Human Resource Foundation of The Indian IT Enabled Services IT Industry

Strengthening the
human resource foundation of the

Indian IT enabled services/ IT industry
Report by KPMG Advisory Services Private Limited
in association with
NASSCOM
under the aegis of the
Department of IT,
Ministry of Information Technology and Communications,
Government of India
National Association of Software and Service Companies India

Preface
Developing India's human resource is key to our progress. The most visible and
successful demonstration of this is our IT industry. In this sector, human resources
comprise both the raw material and the 'technology', and is therefore of prime
importance. Availability of a sufficient number of high quality manpower is a key
requirement to ensure the on-going and sustainable growth of India's IT industry. It is
in this context that NASSCOM was particularly delighted when the Department of IT
initiated a Task Force on 'strengthening the human resource foundation of the Indian
ITeS / IT industry. We at NASSCOM felt that this was not to be just one more of those
reports, particularly as the Task Force comprised representatives of some of the leading
ITeS and IT companies in India, in addition to representatives from various government
bodies and educational institutions.
NASSCOM, as the overall representative of the Indian ITeS / IT industry, decided that
the best way to support the Task Force was by providing industry inputs and past
research, while leveraging its relationship with KPMG to look at present and future
needs.
The study aims at covering a vast and seemingly unconnected range of areas including
humanpower requirements for R&D, IT services and IT-enabled Service. NASSCOM,
with able support from the team at KPMG as well as the co-operation shown by various
industry players, managed this within a short time. The report has been prepared under
grant-in-aid received from the department of IT, Ministry of Communications & IT and is
aimed at supporting the Task Force's deliberations on recommendations.
The level of detail adopted for this study is exemplary and indicates the focus on
implementation as maintained by the Task Force and the project team throughout its
deliberations. Implementing these will however be another challenge, considering the
nature of change required and the multiplicity of stakeholders involved.
NASSCOM, however, is committed to supporting the implementation of these

recommendations. The first step in this context is to establish this report as a common
source of reference and mobilization amongst policy-makers, industry players and
potential employees. The next step is to concretize specific, actionoriented pans with
definite responsibilities and timeframes. These need to be implemented and monitored
with appropriate correctives based on feedback.
Kiran Karnik
President, NASSCOM
National Association of Software and Service Companies

This document, prepared by
KPMG Advisory Services Private
Limited in association with
NASSCOM, focuses on
strengthening the human
resource foundation of the Indian
ITeS/ IT industry.
A special thanks goes to the

Department of IT, Ministry of
Communications and Information
Technology (Government of
India), who have supported the
production of the publication
under a special grant.
Contents
Global IT sector growth trends during 2002-12 1
Gap between demand and supply of manpower 12

for IT / ITeS industry and share of the market for India
Strategy to enhance institutional capacity (formal and 32

non-formal) to generate requisite manpower
Emerging areas in the knowledge domain for India to pursue 43

and strategy to reinforce status as ITeS / R&D hub
Design of standards and common test for ITeS skills 58

based on industry requirements
Measures for optimizing deployment of non-IT personnel 67

in ITeS and R&D
Fiscal policy measures to maximize private sector participation 75

in HRD for IT / ITeS
Comprehensive action plan for HRD in IT / IteS 81

Global IT sector growth trends during 2002-2012
This chapter provides an overview of the off-shore ITeS / IT business and the potential
benefits and impact of these services on performance.
It also provides estimates of market size and growth for the global ITeS / IT industry by
geography, client-industry and solution form.
Companies world-wide are faced with increasing pressures to

improve business performance . . .
Business n Index returns over the last three years for major US stock marke t
performance indices have been – 10 per cent to – 40 per cent
n Number of corporate bankruptcies (for companies with assets greater
Pressures to improve business performance
than USD 100 million) during 1998 – 2002 increased by 150 per cent
compared to those in 1993 –1997
n Even European countries like Germany are facing slowdown in growth
to 0.4 –1.4 per cent accompanied by stock market index fall of 60 per
cent from approx.8,065 (March, 2000) to approx.3,170 (Sept, 2002)
n Rapidly ageing population (e.g. increase in median age in OECD

Skills shortage countries from 29.6 in 1970 to 36.5 in 2000) leading to lower labor
participation
n Even countries like China, with a large population today, could face a
shortage of up to 10 million workers by 2020
n Companies will be unable to make-up for labor shortage through
automation (only 13.5 per cent of all service jobs are amenable to
automation)
Productivity n Business productivity in form output production efficiency (through

drivers automation, IT, supply-chain reconfigurations etc.) may be plateau-ing
n Business productivity growth in the future is expected to be driven
more by cost efficiency of inputs (e.g. down-sizing, off-shoring,
economies of scale / scope etc.)
Source: Press reports. BCG. NASSCOM. KPMG. 2003 -2004.
. . . even as overall budgets get reduced
Companies world-wide are faced with increasing pressures to improve business

performance, even as they face a looming skills shortage and an exhaustion of standard
options to drive productivity.
Skills shortage, as reflected by an ageing population in Western countries, would
increase pressure on availability of labour force. Automation is also not expected to
entirely compensate for the shortage of labour supply.
Strengthening the human resource foundation of the Indian IT enabled services/ IT industry
National Association of Software and Service Companies 1

Off-shoring offers an option to reduce expenditure while
maintaining or even improving performance . . .
Illustrative
Technical services (IT) cost improvement for a global financial services company
Per cent of cost base
5 Incr Control / Consolidation
5 Labor cost Incr telecom Co-ordination and scale Process re- Off-shoring
10 differentials costs costs economies engineering benefits
35 35
45
100
5
10
5 20
10
45
Benefits from off-shoring to the extent of 35 – 55

per cent of original cost base depending on client
Original cost Budget Support Process re- Off-shoring Reduced
and process specific characteristics
base reduction functions engineering benefits cost base
restructuring
Note: Numbers for off-shoring benefits are based on experience of companies Source: J P Morgan. NASSCOM. KPMG. 2003-2004.
off-shoring IT services and back-office processing functions to India
. . . and can lead to savings of 35–55 per cent on current cost structures
depending on specific business process and scale being considered
Off-shoring of business processes and functional activities is one of the options

available to a global business to improve business performance.
The benefit from off-shoring is through the ability to access relevant skills at
appropriate costs such that the savings are much higher than the incremental cost of
telecom connectivity and control / co-ordination activity involved.
Additional benefits could arise from economies of scale and re-engineering benefits at
the off-shore location. Some global companies have seen business benefits to the
extent of 35–55 per cent savings in relevant costs through off-shoring.
2
Off-shore IT and IT-enabled services include specific services
leveraging the potential of Information and Communications
Technology . . .
- Excludes outsourced
The phenomenon of locating
manufacturing, product assembly
IT-services and other business
etc.
processes. . .
- Excludes hardware technology products
- Excludes on-site / in-country

. . . into optimal off-shore
support (i.e. primarily directed at
locations . . .
exports)
. . . largely enabled through - Excludes body-shopping services

advances in IT and or those requiring physical
telecommunications . . . interactions
. . . to access relevant skills / - Expands role of ITeS / IT beyond

resources for business mere cost reduction to overall
performance improvement. business improvement
Source: KPMG. 2003-2004.
Off-shore IT and IT-enabled services include:

“IT services and other business processes located in optimal off-shore locations,
largely enabled through advances in information and telecommunications
technology, to access relevant skills and resources for business performance
improvement.”

