India, with its population of about 1.2 billion people growing at 1.4 percent a year, is heading toward a demographic turning point. The country already has a large untapped talent pool waiting to be absorbed (unemployment stood at 10.7 percent in 2010 for a labor force of 460 million), and it will see an estimated 240 million additional youths enter the labor market in the next 20 years.

According to the study, there are two extreme scenarios that may emerge from this trend. The best-case scenario is that more people entering the workforce could boost economic growth, resulting in a “demographic dividend.” Or, in the worst-case scenario, a burgeoning labor force that outpaces employment creation could end up creating social and civil unrest and reduced welfare levels in the country, souring the dividend into a “demographic time bomb.”

In the search for solutions to quench the country's thirst for employment, the Indian government and businesses have been looking at employment-generation drivers in various sectors. The information technology and business process outsourcing (ITeS-BPO) industry is widely considered one of the drivers of future employment in India.

The industry lies at the center of the country's economic growth, drawing on its English-speaking and highly skilled talent pool. Improved infrastructure and facilities, quality IT talent, the potential for innovation, a cost-effective business environment, and a favorable legal framework have coincided to make India the world's leading services outsourcing destination. Much of India's modern reputation as a knowledge superpower and a global hub has been built on its successful IT industry. This is a success story that is expected to continue to play an important role in employment generation.

The study observes, over the past decade the ITeS-BPO industry has contributed materially to India's emerging economy, generated employment, and brought foreign direct investment into India.

India's ITeS-BPO industry has managed to generate significant employment in the previous decade, growing sixfold from a workforce of just 430,000 employed in 2001 to about 2.3 million people directly employed in total (as of October 2010). This represents an additional 200,000 jobs over the previous year. Even more impressive is the indirect employment it has created. Estimates suggest that 8 million people are indirectly employed by the sector, providing ancillary services such as real estate, catering, transportation services, retailing, and so on. It is this multiplier employment effect and its future potential that, above all, has policy-makers following the success of the ITeS-BPO industry with close interest.

The top 20 IT companies in India include both Indian companies and foreign multinationals. Indian firms such as Infosys, Wipro, HCL, Mahindra Satyam, and Tata Consultancy Services (TCS) have significantly expanded their operations in India and abroad, further adding to employment creation in the country. While TCS, the market leader, employs 160,000 workers, the top five companies employ a total of 480,000, accounting for 20 percent of employment across the sector.

The Indian ITeS-BPO sector now consists of over 5,000 companies providing services to companies across the world in different service lines and verticals. Many of these companies are multinationals that have invested directly, such as HP, IBM, Dell, Ingram-Micro, SAP, Microsoft, and Google. The Indian operations of these companies have shown strong growth, prompting many of them to decide to shift more of their operations to India. For example, Microsoft has been operating in India since 1990 and its research center in Bangalore carries out cutting-edge research for the company globally.

In economic terms, the sector clocked in US$71.7 billion in revenues in 2009-10, accounting for 5.8 percent of India's GDP. Given that IT employment is just 0.49 percent of the country's total labor force, the industry is creating immense economic value for the country, over and above its obvious impact on direct employment.
Engaging the hinterland

According to the study, over the past decade, the ITeS-BPO industry has grown by creating IT hubs in or just outside of major cities. About 95 percent of India's ITeS-BPO exports can be attributed to seven major cities, including Bangalore, Mumbai, and Delhi among others. IT hubs in the country have been at the heart of economic development and Indian IT companies have some of the largest campuses and business parks in the country, with world-class facilities. For example, the country's largest campus—which is operated by TCS in Siruseri, on the outskirts of the south Indian city of Chennai—sits on 70 acres of land and is the largest IT facility of all of South Asia, with 22,000 engineers working in a single facility. As a result of this centralization, workers have migrated to cities where IT companies have set up centers to meet the demand. The movement of IT workers to these areas has generated an increased need for housing, infrastructure, food, entertainment, and other facilities. Therefore, these hubs ended up not only incorporating specialist talent but also generating a massive movement of indirect employment.

With demand for labor in major cities heating up and its accompanying infrastructure challenges, this approach of centralization is now changing. Studies show that IT companies are not only setting up centers in big cities, but they are increasingly moving toward Tier II/III cities such as Indore and Lucknow, instead of the traditional Gurgaons and Bangalores. As India's reputation as a location that provides high productivity and extremely flexible offshoring opportunities increases, companies are moving their operations to smaller towns, thus reducing the need for labor to migrate from rural areas to big cities.

Better job opportunities also motivate the youth to take up education more seriously in these previously underdeveloped areas. NASSCOM studies show that about 35 rural BPO centers provide employment to about 5,000 people, greatly improving the living conditions near these rural centers. Various companies have entered this space, and this number is expected to grow more than 10 times—to about 65,000 employees in the next three years. (IPA Service)