Crouching Tigers, Hidden Dragons have come out in the open. Worst fears of people about the decade-long run of US economy riding on the IT boom coming to an end seem to be coming true. Or is it?

With the beatings and poundings being taken by tech stocks, that too regularly for past one year, at stock exchanges round the globe, investor confidence in the IT and Internet is at an all-time low. Unreserved optimism has been replaced by the skepticism about the further growth of IT at the yesterday's speed.

Falling revenue projections by IT majors, coupled with distant breakeven time by Internet hotshots, have dampened people's spirits with sunshine industry. IT bigwigs are taking stringent measures to trim costs in an effort to increase bottomline. Layoffs are being announced with bigwigs like Siemens announcing 2000 layoffs. Other related industries are also hearing the fat lady's music. PWC laid off 400 consultants due to lack of work following the bubble burst. Many IT firms have put their projects on hold, whereas others are forcing their outsourcers to cut down on their charges. Wipro has lost GE account, which contributed to around 7% of turnover.

US slowdown is having its repercussions around the globe, with major software exporting countries like India facing the music by pressure to reduce costs, coupled with increasing competition from Chinese and East-European countries.

Is it the beginning of the end for Indian IT industry?

Experts say that things are not as bad in India as are being made out by the media.

Firstly, with the slowdown in advertising, marketing on account of global slowdown and ending of dotcom blitzkrieg, companies are cutting down costs with stringent cost-cutting measures in a desperate bid to increase efficiencies and bottomline to arrest the falling share prices. Also with the emerging competition from Chinese and East-European countries, the Indian firms will have to cut down their prices making themselves more competitive. This would lead to increased software exports as more and more US firms would outsource their development to software firms in India and other countries in their efforts to cut down on the costs. US slowdown might result in increased work for IT firms, many companies are hoping.

The global competition for software services is going to lead to cut-throat competition in India's exports markets. Couple this with the increasing exports (as other economies cut prices) and a bigger current account deficit and what do we have? Trouble with a capital T.

Apart from the software exports, pessimistic reports in media would also have an impact on the IT training institutes like NIIT, STG, Aptech, besides many smaller ones as students would be hesitant seeing the regular layoff news in media. US slowdown has come at a worst time for software training powerhouse NIIT, which was hoping to penetrate US IT consulting market leveraging its resource base. No wonder NIIT was the first IT firm in India to issue the profit warning in 2001.

Secondly, there is a good news. With GDP projections of 6% growth, the IT slowdown might not pull back the GDP growth for India too much. In this case, the country will be able to avoid the global slowdown. But bad news is that slowdown is going to hit India's IT services sector pretty hard.

But one thing is clear, that in India it will be a slowdown and not a recession unlike in US.

In India, the service industry is growing up with leading Insurance firms making a beeline for entry, and the retail banking and personal finance sector is also growing at a fast rate. Thus it will be service industry like insurance, which is opening up, that will be the engine of the growth.

Thirdly, inspite of the slowdown we still have to look critically at IT and whether it has resulted in increased productivity and if there is future in IT drawing parallels from past.

Pertinent to mention here are the views of Paul David. An Economics Professor at England's University of Oxford, Paul David is said to be Alan Greenspan's favorite economic historian, but the Fed chairman is not the only one to have taken note.

On being asked if there is any hope after April 2000 crash, Paul David said, "There will be profitable dot-coms in the long run. The difficulty has been that the Internet was not developed as a platform for business. Radio was created as a way to signal ships at sea. It was taken up for development by the Navy, which released it to the public after the First World War. In much the same way, the National Science Foundation dumped the Internet into the private sector. Fortunes have been made from the Internet, and more will be made with the Internet, but [other than] conducting auctions, we still have to figure out how to make money on the Internet".

On being asked if Internet has benefited the business, he says, "Yes, because the firms are using information technology to offer higher quality and more customizable products. But productivity is growing faster than shown by existing measures because the existing measures fail to take account of the [increase] in quality improvements."

That's indeed a huge YES by a very important person.

He was asked if he found any one particular economic era that most parallels today. He replied, "Watt developed the double condensing steam engine in the late 1770s, but it really wasn't until the 1850s that the full impact of steam power for heavy manufacturing [was realized]. The early central generating plants started in the 1880s but it was 45 or 50 years [later that] half the mechanical drive in American factories was in the form of electric dynamos on the machines themselves. With today's information and telecom technologies, we still have a long way to go before we see major transformative effects."

Thus, looking at the overall scenario, it can be safely inferred that things are not scary in India unlike US where recession is looming large. At worst it would be a slowdown for IT services exports sector in India. But the full potential of Internet and IT is yet to be realised in India and worldwide, and this will drive the growth in future.

It is still too early for the Cassandras to join in the slowdown chorus.

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Placements 2001

Read complete story of Placement 2001 as it happened along with analysis and comparison across the B-Schools and segment-wise analysis.

Placements 2000

Read complete story of Placement 2000 as it happened along with analysis and comparison across the Indian and US B-Schools and segment-wise analysis.

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