These could include a wide-range depending on the nature of
expertise involved . . .
Illustrative
Back-office data Knowledge

Customer Corporate Research/ Design
entry / services and
contact support functions and development
processing decision-support
Increasing complexity of task and skill requirements
n Data entry n Customer services n Shared corporate n Analyst services n Engineering and
Nature of
(form filling) (complaints, function support (legal, financial) design (CAD/ CAM)
work
inquiries) (HR, Finance /
n Data conversion n Customer analytics n Content
Accounts, HR,
(translation, n Tele-marketing (pre- (segment profits) development
procurement)
transcription) sales, order-taking, (animation, web site,
n Application
catalog sales) n IT support graphics)
n Basic processing processing (claims)
(development,
(checking / updating) n Collections support n New product design
integration, n Risk management
(reminders, payment (specifications, pilot
n Document maintenance, help- (underwriting,
support) testing)
management desk) structuring)
(storage, retrieval)
n Advisory services
(tele-medicine,
consultancy)
Note: List of activities and examples above is illustrative only and not exhaustive Source: Press reports. 2003.
Off-shore ITeS / IT include a wide range of services with increasing complexity of work
from back-office data entry and processing to customer contact services to corporate
support functions to knowledge / decision support services to R&D / Development
services.
As a result, the qualifications and nature of skills required could vary accordingly.
4
Illustrative
Before off-shoring
Different forms of global expansion by companies
Business processes managed within client
Wave 3: Global business country
re-alignment
1 2 3 4 5
- Spreading-out of
Wave 2: Global business processes and
production functions
- Spreading-out of product
Wave 1: Global export manufacturing
- Leveraging global
presence to access low- After off-shoring
Nature of - Spreading-out of sales cost skills and spread
global efforts establishment risks Business processes conducted only partly
- Leverage pockets of
expansion capital / labor efficiency within client country . . .
due to lower costs,
- Run business processes 2 3 4
economies of scale etc.
across locations over
- Attracted by latent /
Key drivers to telecom networks
growing demand for
expansion products and services in - Produce in specialized
new markets pockets to then ship
globally / re-assemble
. . . and partially through remote facilities
- Offer existing goods
Business Off-shoring
under existing brand 1 4 5
implications names in new markets
Source: KPMG. 2003.
The first wave of global expansion began with companies reaching out to new markets
with existing products and brands – the key driver being the increasing demand for
new products in growing markets.
In the second wave of global expansion, companies actually began shifting entire
production activities in order to take advantage of lower cost labour and capital.
Off-shoring represents the third-wave of establishing global presence, with the

segregation of business processes and functions and their outsourcing to different parts
of the world or remote locations.

Companies are considering off-shoring business processes from
across the entire business value chain . . .
Illustrative
Human resources Finance and Accounting

Finance and Accounts
n Payroll processing n Back-office
n Recruitment and selection Product Development n Accounts payable
support
n Accounts payable /
n HRIS Human Resource Management receivable, fin. reporting
Technology Services n Finance accounting

IT services and support n Revenue accounting
n Custom development
Customer Service
Manufacturing/
Marketing and
n Systems integration Operations
Outbound
Logistics
Logistics
Inbound
Research / Design and
Sales
n Hosting / maintenance Development
n Customer help-desk / n Clinical Research
support
n VLSI design
n DSP chip design
n Avionics research
Operations / Logistics Sales / Marketing and Customer n Clinical Research
services
n Order tracking n Engineering design
n Tele-sales services
n Order / claims / application
processing n Order processing n Legal research
n Payments processing n Customer services and
complaints
n Help-desk
Source: Press reports. KPMG. 2003.
Off-shoring is no longer restricted to specific primary or secondary activities of a

business. All the key business processes across the entire business value chain, as
exhibited in the figure above, can potentially be off-shored.
A number of companies world-wide have already off-shored business support activities
to in-house or third-party service providers.
6
This trend towards off-shoring is being driven by some key
developments on the demand and supply side . . .
Demand-side Scope of economic benefits Comfort with and trust in Access to global resources
characteristics possible off-shoring - Companies with global
Key developments driving off-shoring
- Companies stand to gain 30 - Companies with established presence can leverage local
– 50 per cent in cost savings sourcing relationships grow resource access to support
with additional revenue trust in suppliers for BPO off-shoring
enhancement / service - Other companies are getting
improvement possibilities attracted by others’ success
Supply-side Access to trained, cost- Telecom connectivity Regulatory support and

characteristics effective skills options incentives
- Companies have access to - Global telecom connectivity - No restrictions/ barriers on
certified / experienced skills options have increased and service trade (duties etc.)
at 1/5 –1/10 of costs in costs have fallen under have been placed
other locations competition and technology - Host countries even support
services export through
incentives
Source: Press reports. Merrill Lynch. KPMG. 2003.
The trend towards off-shoring is being driven by specific dynamics on the supply and
demand side. Companies are becoming increasingly comfortable with the idea of off-
shore service provider relationships.
With the continuing support from regulatory agencies, availability of low cost
infrastructure and the right skills mix, off-shoring could continue to be a large business
opportunity over the longer term.

The American and Europe-Mid East-Africa (EMEA) regions are
expected to continue to be the major markets for ITeS / IT although
the growth could be faster in the Asia-Pacific regions . . .
CAGR
USD billion
(2003-2012)
2,000 1,795 10 per
IT ITeS cent
1,366
Americas 1,040 1,218 9.3 per
1,000 cent
697 771 941
726
496 546 11.0 per
425 577 cent
201 225 313
Global ITeS / IT market 0
2002 2003 2006 2009 2012
CAGR
USD billion USD billion
CAGR (2003-
4,000 (2003-2012) 2012)
ITeS 3,391 11 per 1,000 917 12 per
cent cent
3,000 IT IT ITeS
667
2,497 484 509 11.3 per
2,198 EMEA cent
11 per 343 372
2,000 1,838 cent 306 272
1,633 194 11.8 per
1,322 173 408
1,184 1,213 149 212 295 cent
133
1,000 0
792 881
1,193 12 per 2002 2003 2006 2009 2012
625 864 cent
392 441
0 USD billion CAGR (2003-
2002 2003 2006 2009 2012 2012)
1,000
Note: Industry estimates upto 2012 are IT ITeS 14 per
Source: IDC. NASSCOM. 679 cent
based on available short-term
estimates and would need to be KPMG. 2002-03. Asia-
461 14.3 per
revised periodically based on actual Pacific 471 cent
performance
314
181 208 318
215 13.5 per
123 141 208 cent
58 66 99 143
0
2002 2003 2006 2009 2012
Note: Industry estimates upto 2012 are based on available Source: IDC. NASSCOM.
short-term estimates and would need to be revised KPMG. 2002-03
periodically based on actual performance
As per estimates by IDC and NASSCOM (2003), the global ITeS / IT market (off-shored
as well as domestic) was USD 1,184 billion in 2002 (USD 392 billion for IT services and
USD 792 billion for ITeS).
This market is expected to grow by a CAGR (2003 – 2012) of 11 per cent, driven by
strong growth across the Americas, Europe-Middle East-Africa (EMEA) and the Asia-
Pacific market.
The American and EMEA markets are expected to continue to be the major markets for
ITeS / IT, contributing 80 per cent of the market in 2012 as compared to 85 per cent in
2002.
8
This growth is expected to be driven by the characteristics and
needs of specific industries . . .
Global IT services requirement projections by industry (does not include ITeS)
CAGR Offshore-ability
USD billion
(2003 – 2012) (preference and ability)
354
Banking, Finance and 10.9 per cent
140
Insurance Services 126
262
Manufacturing 9.0 per cent
121
109
136
Government 10.2 per cent
57
51
109
Telecom equipment 9.8 per cent
47
42
107
Retail / wholesale trade 9.6 per cent
47
43
69 High growth
Telecom services 15.5 per cent
19 potential due to
16 under-
52
11.2 per cent penetration
Utilities
20
18
45
Transportation 10.2 per cent
19
17
35 2012
Healthcare 2009 10.2 per cent
15
13 2006
30 2003
Education 10.2 per cent
12
11 2002
Note: indicates high degree of offshore -ability (preference and ability) Source: IDC. Gartner Dataquest. NASSCOM - McKinsey. KPMG. 2002–2003.
indicates low degree of offshore -ability (preference and ability)
The demand for IT and IT-enabled services across industries would vary by the specific
characteristics and needs of those industries.
The Banking, Finance and Insurance services industry and the Manufacturing industry
have been the largest user of global IT services (2002). They are expected to continue
being the largest users even by 2012 due to high offshore-ability (i.e. ability to off-shore
and preference to off-shore).
However, going forward, other industries like telecom, utilities, healthcare and retail
trade are expected to drive growth with a CAGR (2003 – 2012) of 10–15 per cent due to
under-penetration despite high offshore-ability.

