The Indian software industry has been on an upswing for some years now, on the strength of its booming export potential. Its competitiveness stems from its vast trained manpower, cheaper rates and technically competent personnel.

While liberalisation eased imports and fuelled the IT boom, it also led to the world discovering India as an ideal software source. The software industry was quick and competent to seize the opportunities in the form of Y2K solutions, ERP implementation, and other such "in" things. Software exports grew rapidly. But doubts have been raised about whether this boom will last into the new millenium.

Consider this: a study by First Global India Research (an institutional brokerage cum research company) indicates that even if non-Y2K businesses grow at 50 per cent in the year 2001 (when the Y2K boom would have subsided) software exports will grow at only 17 per cent. A far cry from the boom days of the 1997-2000 period when they grew in excess of 50 per cent.

India's share in the Y2K exercise was reported to have doubled from 2.86 per cent in 1996 to 5.1 per cent by 1999. In percentage terms of the whole market, India holds an 11 per cent share, which is likely to rise to 15 per cent by 2000.

Significantly, India has a much lower share of the overall software services market. The revenue from Y2K services will taper off by 2000, which means that non-Y2K software exports will have to show higher growth rates to maintain overall growth rate.

Source: NASSCOM

If the non-Y2K activity grows at its going rate, which is 50 to 55 per cent, total software exports will grow only at a nominal 17 per cent.

While the global market is valued at about $750 billion, the above figures do not do justice to the Indian software companies. Some facts to think about (figures from the Electronic and Computer Software Export Promotion Council):

• India has about 600 software companies.
• Only 13 of them earn more than Rs.100 crore from exports.
• About 315 have exports of less than Rs. 1 crore
• 222 of these have exports of between Rs 1 crore and Rs 100 crore.

Clearly, Indian software companies have been under-performing in exports, especially in the wake of such a multi-billion opportunity like Y2K.

The flip side is that as with any other market or industry, there are swings in opportunity for the software industry. It is also normal to expect that opportunities will not dry up overnight. Other opportunities have risen from the Y2K boom. The ERP business was seen to have received a minor boost because many companies chose to scrap legacy systems and implement enterprise-wide ERP solutions rather than attempt expensive and unproductive Y2K fixes.

Besides, many companies stalled normal developmental work for Y2K fixes because most companies woke up late to the problem and time was at a premium. These are expected to be revived, with backlogs, to make up for the loss in Y2K business. Besides, Y2K-related date fixes may still crop up beyond 2000.

The major complaint about the Indian software industry has been that it is not involved in any major cutting-edge development work or value added products, which will bring in huge revenues on a continuous basis. Y2K, which can be called a 'glorified' maintenance job, is a case in point. So also is the fact that majors like Infosys and Satyam Computers rely on maintenance contracts for nearly a third of their revenue. So far India has been doing 'high volume' work rather than 'high value' work, in terms of software exports.

So where will the bread come from?

Indian companies can hope to bag orders for service requirements from major US companies. This follows the inclination among these companies to outsource their requirements in services. Other opportunities like Euro conversion, e-commerce, data warehousing, ERP and customer relationship management are also opening up.

For instance, the Euro conversion market (an opportunity that has emerged as the European Union moves to a single unified currency, which will require the finance, banking and monetary institutions in the member countries to rework their systems from their existing currency systems) represents a $100 billion market. While global companies have already started moving in on this opportunity, Indian companies have to battle a few disadvantages.

Indian companies have traditionally been centred in non-European markets, especially the US. Indian software companies also face manpower shortages, mainly multi-functional experts. However, a few major companies like TCS, Wipro, Infosys and HCL consulting are well placed in this regard, and other companies will do well to exploit these opportunities.

In short, although there is no shortage of opportunities, the flattering growth rates of the mid-1990s would be hard to duplicate if software companies do not re-orient themselves.