Employment Potential in the IT Industry *


According to the widely cited study conducted by McKinsey for NASSCOM, the IT sector is expected to generate approximately two million additional jobs in the formal sector during the ten year period 1999-2008. This paper concludes that in spite of the recent slow down in the IT industry and the world economy, McKinsey’s projection can be achieved or even exceeded, provided appropriate policies are implemented. In addition, there is potential to create another two to three million jobs or more in education and the informal sector.[1]

Information Technology & Employment

The potential contribution of information technology to employment generation is both direct and indirect. Directly, the growth of the computer hardware and software industries are generating new job opportunities in India. Indirectly, the adoption of computer technology by other industries expands the range of services they provide and can stimulate more rapid growth of these sectors. The indirect impact of IT is far larger than the direct impact. In the USA, it is estimated that for every direct job created in the IT industry, a minimum of ten additional IT-related jobs have been created in other industries in which IT is applied. This does not include the non-IT jobs created by the growth of other sectors of the economy under the stimulus of information technology.

IT is both a labor-creating and labor-saving technology. As the introduction of automated machines replaced manual labour in factories and on fields, it was once believed that the spread of computer technology would result in massive job destruction. However, two decades of experience has demonstrated that the reverse is actually the case. Surely specific types of jobs are eliminated, but overall computerization creates far more jobs than it destroys. The spread of computerization acts as a catalyst for the growth of many types of businesses. This is not only true of businesses directly related to the computer industry, such as research and development, computer education, computer repair and maintenance. In fact, every sector of the economy is being energized by the adaptation of computer technology. Studies by the National Research Council in the USA have found that IT has a stimulating affect on the growth of a wide range of service industries. The fastest growing sectors of the global service economy—education, financial services, insurance and health services—have all expanded by adapting IT technologies. IT has demonstrable benefits for employment and skill levels. Evidence indicates that IT contributes to growth in demand for labor, as well as an overall skill upgrading in the workplace.

For the purposes of this exercise, the IT sector will be defined in a narrower sense as those businesses that are directly related to the manufacture of computer hardware and software, the training of personnel for the manufacture and operation of computer equipment, use of computers in education and the utilization of computer technology for IT-enabled services such as call centers, medical transcription services, etc.

Recent Performance of India’s IT Sector

In 1999 India’s IT industry generated $7.7 billion in revenues, 15 times the level in 1990. Exports rose from $150 million in 1990 to nearly $4 billion in 1999. With a compounded annual growth rate of more than 50 percent between 1991 and 2001, the Indian IT software and services sector has expanded almost twice so fast as the US software sector though from a smaller base. No other country has consistently grown by more than 50 percent every year in the past ten years. According to mid-2001 projections, the software industry in India is poised to touch revenues of $12 billion by year 2002, of which exports may be as high as $7.9 billion.

Growth of India’s IT sector is spurred by the global market for software services. The global outsourcing market is worth more than $100 billion. In 2000-01, software exports accounted for 13 percent of India’s total exports. By 2003, software exports from India are expected to account for almost 23 percent of India’s total exports. India has already acquired a substantial market share in the global customised software development market. In 1991, according to a World Bank study, India’s share was almost 11.9 % of the global market. In 2000, it was 19.5 percent. Last year 266 of the Fortune 1000 companies out sourced their software requirements to India. India now more than 1,250 companies exporting software.

India's success can be attributed to a combination of factors, such as

Projected Growth

In 1999 NASSCOM engaged McKinsey, the international consulting firm, to conduct an in-depth study of India’s potential in IT related industries. McKinsey projected that India could generate 2 million additional jobs in this sector by 2008 and contribute US$ 87 billion to national income. According to the McKinsey study, direct employment in India’s software industry is expected to rise from 1,80,000 in 1998 to 2.2 million in 2008, and will, thereby, account for 8% of the country’s employment in the formal.

Figures 1 and 2 present McKinsey projections for the growth of revenue and employment in India’s IT industry from 2001-2008.

Figure 1: IT Software and Services Industry in India: 2000-08

(US$ Billion)


































Figure 2: Projection of Additional Employment in IT Sector[2]


Additional Workforce requirements

















Estimating growth of employment opportunities in the IT industry is complicated by the fact that more than any other industry IT is international in character and dependent on global trends, which have been subject to wide fluctuations in recent years. Following the publication of the McKinsey study in 1999, the global IT sector actually grew faster than had been anticipated due to the explosive growth of the Internet and dot-com companies. Then abruptly the bubble burst and the euphoria about IT and Internet subsided.