. . . within specific functional / solution areas in
IT and IT-enabled services . . .
Global IT services market Global IT-enabled Services (ITeS) market
CAGR CAGR
USD billion USD billion
(2003-2012) (2003-2012)
1,500 2,500
Content Development*
IT education / training Administration 2,198

Appln Dev and Support* 1,193 Customer care 219 11 per
2,000 cent
SI and IS consulting Finance
12 per 337 10.7 per
cent Payment services
1,000 1,633 cent
864 HR 165
1,500 7.1 per
398
1,213 cent
9.0 per 276
830 cent
626 124 7.0 per
1,000 881 330 400 cent
226
500 441 580 792
12.9 per 88 9.4 per
392 cent 78
182 274 306 cent
405 169
278 500 216 235 747 15.7 per
245 199
cent
303 9.4 per 162 178 491
182 235 cent 323
122 135 171 201 25.0 per
0 31 55 97 cent
0
2002 2003 2006 2009 2012 2002 2003 2006 2009 2012
* Support IT services are those that require on -site Source: IDC. NASSCOM. * Content development services include remote Source: IDC. NASSCOM.
presence of support staff and are not delivered KPMG. 2002 - 03. design services for VLSI / embedded systems, KPMG. 2002 - 03.
from off-shore location like ITeS security / control systems etc.
Note: Industry estimates upto 2012 are based on available short-term estimates Note: Industry estimates upto 2012 are based on available short-term estimates
and would need to be revised periodically based on actual perfor mance and would need to be revised periodically based on actual perfor mance
The global IT services market in 2002 was driven by Application Development and
support services (on-site and off-shore).
The preference of clients to use off-shore facilities for business continuity and cost
saving requirements is going to drive the global IT services market. The market is
expected to grow at a CAGR (2003 – 2012) of 12 per cent.
The global ITeS market in 2002 was driven equally by administration support services,
customer care, finance and payment processing services.
Increasing sophistication of the off-shore ITeS delivery model is leading to new
business processes being considered for off-shoring by new clients. The ITeS market is
expected to grow at a CAGR (2003 – 2012) of 11 per cent, driven by an increasing
demand for finance support, payment processing and HR services.
10
This growth in ITeS and IT industry is expected to usher in
a new way of working . . .
n Remote services delivery imply a greater emphasis on agent voice modulation /

Means of accent and ability to understand client accents and lower emphasis on grooming
service delivery
n Remote services also imply lesser need for agglomeration into urban offices and
Impact of ITeS / IT working
the move towards SOHO / tele-working
n ‘Follow-the-sun’ service expectations imply need to support night shift

Night-shifts
operations including support for banking, healthcare, food and entertainment,
transportation for agents
n In order to manage higher returns from resources, capacity utilization through

Flexi-time scheduling becomes critical, leading to flexible working hours
n Agent preferences for ITeS / BPO work suggest the need for flexi-time options
Average age of n The average age of the workforce would be around 27 – 30 as compared to 35 –
employee 40 in other industries, requiring a different organizational structure and culture
as well as facility design
. . . creating pressures on the economic and social systems of various countries to

adapt to these changes
This increasing trend towards off-shore ITeS / IT is going to change not only the way
business is organized but also the social and economic aspects of employees and
potential employees
– Tele-working and remote support is going to be increasingly common.
– Night operations, tuned to end-customer service timings are going to increase
in demand.
– Employees on the other hand will be faced with a flexible work-time depending
on business cycles as well as peak demands for their respective services.
– Average age of employees could be much lower as the education – employment

cycle gets transformed into an education – employment – reskilling –
employment cycle.

Gap between demand and supply of manpower for
ITeS / IT industry and share of the market for India
This chapter provides an understanding of India’s key strengths related to the off-shore
ITeS / IT industry and target market share.
It also provides an estimate of the potential manpower requirement in India upto 2012
to meet the off-shore ITeS / IT market requirements and the potential gap based on
numbers expected to be available.
India is emerging as ‘the services-hub of the world’ with a 24 per

cent share (2002) of the off-shored IT / IT-enabled services market . .
Global IT / IT-enabled services market (2002)
USD billion Domestic

0.8 0.2 Off-shored
8.3
1.9 1.7 0.4
24.4
3.7
Russia
Ireland E. Europe
1.1 3
Canada 8.4
N/A 0.5
1.1
Israel
China
N/A 0.3
7.7
2.4
Mexico
Philippines
India
0.02 0.04 2.1 0.4
South Africa
Australia
Note: Numbers above indicate total market for off-shored and domestic ITeS / IT for Source: McKinsey Global Institute. 2003.
year-ended December 2001 or March 2002.
Eastern Europe includes Poland, Hungary, Romania and the Czech R epublic
. . . however India’s share of the global ITeS / IT spend was still low at 0.8 per cent
(2002), suggesting significant growth potential
India’s revenues of USD 7.7 billion in 2002 correspond to 24 per cent of the off-shored
ITeS / IT market, establishing India as ‘the services-hub of the world’.
Some of the world's leading organizations have chosen to have their business
operations supported from India through third-party or in-house facilities. This includes
a wide range of services from back-office data entry and processing to customer contact
services, corporate support functions, knowledge support functions and research and
design activities.
12
However, India’s current share of the total global ITeS / IT spend (off-shore and
domestic) was still low at 0.6 per cent, suggesting significant future growth potential
related to off-shoring.
India’s proposition in this area is based primarily on the

availability of a significant pool of appropriately skilled and trained
resources at a competitive price . . . Illustrative
§ Highest base of employees currently § Increased customer satisfaction at a

within ITeS U.S-based financial services company
U.S.
85 per cent
India 106,000 facility
India
Skills Ireland 18,000 Quality of facility
92 per cent
availability work § Increased accuracy of transaction entry
Philippines 15,000
at a U.K.-based retail bank
§ A graduate base of over 14 million U.K.
facility
95 per cent
people with over 1 million IT-trained
India
users 98 per cent
facility
§ Salary levels at 1/5th to 1/10th of that § Reduced trade response time for an
of equivalent jobs in the U.S. European airline services company
Europe
facility
18 hrs.
Teacher 1/10
India
Cost of Work facility
4 hrs.
Fin/Acctg Exec 1/4
manpower efficiency § Increase in transaction processing
Dbase Admin. 1/5 speed at a U.K.-based retail bank
U.K.
facility
100
Note: Indexed to U.S. salary level for equivalent post
India
facility
120
Source: NASSCOM. KPMG. 2002-2003.
India’s proposition for off-shore ITeS / IT support is driven by:

– availability of appropriately skilled resources;
– lower costs of manpower (1/5th to 1/10th); and
– ability to generate better quality of work, more efficiently.
There are examples of companies with off-shored services being provided from India
which have improved service levels by 5–10 per cent across different parameters such
as customer satisfaction, response time, accuracy, speed etc.

Based on its initial successes, India is expected to achieve
revenues of USD 148 billion in the ITeS / IT area by 2012 . . .
Indian IT export services market projections (2002–2012)

USD billion CAGR
(2003 – 2012)
Training and Education
60 55 24.8 per
Outsourced support cent
Indian ITeS / IT market projections (2002 –2012)
IT Development 86.6 per
18 cent
40 Consulting, integration, installation
USD billion CAGR
28 26.4 per
10 cent
(2003 – 2012)
20 8.6 per
160 Domestic IT services
14 cent
148 24
6 7
ITeS exports 50.7 per
cent
0
120 IT exports 35.0 per 2002 2003 2006 2009 2012
cent
64 31.0 per Indian ITeS market projections (2002–2012)

80 cent
62
44.2 per USD billion CAGR
cent (2003 – 2012)
40 21 64
27 Content Development 44.2 per
55 24.8 per 60 cent
10 12 7 28 cent Administration
28 15 Payment services
23.4 per
0 cent
2002 2003 2006 2009 2012 HR 24.9 per
40 cent
Finance
Note: Market share estimates assume the same Source: NASSCOM-McKinsey. 54.8 per
Customer care 21 cent
concessions and efforts in place as currently. BCG. 2003.
20 101 per
Industry estimates upto 2012 are based on cent
available short-term estimates and would 7
1 2 33.7 per
need to be revised periodically based on cent
actual performance. 0 47.0 per
2002 2003 2006 2009 2012 cent
Note: Market share estimates assume the Source: NASSCOM-McKinsey.

same concessions and efforts in place BCG. 2003.
as currently.
India’s revenues in the ITeS / IT market grew by more than 25 per cent in 2002–2003 to
USD 12 billion by 2003.
Going forward, India’s value proposition and an overall shift towards off-shore ITeS / IT
are likely to help India’s revenues to grow at a CAGR (2003–2012) of 35 per cent,
reaching USD 148 billion by 2012.
The key contributors to this would continue to be IT export services (with revenues
estimated to be USD 55 billion by 2012, at a CAGR (2003–2012) of 25 per cent) and IT-
enabled services (revenues estimated to be USD 64 billion by 2012, at a CAGR (2003–
2012) of 44 per cent).
14
This suggests a significant increase in India’s share of the global
IT-enabled services and IT spending to 4.4 per cent by 2012 . . .
India’s share of global IT services market

USD billion
100 percent: 392 441 1,194 India’s share of global ITeS / IT market
100%
2.2% 2.3%
3.2% 4.7% USD billion
7.0%
80% 100 percent: 1,184 1,322 3,391

100%
0.8% 0.9% 1.5%
2.5%
60% 4.4%
2002 2003 2006 2009 2012
Increase in overall
India’s share of global ITeS market 80% market share (IT and
USD billion ITeS) to 4.4 per cent by
2012
100 percent: 792 881 2,198
100%
0.2% 0.3% 0.6% 1.3% 2.9%
60%
80% 2002 2003 2006 2009 2012
60% Source: NASSCOM-McKinsey.

