Economic Revival: Reality or Mirage?

At a discussion on state of the global economy, the CII and industry veteran,
Nasser Munjee cautioned the audience that the worst may be over, but it is too
soon to assume that rapid economic growth will follow. "We have seen a
systematic destruction of the financial system, and we are papering the cracks.
$8.3 tn have been wiped off the US wealth, a huge blow to the US economyhousing
prices are flat, unemployment has doubled to 15 mn, and the savings rate has
gone up to 0-5%," he says. The UK is in a deep decline, and Europe is in a
distressing state. The demand destruction that this has created has affected the
Chinese and Indian exports substantially. A second dip, and indeed the W
effect cannot be ruled out.

India has been largely insulated from the vagaries of the global financial
system. After a disastrous third quarter last year, the Indian corporate sector
in general and the IT industry in particular has weathered the storm quite well
by slashing costs. But there is little or no top line growth as evinced by the
numbers reported this quarter. Shedding people has become a practice, and that
is not a good sign for the future demand. While the Indian economy will look
good because of an unexpected saviorthe rural economy with farmer wealth has
gone up four times, primarily because of the price of gold going through the
roof, and the National Rural Employment Guarantee Plan and even the elections
triggering a new demand which may be temporary. This will result in the
predicted 6% economic growth in India. If infrastructure building happens
nowwhen the cost of raising infrastructure is rock bottomwe can see a
sustaining effect, and a real boom in the Indian economy in 2010 and beyond.

But what is the outlook for the IT sector? There is a perceptible revival in
the global demand, but some of this could be the result of further cost
reduction efforts on the part of our clients, which has seen the offshore
volumes going up. Investment in new and significant applications and processes
may still be some months away. If the dreaded W effect does hit with the
stoppage of stimulus packages in the key countries, serious revival in the
industry growth and employment may kick in by the middle of 2010. This is not a
good news for the industry, analysts, or the academic institutions that are
faced with the rapid decline of interest in placement processes and numbers.

The institutions that will survive and succeed in the next wave will be those
who realize the importance of delivering employable skills to their students.
They will also have to embrace collaboration with the corporate sector to make
their curriculum, pedagogy, and learning content and projects more focused on
the real needs of the industry. All participants of the skills
ecosystemgovernment, academia, and industry will have to work together to
ensure that the Prime Ministers ambitious target of making 500 mn Indians
employable in the next decade is realized.

On a more philosophical basis, one issue that is likely to plague the
economic development is the likely weakness in response to the PPP models, with
most private sector participants becoming extraordinarily risk averse. The
government has to play a major role in development in the next few years, while
the private sector does its bit in sustaining and building the market economy.
India must become more inclusive, and carry its people along. In the long term,
we have to unravel Sovietism, and dismantle institutions that are detrimental to
the market economy. A better form of governance, and better clarity and strategy
is needed at all levels. To have one more Nasser Munjee gem, a political system
that filters out the thoughtful and replaces them with the faithful must be
demolished, or else the old paradigms will continue to drive the country towards
mediocrity rather than success!

Ganesh Natarajan

The author is Vice Chairman & MD of Zensar Technologies. He can be reached
at maildqindia@cybermedia.co.in