India's revenue from back-office outsourcing is expected to surge nearly five-fold to $50 billion by 2012 despite a possible recession in the key United States market, an industry report said.
But a skills shortage, creaky infrastructure in smaller towns and cities and rapidly rising wages are major challenges.
The sector has logged 35 percent annual growth over the last five years to hit annual revenues of about $11 billion, with the bulk coming from exports, said the study by leading IT lobby group Nasscom and consulting firm Everest.
"We have seen that when there are recessions and when there are costs pressures that come in, the companies still want to cut costs," Som Mittal, president of the National Association of Software and Service Companies, or Nasscom, told reporters. India's back-office firms like Infosys BPO, a unit of No. 2 software firm Infosys Technologies, have thrived by providing Western firms with services such as processing insurance claims, managing payrolls and customer support. The boom in business process outsourcing, or BPO, is built on a large, skilled and cheap English-speaking workforce.
The sector employs 700,000 people and is expected to provide direct employment to about 2 million by 2012.
"In spite of all the wage inflation and so on, (India) has still a fairly large cost advantage. I think we are still ahead of the curve, while competition is emerging," Mittal said.
The study said while the United States would continue to be the largest BPO opportunity for India up to 2012, there were significant untapped opportunities in Britain, Europe and Asia Pacific. The domestic market also offers huge potential for BPO companies as banks, retail, insurance, telecom and government departments look to cut costs and boost efficiency, it said.
About four-fifths of the world's 500 largest companies already farm out some work to India, and outsourcing to Asia's third-largest economy can typically generate cost savings of between 35 and 50 percent. Talent is an issue.
India produces about 2.5 million graduates every year, but only about 15 percent are suitable for employment in the BPO sector. The skills shortage has stoked wages that are rising by 10-15 percent