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The commanders of India’s software service companies came together in the financial capital ‘Mumbai’ last week to celebrate, and take stock of what lies ahead. The industry is already under a cloud because of fears of strengthening rupee and the possibility of a U.S. recession.

India’s export-driven software services companies have been attracting large outsourcing contracts from western clients, but recession fears in the United States, and skills shortage are major worries. On the other hand industry experts have started sending out signals to be cautious, since the going is likely to get tougher, with Western clients expected to cut back on technology spending as the U.S. economy shows signs of slowing down.

According to Forrester Research the worldwide IT purchase will grow only 2.8%, against the earlier expected 4.6%.

At the back of it, anticipating more global business, most of the IT companies who went on recruiting spree hiring people from all walks of technology are now thinking otherwise.

Yahoo! India, the Indian subsidiary of the global search engine and Yahoo Inc, the news portal has sacked 45 employees across various levels. The reason cited is for their poor performance.

Yahoo! India’s attempt to pack-off the so called non-performers comes close at a time when a similar drama was done by [1] TCS which asked its 500 employees to voluntarily resign. The company claims the action was owing to the fact they failed to clear the company’s employee appraisal system, and has nothing to do with rupee appreciation and U.S. recession.

Earlier last week, [2] IBM, which has the largest headcount outside its US operations with about 73,000 employees, had shown the door to 600 entry-level trainee programmers, after they reportedly failed to clear aptitude tests.

On the contrary IBM sees India as a critical part for their global strategy and it will continue to view the country as a growing domestic and export market. India is already their second largest base of operations in the world. They are planning to invest $6-billion in India despite all odds.

How do we justify these companies move of hire and fire? How will you justify that suddenly one fine morning all the companies decide to sit down at their respective office, and start evaluating the performance of their recent employees? Is it the fear of the Goliath?

Secondly, now how dangerous is the Goliath- U.S recession? Is the economy in a recession or not? One thing everyone seems to readily agree is that, the economy is slowing down. But analyst plays it safe putting it on 30% to 65%. The funny part is Americans will never know if there exist a recession, and by the time they realize this it would had been all over.

Is there an alarming situation? According to NAASCOM, software exports are expected to grow 28%, to $40.8 billion, by the end of March 31, 2008. The domestic market in India is gradually making its presence, and it is likely to generate a princely $23.2 billion in sales, taking the overall growth by 33%, to $64 billion. NAASCOM further adds that last year, Indian IT industry annual growth touched 32%.

The Indian IT industry now accounts for 5.5% of India’s GDP, which is 1.2% up in fiscal year 1998, says [3] Nasscom. It’s another fact that last year, the industry budged less resulting rupee appreciation which was around 12% against the dollar, and this gulped the revenues margins from its largest market, the United States.

Most of the Indian companies might have met the target this quarter year, but the solution lies in Indian Software to counter the need to mend U.S. Growth Problem.

To some extend we can understand that IT revenues India generates is US-centric, maybe that is the reason why India catches flu when US sneezes. But still, a US recession is not something that India need to be worrying about. India is well cushioned and should continue to keep its pace, never mind if it bit slow.

About Author:

Jayan CM is a writer presently working for a outsourcing company in Cochin. He writes on outsourcing and related topics though he is not limited to writing on IT but on every topic. Graduated from the University of Jabalpur, Jayan has 7 years of experience in the field of writing. Jayan CM can be reached at content.j [AT] gmail.com

Views expressed here belong to the author and do not represent those of the ThinkingStreet or the author’s employer.