KPMG. 2003 -2004.
2002 2003 2006 2009 2012
Note: Industry estimates up to 2012 are based on available short-term estimates

and would need to be revised periodically based on actual performance
. . . India’s share of off-shored services (i.e. not located within the same country) is
expected to be even higher
The increase in revenues would correspond to an increase in India’s share of the global
ITeS and IT market from 0.8 per cent in 2002 to 1.5 per cent by 2006 and 4.4 per cent by
2012.
This is largely driven by an increasing share of the ITeS market as well as the IT market,
a lot of which could be in the form of off-shore services based on current trends.

This translates into a direct employed manpower requirement
of 3.7 million personnel for off-shore ITeS / IT by 2012 . . .
India IT export services (USD billion) IT export services employment (000s)

24 274
Consulting, integration, installation
0.5
10 111
IT Development
3.9
18 529
Outsourced support 1.8
3 2012
Training and Education 58
2002
972
ITeS export services employment (000s) Total IT and ITeS

India ITeS export services (USD billion)
employment (2012) of
22.4 1,030
Customer care 3.7 million
0.4
6.2 206
Finance
0.3
18.8 690
HR
0
Payment 9.7 447

services 0.1
2.6 147
Administration
0.2
Content 4.3 2012 197

Development 0.5 2002
2,717
Note: Billing rates and productivity assumptions have been based on Source: Press reports. NASSCOM-McKinsey.
nature of work and competition for services expected. Manpower profile of India. BCG. KPMG. 2003.
. . . this is in addition to manpower requirements for domestic and captive ITeS /

IT support requirements within India
Based on assumptions of utilization adjusted charge rate of USD 41.5 / Full Time
Equivalent / hour for export IT services and USD 17.3 / Full Time Equivalent / hour for IT-
enabled services, this market size translates to an estimated manpower requirement of
over 3.7 million for export IT and IT-enabled services, compared to 0.4 million in 2003.
Additionally, another 1–1.5 million could be employed in the domestic / captive IT
services area (based on current ratios of roughly 1:1), leading to a total manpower
requirement of approx. 4–6 million.
16
The IT export services industry could employ approximately 0.97 million
people by 2012 as compared to 0.2 million in 2003 . . .
Illustrative
2002 2003 2006 2009 2012 CAGR

(2003–2012)
Revenues (USD billion) 0.5 0.6 2.3 8.9 24.3 51 per cent
Consulting,
Integration, Utilization adjusted charge rates (USD / FTE / hour) 30 30 50 70 65
Installation
Manpower requirement (FTE 000s) 12 15 34 93 274 38 per cent
IT
Utilization adjusted charge rates (USD / FTE / hour) 43 43 55 70 65
development
Outsourced
Utilization adjusted charge rates (USD / FTE / hour) 14.5 14.7 21 27 25
support
Revenues (USD billion) 0 0.0 0.1 1.0 2.7 87 per cent

Training &
Utilization adjusted charge rates (USD / FTE / hour) 20 20 27 35 35
Education
Manpower requirement (FTE 000s) 0 0.4 3 21 58 75 per cent
Total IT
export Utilization adj. charge rates (USD / FTE / hour) 26.7 26.9 34.2 43.0 41.5
services
nature of work and competition for services expected.
Manpower profile of India. BCG. KPMG. 2003.
FTE = Full Time Equivalent
Assumptions related to manpower requirements for the IT export services industry are
provided here:
Number of working hours per FTE p.a. assumed as follows:
Total hours available 2080
Less holidays (35 days) 280
Less training time 200
Less admin. time 240
720
Utilized hours 1360 (76 per cent)

The ITeS industry could employ approximately 2.7 million by 2012
as compared to 0.17 million in 2003 . . .
Illustrative
2002 2003 2006 2009 2012 CAGR

(2003–2012)
Customer
Utilization adjusted charge rates (USD / FTE / hour) 10 10.5 12 14 16
care
Manpower requirement (FTE 000s) 29 49 145 420 1,031 40 per cent
Finance Utilization adjusted charge rates (USD / FTE / hour) 11 13 16 21 22
HR Utilization adjusted charge rates (USD / FTE / hour) 9 12 14 18 20
Payment
Utilization adjusted charge rates (USD / FTE / hour) 9.7 10 12 15 16
services
Admin. Utilization adjusted charge rates (USD / FTE / hour) 8 9.2 11 13 13
Content Dev. Utilization adjusted charge rates (USD / FTE / hour) 11.5 11.5 13 15.2 16.1
Total ITeS Utilization adj. charge rates (USD / FTE / hour) 10.2 10.9 12.7 15.4 17.3
Manpower requirement (FTE 000s) 106 160 379 1,004 2,717 37 per cent
nature of work and competition for services expected.
Manpower profile of India. BCG. KPMG. 2003.
FTE = Full Time Equivalent
Assumptions related to manpower requirements for the IT-enabled services industry are
provided here:
Number of working hours per FTE p.a. assumed as follows:
Total hours available 2080
Less holidays (35 days) 280
Less training time 200
Less admin. time 240
720
Utilized hours 1360 (76 per cent)
18
Current manpower resources will not be sufficient to meet the
aggressive growth targets even in the medium term (2009) . . .
IT manpower gap (2009) ITeS manpower gap (2009)

Number (000s) Number (000s)
IT services exports 460 ITeS market demand (current
1,416
productivity)
Domestic IT services 520 Industry productivity

enhancement (product mix, 413
structural changes)
Products and Technology
140 Reduction in manpower
services
Total demand (2009) 1,003 requirements depending
on mix of services offered
Total demand (2009) 1,120 and delivery efficiencies
Current pool 160
Shortfall:
Current pool 360 Shortfall:
262
235
Supply expected (net of attrition
Supply expected based on 581
at current levels)
525
current trends Total graduate / engineer pool
addition of 51 million,
Total supply (2009) 741 discounted for labor force
Total supply (2009) 885
participation (65 per cent) and
ITeS employment preference /
suitability (1 - 3 per cent)
Note: Manpower supply numbers are based on extrapolation of curr ent trends Source: Institute of Applied Manpower
related to growth in educational institutions, attendance rates, out-turns and
labor participation as well employment preferences.
Research. NSSO. NASSCOM. KPMG. 2003.
. . . with a shortfall of over 0.5 million by 2009 for IT and ITeS, based on current
human resource supply trends
Current graduate output and employment preference trends suggest that in the
absence of any corrective interventions, there could be a significant shortfall of
manpower required for ITeS / IT, even in the medium term.
High-level estimates suggest that this shortfall could be to the tune of 0.5 million people
by 2009 , roughly 23 per cent of the industry’s requirements of 2.1 million people for IT
services and IT-enabled services.
The key assumptions used for calculations include:
– Manpower requirements get reduced due to productivity adjustments brought
about by internal changes as well as nature of services provided. This is
reflected in the increase in charge rate per FTE per hour.
– Current pool numbers are based on NASSCOM’s estimates of approx. 160,000
employed in ITeS as at end of March 2003.
– Supply estimates are based on 13 per cent increase in annual graduate supply
(as per current trends), 65 per cent workforce participation and 1-2 per cent of
these preferring and capable of employment in the IT-enabled services sector,
with adjustment for attrition as currently observed (approx. 30–40 per cent).

Not addressing this gap means that India’s target share of the export IT and ITeS market
would fall short accordingly.
India will be one amongst other countries with surplus

manpower that could possibly be trained and deployed for ITeS
/ IT requirements . . .
Potential labor surplus / shortage in working age group across the world (2020)
Million X Surplus
2
-3
Ireland -X Shortfall
Germany
-2 -6
-17 -3 Russia
UK
2 -10
US France
-3 Turkey China
19 -9
5 Spain
4 Pakistan Japan
Mexico
Egypt 5
47
1
India Philippines
3 Malaysia 5
Brazil Indonesia
-0.5
Australia
Note: Working population is defined at the 15–59 years age group. Ratio of working population Source: US Census Bureau. BCG. 2002-2003.
to total population is assumed to be constant.
Labor numbers are based on assumptions of no interventions by respective governments.
. . . China, Philippines, Ireland and Mexico are some countries that could pose a
competitive threat to India’s market share aspirations
High-level estimates, based on population and economic growth, suggest that India will
be one among many surplus countries across the world that will have a labor surplus
and would be able to meet off-shoring requirements of the world.
The issue, however, will be of being able to skill this surplus to be able to meet the ITeS
/ IT requirements.
A number of other countries with marginal surplus (like China, Philippines, Ireland and
Mexico) are already making strong efforts to establish the necessary policies,
institutions and infrastructure to meet these skilling objectives.
20
Although these countries are currently not as favorably
positioned as India in terms of availability of low-cost skills . . .
Manpower comparison across countries
Average salary for graduates Total number of graduates per annum

(USD per annum, 2001) (2001)
2,100,000
India 2,400 India
China 2,000 China 950,000
Philippines 2,900 Philippines 380,000
Mexico 1,400 Mexico 137,600
Ireland 19,500 Ireland 43,200
Note: Numbers are for year-ended December 2001 or March 2002. Source: NASSCOM-McKinsey. 2002 -2003.
. . . they are making significant efforts in improving the quality and quantity of
manpower to meet global ITeS / IT requirements in the future
Comparing India to some of the emerging ITeS /IT destinations, one observes the
availability of a significantly large human resource pool that can be utilized.
India currently has some advantages as compared to these countries in terms of the
availability of skilled manpower at competitive costs.
However, the efforts by these countries to develop human resources pose a significant
competitive threat to India in the long-run.