In assessing India’s potential in this industry over the next decade, we must try to avoid both unrealistic euphoria and unrealistic pessimism that result from relying on short-term performance to extrapolate long term trends. The fact is that even now at a time when the newspapers are full of news about lower growth estimates and falling share values for India’s premier IT companies, the IT industry in India is still growing and generating additional jobs, only it is not growing as rapidly as it was a year ago or as it was projected to continue at that time.[3]

It is necessary to keep focused on the underlying truths that govern the growth of the IT industry:

Projections for America’s IT Industry

Since the fortunes of India’s IT industry have been very closely linked to the those of America’s IT industry, projections about the future should take into account the projected growth of IT in the USA. Despite significant layoffs and rising unemployment in the dot-com industry, nearly a half a million information technology jobs in the USA could go unfilled this year for lack of the right candidate.

Although the dot-com bubble has burst, demand continues to grow for skilled IT professionals. This is because IT products and services—and the workers who provide them—are found throughout the economy. The largest group is employed in computer services firms, but large fractions also work in manufacturing, financial industries, government, and retail and wholesale trade. High turnover, as well as growing demand, contributes to employers’ ongoing scramble to fill IT vacancies. At the same time, it is increasingly clear that IT plays a significant role in increasing national productivity and sustaining economic growth.

The US Bureau of Labor Statistics estimates that the number of jobs for computer systems analysts and computer engineers and scientists would double between 1998 and 2008. Those projections suggest IT jobs will grow slightly more than 7 percent per year over the decade, far more quickly than the 1.4-percent average across all jobs. The U.S. Bureau of Labor Statistics estimates that more than 1.7 million new computer jobs will be generated in the USA by 2008, or approximately 170,000 per year, while another 340,000 workers will be needed to fill future openings created through turnover and attrition.

The Information Technology Association of America (ITAA) recently released a report entitled When Can You Start? Building Information Technology Skills and Careers, a major study finding a U.S. information technology workforce of 10.4 million individuals and a projected demand for new workers in 2001 of approximately 900,000 – down from a demand for 1.6 million new workers in 2000. Last year, ITAA conducted a similar study titled, Bridging the Gap. That research projected a 12-month demand for IT workers of 1.6 million and a shortfall in filling jobs of approximately 850,000. The new study explains how the employment picture has changed. While demand is off by forty-four percent, the talent gap remains large. Hiring managers still predict a shortfall of 425,000 skilled workers this year –  down from almost 850,000 in 2000 – a drop of fifty percent.

The ITAA study also finds that, compared with IT companies, non-IT companies remain the larger employer of IT workers with 9.5 million, generate the greater demand at over 640,000, and experience the larger gap at nearly 303,000. In aggregate terms, non-IT companies employ ten times more IT workers than do IT companies.

The US Department of Labor estimates that by 2008, the top three areas of employment growth will be in the technology field: computer engineers, 108 percent; computer support specialists, 102 percent; and systems analysts, 94 percent.

Other markets

Although the US claims 60 per cent of India's IT export market, some hitherto unexplored markets hold immense potential. Since Europe is slated to be a $3 trillion software market, according to a report released by Gartner Group, the employment potential for skilled technicians is immense. Germany currently needs 20,000 professionals and has instituted friendly immigrant policies such as the Green Card scheme for Indian professionals. France, which has a negligible share of 0.8 per cent in India's software exports, signed a Memorandum of Understanding with the Indian Chamber of Commerce and is keen to hire 10,000 Indian software engineers and 50,000 technicians. Ireland, in a bid to gain a sizeable share of India's tech pie, has instituted free visa facilities. Nasscom expects software exports to Australia to increase to $10.4 million in 2000-2001. Recently, Japan took a bold step and decided to grant work visas to over 10,000 software engineers from India. This is the first time that conservative Japan has taken such a bold step and is reflective of the enormous potential that exists in such tie-ups and synergy. 

High Potential Sectors

There are big opportunities waiting to be tapped in the telecom software and multimedia sectors. The annual worldwide potential for software services in telecom, wireless services and other converged communication services is expected to be in the region US $ 150 to 250 billion.

