Dan Swinhoe (Asia) - Is India Really Failing?

Growth has slowed, the pay is terrible and regulation needs to change. But is India really failing? Dan Swinhoe investigates.

When asked to write a piece on "Why is India failing?" I was surprised; I had assumed India was still booming amid slowdown in other BRICS countries.

After doing a little research, the claim seemed to ring true: the IMF recently lowered the country's growth projection to its lowest point in 10 years and global agency Standard & Poor's threatened to downgrade India's sovereign credit rating from the already low BBB- to junk grade within 24 months, while on the IT front India's net software exports have slid to a 10-year low and IT revenues for Q3 rose by just 2%.

So why the decline? Government regulation seems to be a major issue. For example, S&P said that it could improve its outlook on the country if "the government implements initiatives to reduce fiscal deficit, improves its investment climate, and increases growth prospects". In its World Economic Outlook released this month, the IMF said, "India's activity suffered from waning business confidence amid slow approvals for new projects, sluggish structural reforms, policy rate hikes designed to rein in inflation, and flagging external demand."

Employment also seems to be hitting a wall. According to Naukri's Job Speak Index, he job market has slowed down and seen three months of decreasing recruitment rates. While lower hiring levels don't mean crisis, it does indicate a lack of growth or ambition from companies. The fact that Indian IT companies are one of the 10 worst paying employers in the world is no doubt also hampering growth.

Even in certain areas of business still enjoying rapid growth, there are deep-seated problems. India already enjoys 900 million mobile phone subscribers, and penetration is expected to rise from its current 51% to 72% by 2016, but chronic overcrowding of providers is causing troubles - while the average number of mobile providers per country is four, India has 12. The lowest average revenue per user per month in the world, various corruption problems around 2G licences, and a low uptake of 3G means the industry has failed to reach its potential - when the country's biggest mobile phone operator, Bharti Airtel, posts 10 straight quarters of decline, something has to be wrong.

While India's top spot for outsourcing may be safe for now, times are changing. The Indian BPO sector is still very strong, worth around $63.2 billion in 2012, but competition from China, the Philippines, South Africa, and a backlash against outsourcing have all eaten away at the sector's growth. India's growth for the last few years reads 25.4%, 23.6%, and 15.7%, compared to China's 43.5%, 63.6%, and 33%, topping revenues of $53.8 billion this year. As with other areas, new ideas and avenues have to be brought to the table as other countries start to move into ground traditionally held by India.

It's not all bad by any means. Despite the employment slowdown, the number of employers who say they intend to hire in the fourth quarter, outnumber those who report they will reduce payrolls, by almost 20 to 1, and various India companies saw decent Q2 growth, and spending on smartphones and tablets continue to rise. And despite low levels of growth for software exports, 4% is still a decent number in a slow economy, and with Gartner predicting Indian IT spending to rise next year by more than 7% to $72 billion, the future still seems positive.

With India becoming a bigger player on the G20 stage, according to US Federal Reserve chairman Ben Bernanke, it sounds promising that experts feel confident investing in the Indian economy after government reforms: "It is highly encouraging to see the current wave of economic reforms being initiated by the Indian Government as they would help in restoring investor confidence, thus reviving growth too," said US Treasury Secretary Timothy Geithner.

There are plenty of opportunities in India; you just have to look for them. Despite the bad news, growth is still growth, and it's a reality that as the country catches up with more mature markets, those figures will be smaller. But as long as they don't turn into minus figures it's no bad thing, and if the government reforms take hold, maybe even double figure growth can appear again.

By Dan Swinhoe, Editorial Assistant, IDG Connect

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