Ireland began with an overarching vision to become a
knowledge-based economy driven by off-shoring . . .
Case study
n Ireland is one country that has strategically pursued the development of an outsourcing services market. It has
developed a business environment that promises upto 44 per cent of savings for companies worldwide and over
1,200 companies have already chosen Ireland as a base. Ireland’s focus has been on becoming the foremost out-
location service centre.
n Ireland began with a vision of becoming a ‘knowledge-based economy with a world class infrastructure’ to promote
foreign investment, export earnings and growth in employment. It invested heavily in telecom infrastructure (USD 5
billion over 10 years; IRP 250 million in aTechnology Investment Fund for infrastructure modernisation) and education
and training (IRP 75 million to develop technology skills; introduction of tele-service courses; focus on multi-lingual
skills) to be able to compete as an outsourcing service provider country. It formulated tax incentives to attract foreign
investment and instituted the Investment and Development Agency (‘IDA’), Ireland, to promote Ireland as a global
location for back- end processing services.
n The success of initial ventures attracted new players leading to intense competition for skilled labour. As a result,
wages rose and Ireland lost its low-cost advantage.To boost supply of skills, it invested in its educational system that
produces 60,000 English-speaking graduates each year. In order to arrest attrition, the government made efforts to
spread development of outsourcing service centres beyond big centers like Dublin. It then leveraged the
sophistication in its workforce and technology infrastructure to offer value added services. Outsourcing service
providers were encouraged to upgrade their services portfolio. According to the IDA, “We don’t position Ireland as a
low-cost environment. . .[but a place where companies] get quality people with high skills and high productivity.”
n Ireland’sstrategy today is to continue to promote inward investment but focus more on development of strategic
business areas, clusters of excellence through the converged efforts of academia, business and venture capitalists.
Amidst increasing price-based competition from other countries, it has identified its niche of value-added services
where ‘ideas are created and used’.
n Today, at least 60 companies have established call centres and at least 30 companies (2001) have established shared
service centers in Ireland.
Source: Press reports. CII–KPMG study on ITeS. 2002.
Ireland’s vision to become a knowledge-based economy has evolved based on industry

and competitive developments.
Once Ireland had established itself as the preferred manufacturing / services destination
for a number of European and some American businesses, it decided to focus on high-
end services to avoid competing head-on with other countries that could boast of better
cost structures due to labor cost differences.
22
. . . and is striving to migrate to high-end off-shore support and
management through a mix of investments and incentives . . .
Case study
Create right environment

n Ranked second most-global economy
n Initiated Partnership 2000 program to
manage wage inflation in off-shoring
n Corporate tax rates down from 24
per cent (2000) to 12.5 per cent
Co-operation between stakeholders Commercialize new concepts
(2003)
n Revamping of copyright and related n Investment in off-shored centers
n Push towards higher quality
intellectual property rights law for the started with Whirlpool Europe’s SSC
education (already ranked #1by IMD,
comfort of potential investors in Ireland in 1995
2001) with multi-lingual skills, tele-
n With unemployment rates at 17 per
service courses
cent, company’s were able to attract
n Supporting upgrade plans for current
suitable graduates at lower wages to
outsourcing centers into high-end off-
achieve savings of 10 – 15 per cent
shore support facilities
as compared to operating in the UK
Encourage support industries Growth through sharing
n IRP 250 million invested in telecom n Use of the Investment and

infrastructure modernization Development Agency (IDA) as a
n IRP 75 million to be invested in common platform for FDI and off-
upgrading technology skills over four shore attractiveness promotion
years n Change of focus in 2001, towards
n Upto 400 per cent deduction on setting-up of ‘Clusters of Excellence’
taxable profits for R&D expenditure for specialized off-shoring
Ireland focused efforts on creating a world-class education system that attracted and
generated skills ‘employable’ for high-end knowledge support services and then
conducted reforms in the enabling infrastructure (e.g. telecom, VC-funding etc.).
At the same time, various national agencies coordinated efforts at marketing and
positioning through industry interactions and specifically directed policies.

All the key stakeholders have been involved in efforts to
promote Ireland as a ‘cluster for business excellence’ . . .
Initiatives to promote Ireland as a center for business
n Clarification on specific enabling regulations related to Copyrights, telecommunications and e-Commerce

Involving
n Identified Foras as a national-level policy body to support and co-ordinate efforts across multiple agencies and
government
geographic regions
agencies
n Launch of National Spatial Strategy (involving hub-spoke approach) to co-ordinate efforts by various regions to
attract investments as per vision and to avoid unnecessary competition
n Identification of expert group on future skills needs
n IRP 2.5 billion under the National Development Plan (2000 -2006) for R&D including a seven year fund of IRP
635 million under the Science Foundation Ireland for ICT / biotech R&D funding
n Special body under ICT Ireland to promote the development of indigenous ICT companies targeting domestic
Involving the as well as exports businesses
industry n Strategic Competitiveness program as a forum for local set-ups of 1,100 global businesses already in Ireland to
assist with competitiveness and sustainability
n Targeting of ambitious clients like Intel Fab 24, Google who were willing to experiment with new forms of
organizing business
n Prominent business leaders invited to join policy makers in a series of studies addressed to meet quantity and
quality of future skill requirements in the IT and other industries
Involving the
n Using feedback from international review committees (e.g. IMD World Competitiveness Report) to ensure ‘fit’
educational
between educational system and desired output characteristics
institutions
n Working with local educational institutions to retrain staff in order to meet market requirements (e.g.
Prudential Inc. in Letterkenny)
n Locating universities based on market demands (e.g. three universities offering courses specific to the
requirements of International Financial Service Center in Dublin, within a four-mile radius)
Ireland’s stakeholders have worked together across defined boundaries to formulate a

national strategy towards establishing Ireland as the preferred choice for knowledge
services.
This includes efforts at the policy level, efforts at working with the industry to identify
opportunities as well as efforts related to guiding the development of human resources
for future requirements.
24
China is investing in improvement of existing infrastructure and
resources . . . Case study
n China has already had experience of outsourcing services for the domestic market and has built relations with
global clients through outsourced manufacturing. The focus now is to develop the capabilities, institutions and
incentives that would propel China into grabbing a large share of the global services market. Comprehensive
efforts are already visible across areas of telecom infrastructure, education and global marketing.
n In order to bridge its capability gaps in the area of English language and technical skills, China has initiated a
massive investment programme. USD 5.4 billion were invested in nine universities to revive the domestic IT
resource pool. In order to spur English skills, the government plans to start English classes from the third grade
and about 60,000 English teachers were invited from other countries to teach English. Success at the Olympic
Games 2008 bid and the recent accession to the WTO are other drivers behind the enthusiasm for developing
skills in English.
n Reforms in the telecom industry were seen as critical to the success of this industry and were initiated in phases
in 1999. The first phase involved separation of government ownership and operations.The second phase involved
attracting new domestic players through active privatization and the third phase is about attracting global players
and at the same time enabling domestic players to compete with them.
n Promoting China’s advantage in providing outsourcing services has been handled at multiple levels, from
repositioning China as an investment location, to projecting China’s low-cost advantage and the bundling of
permissions to access the domestic market with a commitment to invest in China-based outsourcing services.
China is leveraging its excellent reputation in the manufacturing sector to attract global
ITeS and IT companies.
It has developed partnerships with large global giants in the area of manufacturing and
is now developing the requisite infrastructure for the ITeS and IT industries.
There has been increased focus on imparting English language education to enhance
the skills of the potential working population.