The software training market is likely to grow at over 30 per cent annually and here Web-based models will have the highest growth potential. And there are exciting opportunities emerging in multimedia.

Thanks to the developments in digital technology, convergence of information technology, telecom and broadcasting industries has become a reality. That means new media products and services can be made available at homes and to business segments.

The Nasscom report says that entertainment and information will continue to be the largest generators of revenue in 2008, accounting for US $50 billion of business. Digital content development has the potential to create three lakh employment opportunities leading to Rs 250 billion in revenues by 2008.

The Indian film industry has a large talent pool. This presents one major opportunity for Indian content-developers. There is a large market waiting to be tapped in the USA, UK, rest of Europe, West Asia and Australia. So, the Indian software industry should put in place an integrated set of country-specific initiatives such as beneficial international agreements, business development capabilities, onshore factories, strategic partnerships and dedicated offshore parks.

IT Enabled Services

Perhaps the largest single employment opportunity for India is in the field of IT-enabled services, services made possible by the application of computer and telecommunications technology rather than the creation of computer hardware or software. India has been identified as a major source for IT-enabled services such as back office credit card support services, call centres, medical and legal transcriptions, and insurance processing.

One appealing aspect of this sector is that it provides employment opportunities for non-technical graduates with a good knowledge of English language, a much larger population than the population of electronic engineering graduates.

According to a recent survey, there are more than 100,000 call centres worldwide and this is expected to grow to 300,000 by 2002, employing approximately 18 million people. By year 2003 a sum of US $60 billion is expected to be spent on call centre services, mainly driven by e-commerce.

Information and communications technology has created new outsourcing opportunities by enabling services to be provided in one country and delivered in another. Delivered by telecommunication or data networks, the services include credit card administration, insurance claims, business payrolls and customer, financial and human resource management. 

According to the McKinsey study, India’s export of IT enabled services to North American markets is expected to grow over 15 times in the next five years. The estimates have been put at $4 billion worth exports in 2005 from the current level of $264 million. During the period, the sector will generate employment for almost 2.5 lakh professionals against the current employment of 30,000.

According to the report:

·         There are already over 100 call centers operating in India.

·         Nearly Rs. 12 billion ($225 million) was invested in the IT-enabled services sector last year, and investments committed by overseas investors run into a few billion dollars.

·         The industry already provided jobs to over 70,000 professionals in 2000, up from 45,000 in 1999.

·         Several multinationals including General Electric, American Express, Citibank, Ford and Standard Chartered Bank have already moved back-room operations to India

·         The industry generated revenues worth $900 million in 2000-2001, which is projected to touch $18 billion by 2008.

·         The employment potential is projected at 1.1 million white-collar jobs by 2008.

Amongst others, the spectrum of I.T. Enabled Services applications already evident in India include the following broad segments:

As per the report published by NASSCOM, on the basis of a study made by McKinsey, the world market for IT-enabled services is expected to be over $ 140 billion in the year 2008.

Figure 3: McKinsey Estimate of Growth Potential for IT Enabled Services in India

     (In $ billion)


Year 1998

Year 2008


Customer Interaction Services

Finance and Accounting Services


Translation, Transcription and Localisation

Engineering and Design

HR Services

Data Search, Integration and Management

Remote Education

Network Consulting and Management

Website services

Market Research







































Figure 4: McKinsey's Estimate of Revenue & Job Potential by Type of Services


IT Enabled Services


2008 (Projection)


Rs. Billion

Can be Employed

Rs. Billion

Back Office Operation/ Revenue Accounting/ Data Entry/ Data Conversion





Remote Maintenance and Support





Medical Transcription/ Insurance Claim Processing





Call Centres





Data Base Services





Content Development










The overall global market for IT enabled services will amount to approximately US$ 142 billion by the year 2008. The top five opportunities and their value creation potential will be as follows:

India offers many advantages to serving as an I.T. Enabled Services destination for major global companies. These include:

A December 2000 report on ‘Export of IT enabled services from India to North America’ prepared by the US-based consulting firm — Stevens International Consulting (SIC) — for Electronics and Computer Software Export Promotion Council (ECS), an autonomous organization under the IT ministry, reveals that customer interaction centers or call centre services, which currently earns the total revenues of $60 million, will increase to $2.225 billion by 2005 Another segment that is going to witness manifold jump is medical transcription. From the current earning of $30 million, it is expected to increase to $800 million during the period. The export from geographic information system (GIS) segment will increase to only $150 million in the next five years from the present level of $60 million. Finance and accounting services, which has an export earning of $50 million in 2000, will increase to $375 million by the end of 2005.

