India's low-cost BPO tag helps draw global investors

India's prowess as a low-cost business process outsourcing (BPO) hub continues to attract investors across the globe despite the regulatory issues in the country, according to a study by Ernst and Young.

“The survey clearly establishes India as one of the leading economies where foreign capital will flow into in the coming years. In addition to the overall strong macro-economic fundamentals, India's navigation of the economic downturn over the last couple of years has been strong and steady,” said Mr Srinivasa Rao, Partner and National Director -Tax & Regulatory Services, Ernst & Young.

Rise in exports

According to Nasscom, India's IT and BPO exports jumped 18.7 per cent during fiscal 2011 to $59 billion. It now accounts for 26 per cent of India's overall exports and 11 per cent of services revenue.

Within the high-tech export basket, IT services grew faster (22.7 per cent) than BPO (14 per cent). The software and services export revenue is slated to grow 16-18 per cent during the current financial year to $68-70 billion.

This report combines an analysis of international investment into Europe over the last year with a survey of over 800 global executives on their views about how and where global investment will take place in the next decade.

It may be recalled that investor enthusiasm for India cooled down in 2010, causing the value of FDI inflows to fall by 31.5 per cent.

FDI declined at $23.7 billion in 2010 from $34.6 billion in 2009.

“The decline in capital intensity of inward investment resulted from strong competition for investment projects and investment pattern diversification,” the report said.

What could have also triggered the dip is the 2G spectrum scam that is making foreign investors increasingly uncomfortable.

(The 2G spectrum scam involved government officials illegally undercharging select mobile telephony companies for frequency allocation licences, which they would use to create 2G subscriptions for cell-phones)

Shanghai, a favourite

The survey also suggested that Shanghai (China) had the best chance of producing the ‘Next Microsoft or Google' in the coming years.

While 14 per cent respondents were in favour of Shanghai, Mumbai and Delhi got eight per cent and four per cent affirmations each.