. . . with a structured approach to capture a larger share of the
global off-shoring market . . .
Case study

n Policy geared towards globalization
and accession to the WTO
n FDI approval for almost all projects at
provincial level
n Preferential tax rates of 15 per cent
(normal 33 per cent) under EPZs and
n Attract investments from high-tech other zones. Tax refund on capex
n Leveraging experience of off-shored
majors in the form of technology over five years
manufacturing and outsourced
parks
services to offer off-shore services to
n Labor law reform through a single
the global market
comprehensive framework
n Exploiting low cost structure
n Promoting economic co-operation for
supported by government subsidies,
industrial development in mainland
low software / labor costs etc.
China
n Phase approach to telecom reforms n Use of international fairs and special

including divestment, privatization business promotion events to
and competition promote China as an overall
n Import of over 60,000 English destination for investments
teachers to build language capability n Permissions for MNCs to leverage
n New legal framework for lending by Chinese markets bundled with
Chinese banks to JVs responsibility for off-shoring
The focused approach, as illustrated above, involves a right balance of creating the
right business environment and increasing stakeholder co-operation.
At the policy level, the government is playing a key role by introducing reforms in
telecom policy as well introducing initiatives to encourage new investments.
Increasing promotional activities such as international fairs and business promotion

events are helping to promote China as an investment location of choice.
26
Philippines is leveraging its economic and geographic proximity
to the US to grow its share of the ITeS / IT industry . . .
Case study
n The Philippines government has recognized ITeS as a key driver to the country’s economy and has identified focus
areas related to call center services, medical transcription, animation, shared back-office functions, software
development and engineering and design.
n The government aims to achieve revenues of USD 1.65 billion by 2004, largely from call centers services, with medical
transcription being the second highest segment.
n The government has established the Information Technology and e-Commerce Council (ITECC) through private –
government partnerships to oversee and review the national promotion strategy for e-commerce
n The ITECC works with the Department of Trade and Industry (DTI) to promote technology-related investment
opportunities in Philippines
n The country has launched the ‘IT 21’ plan to transform Philippines into a ‘Knowledge Center for Asia’ over the next
10–25 years
n Private sector involvement has been sought to devise skill upgradation programs to meet the needs of the contact
center industry and the ITECC is working with the Technical Education and Skill Development Authority to promote
employment in call centers
n Attractive infrastructure development incentives have been planned and the two ex-US air bases at Clark Bay and Subic
Bay have been transformed into world-class, ready-to-use facilities for ITeS / IT industry
Source: Press reports KPMG. 2002 -2003.
Philippines has had the advantage of significant cultural influence of America on its
society, and is using this proposition to a large extent to promote its ITeS / IT industries.
The ITECC, a government arm, is carrying out pioneering work to promote the industry
by developing public-private partnerships to upgrade the skills of the workforce and
cater to the specific needs of the ITeS / IT industries.
There is also greater emphasis on developing the infrastructure and help set up world
class facilities with all necessary telecom and IT support.

. . . and is targeting to become the Asia-Pacific region’s
‘e-service’s hub’ with revenues of USD 1.65 billion by 2004 . . .
Case study
n ITeS identified as the key economic

driver for the country by leading
authorities within the country
n Income tax holiday for 4 – 6 years
with permanent resident status for
medium / large investors
n Leveraging proximity to the US and
n Collaborating with private sector
low connectivity costs for ITeS,
companies (e.g. TIM, CRC etc.) for
Philippines aims to grow into the E-
skills upgradation through formal and
Services Hub for Asia with a focus on
non-formal sectors
call center, animation / design,
n Conversion of ex-US air bases into
transcription and back-office
ready-to-move ITeS / IT facilities
operations

n Launch of ‘IT 21’ plan to transform
Philippines into knowledge center for
Asia with HR development
n Use of DTI and ITECC to promote IT-
n Plans to address telecom sector
related investments as well as to
investments through competition
support skill enhancement
n Incentives for IT infrastructure
developers with up to 15 projects
being supported
The Philippines government has identified ITeS as a priority sector to drive economic
growth. Towards this end, it has formulated a number of incentives and encouraging
investment policies.
The ‘IT 21’ plan has been launched to help Philippines develop into a hub for ITeS / IT in
Asia by bringing about rapid human resource development.
The focus areas decided by the ITECC include call center operations, animation/design,
transcription and back-office operations. Philippines aims to leverage its strengths in
these areas and develop long-term competitive advantage.
28
The manpower shortage is already impacting the performance
of the Indian ITeS / IT industry today . . .
2000 – 01 2002 – 03 n Competition from captives

Service billing turning third-party
n IT: USD 30 – 40 per hour n IT: USD 15 – 25 per hour
rates
ITeS / IT health-check indicators
n ITeS: USD 10 – 12 per hour n ITeS: USD 4 – 11 per hour n Ease of entry into ITeS / IT
2000 – 01 2002 – 03 n Competition for talent with

Employee MNCs able to afford poaching
attrition levels n ITeS: 10 – 15 per cent per n ITeS: 30 – 40 per cent per with salary hikes of 15 – 20
annum annum per cent
n Over-qualification of labor pool

2000 – 01 2002 - 03 attracted has led to higher
Salary costs wage rate
n ITeS: USD 200 per month n ITeS: USD 330 per month
(cost to company) (cost to company) n Wage rates increasing with
competition
n Overall margins under

2000 – 01 2002 – 03 pressure with domestic and
Company profit
n ITeS: 30 – 40 per cent n ITeS: 17 – 25 per cent international competition,
margins regulatory restrictions and
operating profit margins operating profit margins
large capital requirements
Source: Press reports. KPMG. 2003-2004.
. . . making the industry as a whole in India less competitive on a global scale and
less attractive for potential entrants
The imminent manpower shortage in the IT and ITeS industry in India is already
affecting various operational and financial parameters. This makes the industry less
competitive in the global market and less attractive to potential entrants.
Considering that the next few years will be critical to the overall ramp-up of India’s ITeS
/ IT revenues, some actions are required to address this issue at the earliest.

The ITeS / IT industry has indicated concern and the need for an
immediate action plan . . .
“There is a need for a

common agency to
certify and counsel “ITeS / BPO is not seen as
resources.” a career . . . there is a need
to bring respectability to
the work”
“Efforts at improving
n Rising attrition, both in
“It is expensive to resources required being
attract skills above the done in pockets . . . in
industry and out of the
age of 35 into ITeS.” Kerala, AP, Karnataka.” “Low hit rates of 1- 5 per industry
cent lead to significant n Rising wage costs due to
“Career paths are often
not made clear to staff .
costs related to scarcity of resources
“Functional education recruitment and selection n Impediments to growth
. . leading to attrition
to be strengthened to of resources” plans for various service
issues.”
support high-end
providers
services.”
n Lower staff productivity
“Emotional maturity
and physical stamina
“University education requires at least
needs to be re-oriented “Shifting the BPO graduate level of
to support vocational employment opportunity education” “Even high literacy
training for ITeS .” to second-tier cities states like Kerala may
would reduce resource have lower awareness
pressures.” of ITeS career options.“
Source: Department of IT interactions with IT / BPO industry service providers. Industry interactions. Press reports, KPMG. 2003–2004.
A number of interactions were held with key stakeholders such as the Department of
Information Technology and BPO industry service providers to get a clear
understanding of the current issues faced and ways to resolve them.
Some of the key concerns raised were related to high attrition, increasing salary costs
and low productivity of employees. These concerns are deep-rooted and it is imperative
to address them with immediate / concerted action.
30
IT-enabled services and IT services are expected to become significant
contributors to the growth of the Indian economy . . .
5.0
Domestic / Captive IT services
Direct ITeS/IT ITeS

employment IT export services
(million) 2.2
Contribution to
1.1 direct
0.5 0.7
employment
2002 2003 2006 2009 2012

Percentage of
total 0.1 per 0.1 per 0.2 per 0.4 per 0.9 per
employment cent cent cent cent cent
12.3 per
Off-shoring cent
6.6 per
as per cent 2.2 per 3.4 per
1.9 per cent
of GDP cent cent
cent
Contribution to
GDP growth 2002 2003 2006 2009 2012
8 per 17 per 31 per

Contribution cent cent cent
to GDP
growth 2003 - 2006 2006 - 2009 2009 - 2012
Note: GDP growth assumed as 9 per cent per annum upto 2012 Source: NASSCOM. Institute of Applied Manpower Research.
Statistical Outline of India. KPMG. 2003.
. . . actions must be initiated now in order to address manpower requirements for

the ITeS / IT industry in the longer term
The ITeS / IT industry could be a significant contributor to the economic growth of the
country, considering its long-term growth potential of 25 per cent per annum
(compared to overall GDP growth expectations of 8 – 10 per cent).
Benefits from ITeS / IT include a direct employment opportunity of approx. 5.1 billion by
2012, of which approx. 3.7 billion would be for export IT services and IT-enabled
services. Comparative numbers for 2002, according to NASSCOM, were 0.5 million.
Estimates by NASSCOM-McKinsey and BCG have suggested that the ITeS / IT industry
could generate another equal number of employment opportunities in support
industries (e.g. transportation, catering, office administration and services etc.).
The share of off-shore revenues to total GDP is also expected to grow significantly, with
a potential contribution of 12 per cent of GDP by 2012, as compared to 1.9 per cent in
2002. High growth of ITeS / IT revenues implies that it could grow to become a
significant contributor to overall GDP growth as well.

