IT sector designated as among the top 5 priority sectors, is a part of the national agenda, and policies are framed so as to obtain maximum benefit out of IT outsourcing to India.

Measures of liberalization and regulation taken by the government are aimed at enhancing growth and integration of the global economy. FDI investments from NRIs including Overseas Corporate Bodies owned by NRIs are being received with open arms. The IT bill 2000 provides a legal framework for the recognition of electronic contracts, prevention of computer crime and electronic filing of documents. NASSCOM along with the government is playing a key role in protecting the interests of the IT sector. Thus with all these help, IT outsourcing to India is poised to take on the world.

Tax Incentives

The tax incentives offered to the investors by the Government of India are a major boost for firms involved in IT outsourcing to India. The incentives that facilitate economic growth and development are:

10 years tax holiday to undertakings, which generate and / or distribute power.
5-year tax holiday is available for new industrial units to be set up in backward states and districts.
Tax concessions are allowed for FTI and a weighted deduction of 150% for scientific research and development expenditure are in the offing. 10 years tax holiday is available for R&D companies engaged in scientific and industrial research.
Tax is deducted on exporter's profits for unit set up on EPZs, STPs, EHTPs, FTZ and SEZs A 10 years tax holiday to ventures engaged in developing and / or maintaining and operating an infrastructure facility.
5 years tax holiday for companies providing telecom services including Internet services and broadband services. Also 30 % deduction from profits for the next 5 years in any 10 continuous years out of first 10 years is also offered.
10 years tax holiday is applicable to ventures that develop and /or operate or maintain in notified IT parks and special economic zones.

The NASSCOMM Manpower Resource Survey conducted in 2001-02 revealed theses characteristics of the IT industry which are stated below:-

The number of employed IT software and services professionals showed an increasing trend. (A massive 522,000 by the end of 2001-02 compared to 280,000 employed in the year 1998-99.)
This figure includes professionals employed in application software, IT services and IT enabled services including professionals engaged in software development units in user organization.
South India ranked the highest in hiring of new IT professionals amounting to 41% while the Eastern region was ranked the lowest with 6%.
25.6 years was the overall median age of software professionals.
44% of them are non-fresher with over 3 years of working experience.
The sex ratio is adverse in this sector especially when it comes to software professionals; with ratio of 79:21 (male: female); this is likely improve to 65.35 by the year 2005.

Structure of the Indian Software Exports Industry

Annual Turnovers	Number of Companies
Above 1000 crore	5
Rs500 crore-1000crore	5
Rs 250 crore-Rs 500 Crore	16
Rs 100crore-Rs250Crore	27
Rs50 crore-Rs100crore	53
Rs 10 crore-Rs50 crore	194
Below Rs 10 crore	614

Warning Bells

A few experts are however apprehensive about the phenomenal growth this sector is experiencing. A report by market research firm Gartner Inc. suggests that a labor crunch and rising wages may erode as much as 45% of India's market share by 2007. Countries such as Malaysia, Philippines, Vietnam and other east European nations like Hungary and Poland are also beginning to emerge as keen rivals of India in this sector.

India's status as the best outsourcing destination is primarily because of its vast pool of talented, skilled and English speaking labor force. However India cannot afford to rest on its laurels. Unless she devises a long term plan for development of infrastructure and consistently grow its skilled labor force, India's offshore clients might just shift base.