When contacted by The Financial Express, most of the leading software companies' officials agreed that the margins will be under pressure in the year 2001-2002 but a very few were forthcoming with comments and figures on record. "We are also hearing about 10-20 per cent reduction in billing rates in the US market," admitted Mr Suresh Nanda, chief executive officer of STG International.

Significantly, it is not only new projects which will see margins come under pressure, even existing ongoing projects will feel the heat. "The clients in the US are already asking for a straight discount of 10-20 per cent on negotiated billing rates. Unfortunately, software companies do not have any other option but to agree, as they do not want to lose the business in hand," said a marketing head of a leading software company of Delhi.

Industry sources also add that the increase in the offshore business will not be enough to offset the shrinking margins, in terms of the total impact on revenues due to the slowdown. "Setting up an offshore project takes anything between two to three months which means that Indian IT players have to be ready to face a loss of a quarter in billings, at least," said an industry source.

"It is going be a tough year. It is hard to maintain the 60 per cent growth with a large base Indian software industry has today. As far as the slowdown in margins are concerned, it was happening in any case, the slowdown has just accelerated the process," said Mr Saurabh Srivastava, chairman of Xansa India, the erstwhile IIS Infotech.

Mr Srivastava explained that the software industry has been enjoying good margins and thus, it made a good business opportunity for others to join the industry. And, now when the industry is crowded with players, the margins had to come down to levels comparable to other industries, he added. Though Mr Srivastava agreed that India will get a lot of advantage in its offshore business, he was concerned about the time which will be lost in converting the onsite business to offshore development projects.

While Mr Anil Bakht, chairman and managing director of Eastern Software Systems (ESS) also agreed that the revenue growth and margins will not be the same and will certainly be under pressure, he said that small companies depending only on one or few large clients, will be the worst hit.

"If you have a large contract from a single company and that is canceled you will be badly effected. The effect will not be uniform across all companies. Many companies will be effected and smaller companies will be worst off as their number of clients is smaller," said Mr Bakht. Clearly, despite the efforts to talk up sentiment by industry associations, the Indian IT industry needs to sit down and work out clear survival strategies for riding out the rough patch.