According to NASSCOM, India’s IT industry is insulated from the financial crisis that has hit many economies globally, and companies here have not stopped hiring professionals either.

Of course, the Indian economy is facing a challenge. Governments around the world are taking unprecedented measures to support a world financial system on the brink of meltdown.

The resulting recession will probably be milder in India than in the US and Europe, but the level of economic activity will certainly slow down across most sectors of the economy. 

“The growth has certainly slowed down as an immediate impact of recession. However, the companies are hiring from campuses for the next quarter,” said the National Association of Software and Services Companies (NASSCOM) President, Mr. Som Mittal.

Dr. Subas Pani, Secretary, Planning Commission, Government of India, says, “We should not press panic button so early, as the Indian economy is quite sturdy and its fundamental are strong. The Indian IT industry should avail of the opportunity by showing its capacity to sustain growth momentum. They should focus on the domestic market at a time when it is facing challenges of global slowdown.”

In his view, the Indian IT and IT-enabled services should capitalize on the outsourcing model and explore growth opportunities in the domestic market. He expressed unhappiness that the IT sector was yet to tap the potential of Indian languages computing. There is a vast Indian platform, which remains untouched by the IT Revolution in India. The IT industry should address the domestic market for creating a sustainable revenue model in the process.

Dr. S. N. Dash, Secretary, Ministry of Heavy Industries, Government of India, says, “The current economic slowdown has come as a blessing in disguise. This should make the IT sector think about the domestic market. There is a huge untapped potential that needs to be explored by the IT vendors to ensure successful use of local language computing applications.”

Exuding confidence that India will overcome the economic slowdown easily, Vinnie Mehta, Execurive Director, MAIT, said, “The fundamentals of Indian economy are sound. Though India is witnessing an economic slump, the IT market has grown reasonably well. All the vendors in India have reported positive growth and it is going to happen in the next quarters also.”

Underscoring the need for introspection in the backdrop of economic slowdown, Ajay Verma, Director – Channels & Alliances, Symantec Software Solutions, said, “IT industry has been growing at a galloping pace. I think this is a very interesting time we are in. we have been given an opportunity to step back and look at what we have achieved. A large amount of infrastructure has been created. Industries in India fundamentally are strongly poised and they will expect from the technology community to achieve efficiency.”

Although companies will have no option but to reduce their IT spending thanks to the economic meltdown, it is certainly not going to be all doom and gloom for the IT industry.

According to analysts, the crisis in the financial sector may prove to be a blessing in disguise for system integrators, consultants and other channel partners, as companies that have taken over or bought others seek to align their back-end systems.

“Despite the economic meltdown, companies worldwide have to maintain their back-end operations and the crisis will not affect any existing contracts,” said Som Mittal. How vendors will be affected by the economic downturn depends on the type of product or service they provide.

Research analyst Gartner expects slower sales brought about by the economic slump will strongly and adversely impact hardware vendors, followed by the IT services sector. Software spending growth will remain strong at 8.6 per cent.

According to Gartner, the IT industry will not see the dramatic reductions that were seen during the dot.com bust, because organizations now view IT as a way to transform their businesses and adopt operating models that are much leaner. IT is embedded in all the aspects of the business and is a critical part of multi-year transformation projects that are difficult to cut.

As bullishness turns to caution, Asia-Pacific organizations are expected to delay computer hardware upgrades and large technology projects and focus on efforts to improve client retention and acquisition, according to technology research firm Gartner. In a worst case scenario, information technology (IT) spending in Asia-Pacific is forecast to grow 8.3 per cent in 2009 to reach US$585.7 billion, compared to Gartner’s previous forecast of 11-per cent growth.

According to Gartner Vice-President Matthew Boon, “The second half of 2008 has seen, and will continue to see, shifts in confidence and willingness to invest, with chief information officers (CIOs) paying closer attention to investments and requiring higher levels of approval and justification for decisions.”

“CIOs in Asia-Pacific are being pulled in different directions,” said Mr Boon. “On the one hand, they are being asked to grow the business to take advantage of market opportunity, and on the other hand to cut costs.”

“This will make the IT buyer less easy to predict. They will“seek lower pricing and have lower brand loyalty. Technology vendors will need to be seen to support their customers’ cost containment strategies while at the same time focussing on value.” “In Australia, we are still seeing some IT executives with their heads in the sand, refusing to believe the grimmer reality of the next six months. This is the ‘we aren’t seeing it’ trap that wastes valuable planning time. IT leaders in this region should take full advantage of the available time to quietly and privately develop plans for a worst case scenario in 2009,” said Mr. Boon.

Channel vendors and partners offering solutions for governance, cost and profitability analysis, and data integration are also expected to benefit as companies figure out what to cut and how to do it safely and to their greatest benefit, or merge and consolidate systems after an acquisition or merger. “

India channel should not be worried about the slowdown as it will have a limited impact on the Indian market. The market does not work in accordance with the stock exchange performance. If you look at the performance result of most of the companies, all have put up a very healthy result. There will be a little slump in the market, but it is not going to affect the market very fiercely,” says Hunter Chen, Sales Director, OBM Sales Division, EDIMAX. Meanwhile, analysts predict that pay as you go services, ranging from software-as-a-service (SaaS) to hosted service providers to cloud computing providers to hardware leasing, may see an increase because using them will cost corporations less upfront than buying hardware or software outright.

According to analysts, most financial institutions will cut back on IT spending. At least, half of them will freeze spending or reduce it to the extent that they can for the next six to 12 months.

“New projects will be the most heavily impacted. About 22 per cent of IT spending from financial institutions will be impacted, but most of this will be discretionary spending, like new innovative projects they were looking into,” says one analyst. Still, things won’t grind to a halt. The business must go on, and companies will need to spend on and support what they need in order to conduct their business. Data integration at the back-end will also become important because of the mergers and acquisitions in the financial industry. The first thing that happens in an M&A is they have to bring together things like general ledgers and then customer service capabilities so they have a single view of the customer. That means bringing together data from disparate systems.

Also, consulting firms and system integrators will have great potential for work because most financial institutions that bought others may not have the bandwidth to execute on a full system integration. Another growth area that will emerge is in business analysis applications. “Activity costing and profitability management solutions will help corporations optimize where they should put their spend and where the major costs are,” SAS Institute’s Joyner said, predicting that this will be “one of the hotter areas in the short term”.

Companies that have to get new equipment or software will look to SaaS and pay-as-you-go strategies. The economic impact over the long run is equal whether you buy or lease. Another new technology that will attract interest is cloud computing, but it may not benefit too much because for institutions that are regulated and are looking to start a cloud computing initiative. There is a lot of risk involved, and it is not something to undertake lightly.