Employment Opportunities in the Informal Sector

NASSCOM’s estimates focus on employment opportunities that will be created in the formal sector by computer hardware manufacturing companies, software development companies and multi-branch computer training companies. In addition to these, large numbers of job opportunities will be created in the informal sector. This includes opportunities in the informal sector for small firms and self-employed individuals in retail and wholesale trade, computer training, maintenance and repair, web design, desktop publishing, Internet cafes and telephony centers, web-based research, journalism, coaching centers, software development, etc.

Despite a global economic slowdown, sales of personal computers in India continue to register an impressive 34 per cent growth rate, thanks to the increasing use of computers as an educational tool, rise in e-governance projects and the home and small-office-small-business segment. Indian computer manufacturers sold over 1.88 million units during the fiscal year 2000-2001. The present installed base of 6.3 million desktop PCs is estimated to rise to 8.5 million next year. If the industry maintains even a 30 per cent growth during the present year and during 2002, Indian desktop PC market could soon cross 10 million machines. This growth translates into many types of new jobs.

As the number of computers, computer users and internet users increases, the demand for these other types of services will increase rapidly. Most of the jobs in these categories may not require the high levels of education and technical skills required for the jobs described in the McKinsey study, but they do potentially offer attractive employment and self-employment opportunities for educated youth.

The following are among major categories of IT-related job opportunities in the informal sector:

·         Training& Coaching – in the use of computers and software applications

The growth potential for these jobs is difficult to estimate, but it could represent quite a significant number. A very rough estimate would be that this category can generate an additional one to two million jobs by 2010.

Employment Opportunities in Education

In addition, the spread of computers in Indian schools will generate additional job opportunities for computer instructors, maintenance and repair services. The actual number of jobs created will depend to a very large extent on government policy and investment in computer education. The initiatives taken by the state governments of providing computer education in schools have further boosted the demand for PCs. The Karnataka government has implemented the initiative in over 1000 schools in the state. Kerala has targeted to achieve 100% computer literacy in schools by 2002. Other states such as Tamil Nadu have allocated substantial budgets for rapid development of computer literacy in secondary schools. Already 45% of Goa’s secondary schools have computers.

Currently only 2% of Indian schools are equipped with computers as compared to 99% in USA. There are about 107,000 secondary schools and 600,000 primary schools in the country. If at least 20 computers are placed in every secondary school and 5 computers in every primary school, it would mean a requirement of 5 million computers. That alone could generate at least one million additional jobs for computer instruction, installation and maintenance.

Skills Development

In a predominantly manpower-intensive software industry, issues of manpower availability, its cost, turnover and productivity are critical issues. The quantity of skilled knowledge workers in India will be a major constraint on growth of the industry unless educational facilities expand rapidly. By 2003, the McKinsey study projects additional demand for 150,000 professionals, and double that number by 2006. Out of 1.22 lakh engineering graduates qualifying every year in India, about 73,000 are software engineers from Indian Institutes of Technology and other regional engineering colleges. Thus, around 73,000 fresh software engineers are expected to be available annually. In addition, software training institutes are generating standard software professionals numbering between 40,000 and 50,000 a year; however, most software companies recruit only those with engineering degrees.

Some initiatives have already been taken. The just set-up Indian Institute of Information Technology and Nasscom's Indian Computer Professional Institute are expected to churn out an additional 25,000 software professionals by end 2002. Besides, quite a few Indian universities have started courses leading to Masters in Computer Applications and there are private training institutes which offer high-level software engineering courses. These initiatives are welcome, but not sufficient.


The government will play a crucial role in the future development of the Indian software industry. The vision shared by various industrialists of molding India into the software giant of the 21st century may remain just that, a vision, without ever becoming reality if the government does not take the right measures. It is a big challenge to convert India from simply being a “low cost code source” to a “high quality complete solutions provider”. Making this transition successfully will enable the country to enjoy improved standards of living, improved economic growth, and increased capital/aid to fund infrastructure development.

In order to make this transition; the government will have to concentrate in the following areas:

In order to achieve the targets set forth in the McKinsey report, Nasscom has announced a 7-point agenda outlining priority areas that need immediate action from the Government.