Strategy to enhance institutional capacity
(formal and non-formal) to generate requisite manpower
This chapter provides an understanding of the need to enhance institutional capacity in
the formal and non-formal sector.
It also suggests other approaches to generate requisite manpower for the ITeS / IT
industry.
There is going to be a significant demand for manpower related to

the Indian IT export and ITeS industry by 2012 . . .
Manpower demand for IT* services (2012)
(000s)
972
1000
58
750 83 per cent of
requirements in
500 systems
275 529 integration and
250 111 support
0
Consulting, IT Outsourced Training and Total
integration, Development support Education
installation
Manpower demand for ITeS (2012)
* Manpower requirements for IT services under domestic / captive operations are
in addition to requirements for IT export services shown above. (000s)
2800 2,717
197
2100 147
80 per cent of
447
requirements in 1400
HR, payment 1,031
690
services and 206
700
customer care
0
Customer Finance HR Payment Administration Content Total
Care Services Development
Source: IDC. NASSCOM. KPMG. 2003–2004.
. . . requiring upto approx. 3.7 million people for export IT services and ITeS by
2012, up from 0.4 million people in 2003
The demand for IT and ITeS manpower is going to be driven by their requirements in
specific solution areas for IT and ITeS.
Out of the total requirements for IT export services, as much as 83 per cent could be for
systems integration and outsourced support (facilities management) services.
Similarly, for ITeS, 80 per cent of the manpower requirements could be in the areas of
Human Resources, Payment processing and Customer Care services.
32
Manpower will be required across all levels of the
organization in the IT export services and ITeS business . . .
Manpower (000s) 2003 2012 Qualifications Work experience Skill-sets
IT requirements*
- Managerial skills / Crises management
Senior Manager: 7 36 n Graduation / Post- n 6+ years
- Analytical reasoning
graduation
- Client interface and selling skills
- Domain expertise
Project Manager / Leader: 26 141 n Graduation (+Diploma) n 3 – 6 years - Supervisory skills / Domain expertise
- Resource management and utilization
- Planning and reporting skills
Programmers / Executives: 179 831 n Graduation / Diploma n 0 – 3 years - Computer proficiency and IT programming
- Problem solving and analytical skills
- Team-working
Total: 212 1,008
ITeS requirements - Managerial skills / Crises management

Manager / supervisor: 3 51 n Graduation / Post- n 5+ years - Analytical reasoning
graduation - Client interface and selling skills
- Domain expertise
n Graduation (+Diploma) n 3 – 4 years - Supervisory skills / Domain expertise

Team leaders: 20 277 - Planning and reporting skills
- Meeting process targets
n Graduation n 0 – 3 years - Language / communication skills

Agents / Executives: 140 2,439 - Analytical skills
- Computer proficiency
- Team-working
- Customer service orientation
Total: 163 2,767
* Manpower requirements for IT services under domestic / captive operations are in addition Source: IDC. NASSCOM. KPMG. 2003 –2004.
to and roughly equal to requirements for IT export services shown above.
Manpower estimates based on current staffing patterns for the export IT services and
ITeS requirements suggest that there could be a significant requirement in terms of
experienced personnel at the manager / team leader level.
This requires the ability to generate people with relevant skills at least 2–4 years prior to
the actual demand, reinforcing the criticality of requirement for action.
For example, by 2012, compared to a workforce of 3.7 million for export IT services and
ITeS, there could be a requirement for approx. 0.85 million managerial staff with over
5–6 years of relevant experience i.e. participating in the workforce since 2006 / 2007.
Although the educational capacity in existing / planned institutions to meet these

requirements may not be an issue, the specific skills provided as part of the education
system may need to be reconsidered.

Different categories of work at the agent level itself will require
specific qualifications . . . Illustrative
Back-office data Knowledge

Corporate Research/ Design
entry / Customer contact services and
support functions and development
processing decision- support
Increasing complexity of task and skill requirements
n Data entry n Customer services n Shared corporate n Analyst services n Engineering and
Nature of
(form filling) (complaints, function support (legal, financial) design (CAD/ CAM)
work
n Data conversion inquiries) (HR, Finance / n Customer analytics n Content
(translation, n Tele-marketing (pre- Accounts, HR, (segment profits) development
transcription) sales, order-taking, procurement) n Application (animation, web site,
n Basic processing catalog sales) n IT support processing (claims) graphics)
(checking / updating) n Collections support (development, n Risk management n New product design
n Document (reminders, payment integration, (underwriting, (specifications, pilot
management support) maintenance, help- structuring) testing)
(storage, retrieval) desk) n Advisory services
(tele-medicine,
consultancy)
Typical n Graduates n Graduates with n Graduates with n Graduates / Post- n Graduates / Post-
qualification excellent specialization, Graduates in related graduates in related
for work communication skills diploma/certificate areas (e.g. Law, areas
holders Economics, n Design engineers
Accounting) with some work
n ICWA / CA experience
n For website / DTP
design, diplomas in
related areas
Note : List of activities and examples above is illustrative only and not exhaustive. Source: Press reports. KPMG. 2003-2004.
Activities within a category are not necessarily in order of skill levels required
The more complex tasks under ITeS / IT are expected to require post-graduate
qualifications or other certification in addition to standard graduate degrees.
For example, while a typical back-office data entry/processing employee would need to
be a graduate in any stream, an employee in the area of research/design and
development would need to be at least a graduate / post-graduate in a specialized area.
34
Even within a function, different levels of work may require
specific qualifications . . .
Illustrative
Corporate functions
Back-office
Customer contact Knowledge support Research and Design
processing
HR Finance IT / Tech Support
- Loan Admin. B.A.

- Card / clainms
processing B.Pharm.
B.A. - Payroll / B.A.
- Account
Basic
- Inbound Benefits
reconciliation B.Com.
customer B.Sc. processing B.Sc.
- Data entry,
services - Employee
transcription, B. Sc.
B.Com. benefits B.Com.
mining - Maths
- Records - Statistics
management - Econ.
- Outbound BCA
B.A. B.Com.
collections
B.Sc. B.A. - Hardware Courses in
- Outbound sales B.Sc. - Equity research
B.Com. Tax services B. Sc. help-desk and Content Animation
Medium
- -
/ marketing - IT (industry / CA / CFA /
+ + (planning, trouble- development / Fine Art
- Inbound + sector / ICWA
Vocational - 401 K preparation, shooting (web-site
customer ITI (Dip.) markets)
Diploma Pensions payroll, book- - Software and design, DTP, Dip. in
service Diploma in MBA
(e.g. Admin. keeping) technical animation) Multi-
- Loans / Acctg, Tax IT course - IPR filings
Hotel, Training query support media
processing laws (e.g.
Tourism)
service DoEACC)
Post Grad. CA / CFA / BCA
B.A. - Acctg services - Network
In HR / ICWA B.Sc. - Distance
B.Sc. - Shareholder configuration / B.E.
Behav. - IT learning
B.Com. services hardware
High-end
- Training & Science Diploma in MCA - Engineering

- Query + - Equity research Fund support and Dip. in
Development design / testing
resolution Vocational (industry / Mgmt maintenance - Tele-medicine MBBS CAD /
- Performance Diploma in B.E. - Product design/
- Problem solving Diploma sector / - Software and advisory CAM
Management Labor testing
(e.g. markets) Stock design / services
Law, HR Certificate - Biotech
Hotel, - Portfolio mgmt exchange programming Ph.D.
/ IR, Staff (CCNE, research
Tourism) - Credit rating certificate
welfare MCSE)
Source: Industry interactions. KPMG. 2003 - 2004.
However, people with specific graduate degree qualifications may be better suited for
specific functions.
For example, a Chartered Accountant / Chartered Financial Analyst maybe better

qualified to support remote accounting services or equity research support for a client.
The person may also be required to undergo additional certification if required by the
regulations of the client country (e.g. FSA in the UK). However, for the data entry
support work of maintaining shareholder database or attending queries, a normal B.A. /
B.Com. / B.Sc. may be sufficient.

