Chennai:

Says Arun Kumar, chairman, National Association of Software and Service Companies (Nasscom): ''The increased interest by customers and the aggressive foray by Indian vendors led to larger offshoring contracts for India.''

As per the Nasscom survey, a bulk of the growth is from IT services and business process outsourcing (BPO) activities. ''Software and services exports are also increasing their contribution to overall exports from the country. Software exports accounted for 4.9 per cent of India's export revenue in 1997, and is expected to increase to 20.4 per cent in 2002-03,'' he adds.

The other good news is that the markets and the kind of services offered by domestic IT services and IT-enabled services (ITES) and business process outsourcing (BPO) players are expanding.

In the IT services arena, Indian vendors are getting into new service lines such as IT and network consulting, packaged software installation and support and systems integration. In the ITES-BPO segment, apart from consolidating their presence in traditional areas such as customer care, finance and HR, Indian vendors are moving up the value chain by addressing segments such as engineering design, animation and research and development (R&D) services.

Nevertheless, the banking, financial services and insurance (BFSI) vertical continues to be the biggest revenue earner, contributing 36 per cent of the total exports during April-December 2002. The manufacturing vertical is expected to increase its share to 14 per cent in 2002-03. Apart from growth in traditional services, new verticals such as healthcare, retail and utilities in the IT services sectors will lead future growth in exports.

The retail sector currently has a share of 4 per cent in 2001-02 and is expected to increase to 5 per cent in 2002-03. The utilities sector, which has a share of 2 per cent in 2001-02, is expected to grow to 3 per cent in 2002-03. And healthcare, which has a share of 3 per cent in 2001-02, is estimated to grow to 5 per cent in 2002-03.

Industry performance by verticals in IT software exports

Verticals	2001-02 in %	2002-03E-in %
BFSI	35	36
Manufacturing	12	14
Telecom equipment	12	10
Government	1	1
Retail	4	5
Utilities	2	3
Transportation	1	2
Telecom service providers	3	5
Healthcare	3	5
Others	27	19

Says Nasscom president Kiran Karnik: ''The industry did face pressure on pricing in the first half of the financial year but this is stabilising now. There has been good growth in volumes but profitability has been affected due to increased investment by Indian vendors in sales and marketing. While this may affect the bottomlines in the short term, it would help in strengthening the long-term prospects of the company.

''Further, if the appreciation in the rupee continues in the next quarter, it might lead to the growth rate in rupee terms coming under pressure. But we are confident of achieving strong stable growth in volumes in the coming quarters also.'' The survey also finds that domestic software and service companies have beefed up their capabilities - external and internal - to overcome the global economic slowdown. The industry is also expected to witness a rise in mergers and acquisitions (M&A) activity as players try to broaden product offerings and build scale.

In the area of marketing, Indian companies have looked towards building expertise through thought leadership, gaining better customer access and key account management. Indian companies have also invested in building global delivery models to overcome geopolitical risks. Companies have also tried to contain costs by recruiting in line with utilisation rates, hiking the proportion of variable pay, and better management of fixed-price contracts.

Indian software exports: Delivery models India's software exports have continued to grow towards the high-value offshore development model. Onsite services, which contributed Rs 16,500 crore to India's export revenue during 2001-02, is expected to reach Rs 18,500 crore in 2002-03. Offshore activity, meanwhile, notched up a higher growth rate during the same period, with contributions growing from Rs 18,500 crore in 2001-02 and expected to reach Rs 27,500 crore in 2002-03.

Rs crore	1999-00	2000-01	2001-02	Apr-Dec 2002
Onsite	9,850	15,900	16,500	13,300
Offshore	5,950	10,950	18,500	19,700
Products and unclassified	1,350	1,500	1,500	1,000
Total	17,150	28,350	36,500	34,000

Indian software exports by geography According to Nasscom, North America continues to be the prime destination for IT services and the ITES-BPO segment followed by Europe, Japan, APAC and rest of the world.

Geography	2001-02 (in %)	2002-03 (in %)
North America	66.7	67.7
Europe	23.7	21.2
Japan	2.5	2.0
Rest of the world	4.1	5.9
Asia Pacific (excluding Japan)	2.8	3.2