Kiran Karink, President of the National Association of Software and Service Companies, said the Indian information technology industry could find its profit margins come under pressure in the future.

He also said that the Indian IT sector is going through a transition phase.

Addressing a news conference in New Delhi on Tuesday Karnik said that the small and medium enterprises have a bright future and could grow rapidly in years to come despite stiff competition in the IT sector.

"The Indian IT industry is a transition phase right now. At one end, our customers have started giving us mid-sized deals in the range of $30-40 million which will act as test cases before the large sized deals start to flow in. At the same time, IT industry players are also building global delivery capabilities, hiring more people and engaging in M&A (merger and acquisitions) activity to be able to handle $100 million sized deals. Hopefully, the Indian IT sector will become a base for large outsourcing deals by 2004. This will give a strong impetus to the growth of the industry," he said.

He said that the IT industry exports for the year 2002-03 rose by 25 per cent in dollar terms and by 26.3 per cent in rupee terms.

"Our exports were to the tune of Rs 46,100 crore (Rs 461 billion or $9.5 billion) in the fiscal year 2002-2003. This includes Rs 34,800 crore (Rs 348 billion or $7.2 billion) in the infotech, product and technical services, and Rs 11,300 crore (Rs 113 billion or $2.3 billion) in the ITES-BPO (business process outsourcing) segment."

He said, "The IT industry used to see profit margins of 30 per cent in the initial years, but those had now dropped to 20 per cent. The industry should be prepared for narrow margin profits in the years to come; profits in the range of 13 per cent to 19 per cent," he said.

'SMEs can grow rapidly'

He said Indian SMEs can still grow rapidly in the international market. If SMEs continue to maintain good growth rate, more profitable ventures will crop up in the next few years, he said.

"We are encouraging SMEs in all spheres of business and helping them out in times of crisis. SMEs have witnessed an annual growth rate of 19 per cent in recent years," he said.

Anti-outsourcing bills not a cause for worry. . .

He did not agree with the suggestion that anti-outsourcing Bills being contemplated by some of the American states should be a cause of concern to the IT companies.

"These Bills have not been passed as yet. I have been hearing about these Bills for some years now. It would be a long time before they become a reality. In fact, they would have to be passed by the US Senate and Congress because there is an opinion that some of the states are not even competent to pass these laws."

. . .but visa restrictions may hit hard

"However, visa restrictions might hit the Indian IT sector hard. We are talking with the governments of the United States and some other countries on this issue," Karnik said.

He admitted that Indian IT companies could look for business from European and Asian nations, besides tapping the US market.

"America continues to be the primary market, with exports to the region constituting 71 per cent of the total software exports. This is followed by the United Kingdom with 14 per cent, other European nations with 9 per cent, and the rest of the world just 6 per cent. After Prime Minister Atal Bihari Vajpayee's trip, the Germans have promised to open up. We would definitely tap German market for business, but at the moment they are going through a slowdown. Europe is hard to crack," Karnik told rediff.com.

He said the Indian IT industry needs to widen its scope and seek out new service lines such as package software, implementation, systems integration, R&D engineering, and network management as new horizon for robust growth.

"The share of thirty party vendors in total software exports had gone down from 74 per cent to 2001-2002 to 68 per cent in 2002-2003, while that of others has increased," he said.

Karnik said that US companies which outsource business to Indian IT firms are making huge savings and also getting quick response and good service from their Indian business partners.

"According our estimates, the US has saved more then $11 billion by doing business with Indian IT companies. US companies are far more satisfied with the kind of response they have got from Indian companies than ever before," he said.