Recently, India was elevated from being a low income country to a lower-middle income country joining the likes of China,Philipines and Turkey by the World bank. This was mainly due to strong economic performance in the last half decade. What is the significance of this elevation in the first place ? Lower-middle income countries are those countries in which the average income of an individual is anywhere between 956$-3705$. Generally, countries grouped in this category said to have attained financial credibility which they lacked previously. This in turn, makes them eligible to borrow more loans and aids from financial instituitions like World Bank and IMF for improving their internal infrastructure, spending in social sector schemes and internal security.
But, many countries like Brazil and Philippines which had tremendous growth in the early 90's and their subsequent stagnation in growth should be properly analysed. India's main growth story is fuelled by the services sector like IT and financial services. Now, why is outsourcing and other services being awarded to India by foreign countries like America and the EU? One reason is the high technical expertise of Indian engineers and the second and a major factor is due to "Low wages" prevailing in India.
But, as we grow and so is the income of many skilled people in India. This could affect the wage-advantage that we have against our Chinese,Korean and Japanese counterparts. This will affect our services sector. IT and ITES contracts may go to many less-income countries like Vietnam and Philippines which are of late, growing very well in services sector.This was echoed even by Wipro chairman Azim Premji recently in a conference. He said "The BPO business in the Philippines was hardly anything some five years ago, but now the country is in a position to get equal with India or displace its leadership in BPO". IT companies may not post 25-30% CAGR that they are posting before the recession. This means creation of less jobs in this industry and more difficult times ahead.
Thus, India has look beyond the successful growth story of services sector and start investing in sectors like manufacturing,infrastrucure,education,textiles and telecom. Proper planning forward with proactive rather than reactive measures should be the need of the hour. Also,improving educational expertise in different sectors and skilled labour in other sectors should be encouraged. India has to diversify its core sectoral growth and bring in major face-lift to many sectoral portfolios, if it wants to become a major superpower by 2020.
As far as the software industry is concerned, they will have to keep thinking and innovating in different avenues and be competitive always,like they have been for many years.Major thrust to R&D and Intellutual Property Rights(IPR) should be given by Indian companies. If these can be managed, Indian IT industry can become a 80 billion dollar sector by 2011, double than what they are today!!! It has to seen whether India can stay clear of this middle income syndrome like China and motor forward, diversifying in all sectors or get stagnated like Brazil with a small percentage of growth.
