31 million lines would be part of the 93 million lines tender. “The reservation for ITI is likely to be outside this tender — if this be the case, the actual size of the orders could be 124 million lines,” added an industry source. BSNL has been demanding that the government remove this clause as ITI, which has a partnership with Alcatel-Lucent, has failed to deliver in time in the case of the previous orders.

India IT/ITeS market to cross Rs 2,00,000 crore in 2012

BANGALORE: The India domestic IT and ITeS market is expected to cross the Rs 2,00,000 crore (USD 50 billion) mark in 2012 compared to Rs 90,014 crore recorded in 2007, according to IDC India.

This translates into a compounded annual growth rate (CAGR) of 18.4 per cent in the five-year period. Together with IT and ITeS exports revenue of Rs 3,20,278 crore, the total IT and ITeS industry size will grow to Rs 5,29,976 crore (USD 132 billion) by 2012, representing a CAGR of 16.5 per cent.

The Indian IT and ITeS industry grew to Rs 2,46,609 crore in calendar year 2007, up from Rs 2,01,413 crore in 2006, representing a growth of 22.4 per cent. Of the total industry size of Rs 2,46,609 crore, the domestic IT and ITeS market contributed Rs 90,014 crore, while the remaining Rs 1,56,594 crore was contributed by the IT and ITeS exports segment. In 2007, IT services (excluding ITeS) exports continued to be the biggest segment at Rs 97,492 crore.

In 2008, IDC expects the IT and ITeS industry to grow at 20 per cent, with the domestic market growing at 22.4 per cent compared to IT and ITeS export market growth of 18.9 per cent.

The overall industry is projected to be Rs 5,29,976 crore by end 2012, with the share of domestic IT and ITeS revenues adding to 40 per cent of the total, compared to the current 37 per cent.

The IT and ITeS exports market is likely to more than double to Rs 3,20,278 crore in 2012 from Rs 1,56,594 crore in 2007. In 2008, it (IT and ITeS exports segment) is expected to clock a growth of 20.4 per cent to touch Rs 1,86,142 crore, it was stated.

India's IT industry to double by 2012

India's information technology and IT-enabled services industry will more than double in size by 2012, led by a fast-expanding domestic market, according to a report.

The industry's revenues, including those from export markets, will reach Rs 5.3 trillion (132 billion dollars) in 2012, from Rs 2.46 trillion last year, said the report by market-research firm IDC India.

Two trillion rupees of that will come from a domestic market, which is growing at an average annual rate of 18.4 per cent, outpacing overall industry growth of 16.5 per cent, it said.

India's expanding economy, growing annually by nearly nine per cent, is spurring domestic IT spending as companies upgrade technologies to stay competitive and consumers log onto the Internet on personal computers and mobile devices.

The forecast growth rates will be achieved on the back of the industry offering "innovative services to the evolving domestic buyers," said IDC India country manager Kapil Dev Singh in a statement.

The domestic market has largely been ignored by an industry that has boomed on work from Western firms trying to cut costs by taking advantage of India's English-speaking, computer-savvy graduates who work for lower salaries.

Last year, India's overall IT and IT-enabled services industry logged 22.4 per cent growth in revenue to Rs 2.46 trillion, of which the domestic market contributed Rs 900 billion, according to IDC India.

In 2008, the market researcher expects the overall industry to grow 20 per cent, with the Indian market expanding 22.4 per cent, maintaining its growth rate last year.

Indian IT companies, including software makers, are grappling with a slowdown in demand from the United States, their biggest market. US companies are paring technology budgets in the wake of a downturn in the world's biggest economy.

The slowdown follows a more than 12 per cent appreciation last year in the value of the rupee against the dollar, which reduced the local equivalent of every dollar earned by exporters such as software makers Tata Consultancy and Wipro.

That has forced exporters to look at non-American geographies and the home market to diversify risk and maintain growth.