  1. IIT/IIIT (Indian Institutes of Information Technology) in each state: In order to build on the good work done by the five existing IIT’s in developing world class knowledge workers, Nasscom recommends that a concerted effort be made to establish at least one IIT or IIITs in each state in India by 2008. Nasscom recommends an allocation of at least Rs 15,000 crore in the 10th five-year plan towards implementing this scheme.
  2. Setting up of Indian Institutes of Information Technology in every state needs to be implemented without insisting on the mandatory 3-year stipulation.
  3. More Ph.D.s required: If India needs to create original technology, then we need to resurrect our education system to produce more PhDs.  This is essential if India is to produce a highly skilled workforce as well as meet the R&D demands of the industry.
  4. Launch 3T ‘Train the Teacher’ Programme for teachers: The Nasscom study has identified an immediate need to launch a nationwide Train-the–Teachers programme to impart a combination of physical and virtual training in Information Technology. This program would need to be implemented at a state level and should be targeted at all educational institutes including engineering colleges and primary schools.
  5. Industry Led Fund: It is recommended that the IT software and services industry donate a certain percentage of its profits towards an ‘Industry Led Fund’ for Human Resource Development.  This fund could be utilized for establishing more engineering colleges, IITs, IIITs and improving existing infrastructure and educational facilities in the country. 
  6. Upgrade 43 Regional Engineering Colleges:  There is an urgent need to upgrade 43 RECs to the level of IIT as far as quality and quantity of faculty, availability of lab and equipment and infrastructure is concerned.
  7. Providing IT modules to every graduation course:  NASSCOM proposes that training in Information Technology be made mandatory in every graduate course in the country.  In addition to this, special IT modules should be made available at the state level  

Nasscom also announced a 5 point agenda that will help ensure that Software Exports continue to grow at more then 50 percent.

  1. Increase Quality and Quantity of knowledge workers: At least one IIT / IIIT in every state during 10th 5 year plan; increased industry funding and participation
  2. Create world-class telecom infrastructure: Ensuring provision of at least 10 Gaps of International bandwidth by end of 2001 and at least 2.5Gbps of national Internet backbone within the country; Reduction in tariff for national connectivity and removal of procedural hassles.
  3. Enhancement of physical infrastructure: Building international Airports and better Roads to facilitate trade; Scheduling of daily international flights to important business hubs like Bangalore, Hyderabad, Ahmedabad and Pune.
  4. Tapping opportunity in Communication Software and Original Technology space: Corner large share of global Communications software market; position India as a developer of bleeding edge Original Technology; more spending on R&D in Indian software companies.
  5. Continued Government support: No additional incentives required but no withdrawals either; Removal of procedural obstacles.

NASSCOM has also presented a ten point call for action for the Government and Industry in May 2001, to help India emerge as a sustainable hub for IT Enabled Services. It includes steps to be taken by the Government and Industry such as:

  1. Immediate dialogue between Government and Industry to clearly define the parameters for each segment of the IT Enabled Services sector. This will remove ambiguity with regard to Income Tax Exemption applicable to ITES units
  2. Applicability of international standards in Telecom Infrastructure including:
  3. Institution of a Single window clearance for IT Enabled Services Industry
  4. Support from Local authorities and State governments to ensure ease of operations and start up assistance for IT Enabled Services units.
  5. Flexibility to call centers to merge Domestic and International business in the same facility
  6. Setting up of IT Enabled Service training infrastructure and involvement of ITI’s and polytechnics for Call Centre management and Degree level courses for IT Enabled Services industry
  7. Initiation of ‘One’ industry standard for Indian IT Enabled Services industry as a tool to certify quality and global standards
  8. Creation of an ‘India Brand’ Marketing fund by government and industry, for promoting India as a preferred destination for the IT Enabled Services Sector
  9. Establishment of a $100 million VC fund for the IT Enabled Services sector
  10. Special incentives to promote entrepreneurship and tele working for women in the IT Enabled sector. 

* Prepared by Garry Jacobs, Asst. Secretary, The Mother’s Service Society, Pondicherry. garryjacobs@vsnl.com

[1] The additional job creation could be even larger, depending on the priority Government of India places on computerization in schools and government.

[2] Projection as per February 2001

[3] Last week Wipro announced record earnings despite the current slowdown in the industry.