These must be supported by some necessary delivery-related
skills . . . Illustrative
Data entry / Customer Human Finance & Tech. Support Knowledge R&D and
processing contact Resources Admin. / IT service / DSS Content Dev.
Language Skills
Spoken English ü üü ü ü ü ü
Written English üü üü üü üü üü ü üü
Foreign Languages ü ü
Accent Understanding üü ü
Analytical Skills
Logical reasoning üü ü üü üü üü üü üü
Problem Solving / Num. ability üü ü ü üü üü ü üü
Comprehension / Creativity ü üü ü ü ü üü üü
Computer proficiency
Keyboard skills / Browsing etc. üü üü üü üü üü üü üü
Technical / Programming skills ü üü ü ü
Customer Service Orientation
Listening / empathy üü üü
Initiative/Enthusiasm ü üü ü ü ü ü ü
Team working ü üü ü ü ü ü ü
Multitasking / Time management ü üü ü ü ü ü ü
Behavioral traits
Assertiveness and Confidence ü ü üü ü ü
Integrity / values and discipline üü üü üü üü üü üü üü
Motivation / Drive ü ü ü ü ü ü ü
Sociability / Dependability /
üü üü üü üü üü üü üü
Reliability
Note: Source: Industry interactions. KPMG. 2003-2004.

ü ü: Necessary skills
ü: Desired skills
In addition to standard qualifications, different functions under ITeS / IT often require

certain specific skills related to language (comprehension, fluency), analytical (problem
solving, reasoning), computer proficiency (keyboard), customer service orientation
(team-working, listening) and behavior (confidence, integrity, drive).
However, the importance of these could vary depending on the specific function. For
example, ‘Listening skills’ are inherently more important to a customer contact function
as compared to knowledge services support, where ‘Reasoning skills’ may be much
more important.
36
In order to meet the ITeS / IT skill requirements, the entire
education lifecycle must be considered . . .
Attract Educate Certify Deploy Re-train
n Creating n Development of n Pre-certification of n Counseling and n Re-training ITeS /

awareness about formal and non- potential deploying IT professionals to
and preference formal employees manpower into ITeS/ upgrade skills to
for ITeS / IT as a mechanisms to through a IT industry meet changing
lifelong equip students standard / n Using industry industry
opportunity, with requisite industry accepted feedback to drive requirements
thereby creating a skills for ITeS / IT testing body curricular changes
pull in the market and highlight
employment
opportunities
Source : KPMG. 2003–2004.
One of the key success factors for meeting the manpower requirements of the ITeS / IT
industry is to lay emphasis on each aspect of the education lifecycle.
While it is important for institutions to provide students with relevant knowledge and
skills, it is equally important for students to gain recognition in the industry.
Skill recognition can only come about by developing a standard system of testing and
certification that is accepted by a formal authority.
Students will only be attracted to the ITeS / IT industry by getting good employment
opportunities and remuneration. Thus, a virtuous cycle is established between attraction
and deployment.
It is also necessary to keep track of changes in the industry and specific requirements or
opportunities. These should be incorporated into the curriculum as well as used as
inputs for re-training employees to face new challenges.

A World Bank study (2001) highlighted generic shortcomings in
India’s education system to generate quality manpower. . .
Weaknesses in infrastructure / institutional set-up
- Expense allocation is often based - Low compensation and lack of
Weaknesses in course curriculum and delivery

Policy on political pressures as against Faculty clarity on career progression
market conditions attracts fewer teachers
- Lack of adequate quality control - Teachers lack industry rigor, R&D
in implementation of policy background and exposure to tools
- No incentives for financial - Lack opportunity / encouragement

Finance prudence and efficiency in R&D Students for creative thinking
- Excessive controls over finance - Lack of counseling for higher
allocation leads to costly delays education choices and career
decisions
- Inefficiencies due to limited - Inflexible and rigid curriculum, not

Administration mechanization / automation within Curriculum exposed to innovation / industry
R&D set-ups - Teaching is exam-oriented
- Lack of appropriate incentive / without focus on communication
reward systems skills, problem solving
- Facilities are poorly maintained, - Continuous evaluation is often

leading to shorter utilized life Evaluation not systemized
Infrastructure
cycle system - Exams are often memory-based
- Little sharing of expensive and encourage partial studying
infrastructure and equipment through ample choice
Source: World Bank Study on Science &Technology Manpower in India (2001). Industry / Academia interactions. KPMG. 2003.
A World Bank study highlighted generic shortcomings in the Indian education system,
especially in its ability to generate highly-skilled manpower with the inclination and
capability of creative thinking in-line with global industry developments.
Some of the observations pointed out the inability to maintain and share common
infrastructure facilities across institutions, shortage of skilled faculty with industry
exposure and rigidities in the curriculum and evaluation system.
A study by the Ministry of HRD, Govt of India titled ‘Technical Education Quality
Improvement Project’, in Oct 2001, also highlighted potential action points (e.g.
networking, curriculum changes, faculty development etc.) required to improve the
quality of technical education in the country.
38
In addition, the current system has gaps across the entire
education life cycle related to skilling for ITeS. . .
Attract Educate Certify Deploy
n People are not aware n Key skills required by the n Lack of national-level n Lack of feedback loop on
about employment industry are not mechanism for pre- resource deployment
options, including developed through certified pool of and skills provided
flexibility offered current educational resources
system n Lack of direct placement
n ITeS perceived as largely n Lack of understanding of links between
requiring IT skills n Lack of a standardized, specific parameters to institutions and ITeS
modular curriculum for test and certify upon industry, especially in
n Jobs in the ITeS industry ITeS Tier-II and smaller cities
lack esteem
n Employment not seen as

a long-term career option
Source: Industry / Academia interactions. Department of IT. KPMG. 2003-2004.
The current education system lacks specific policy initiatives to help it align to the
specific requirements of the ITeS / IT industry.
There are also issues related to funding as well as development of institutional and
infrastructure facilities.
Moreover, there is a strong need for monitoring agencies to assess and correct gaps
related to developing and directing skills towards ITeS / IT employment opportunities.

Specific changes across the current system of education in India
related to skills required for ITeS could be initiated . . .
Illustrative
Existing manpower for ITeS / IT are

graduates/post-graduates with strong
conceptual / theoretical knowledge
but lacking in communication and
Additional inputs required to make
vocational skills
‘employable’ for ITeS / IT
Post- n Domain specific training linked to

n Theoretical specialization in
Graduation international developments
subject of choice; gradual shift to
- Insurance certification
applied studies
- Healthcare regulatory standard (HIPAA)
- Accounting standards (US GAAP)
- Banking standards (Basel II)
Graduation n Student’s select subjects of their choice and - Labor / Taxation laws (France, Germany)
specialize in a particular stream; cross-stream - HR practices (e.g. 401 K)
courses rarely available - Alternative languages (e.g. Japanese)
n Customer service orientation

Higher
n Students acquire basic mathematics, - Listening skills
secondary
language and general awareness skills - Time / stress management
- Leadership
- Team working
Primary / n Language skills

n Mathematics and English skills are refined.
Secondary - Written English (Grammar,
Student’s get introduced to science and
Comprehension)
social science subjects
- Spoken English (Fluency)
n Students acquire basic mathematics,
n Computer literacy
language and general awareness skills
- Key board
- Internet searching
Source: Department of IT. Industry interactions. KPMG. 2003-2004.
The current system of education does not provide some of the necessary skills for ITeS /
IT, even at the graduate / post-graduate level.
Resources produced may have a strong conceptual / theoretical background but often
lack communication and vocation-specific skills and the creative drive or specific
regulatory certifications required by clients in foreign countries.
This could be addressed through specific modules integrated into the current system of
education, right from the primary / secondary education level. For example, a strong
focus on Computer literacy could be established at the primary / secondary level,
followed by a focus on customer service related skills (team-work, time management)
at the higher secondary levels.
40
China has made some significant efforts to develop language
and culture skills relevant to global ITeS support . . .
Case study: China
n The government is n The government is n The Chinese ministry of n Upto 53 high quality
encouraging overseas encouraging English science and technology technology parks have
and domestic experts language learning in had established the been set up by the
to play a major role in schools and colleges ‘863’ program to government to
strategy formulation for (over 60,000 English develop a highly encourage MNCs to
ITeS/IT teachers brought in) qualified scientific and establish offshore R&D
technical staff and IT centers
n Alliances with
n The government is
prestigious foreign
focusing on increasing
institutions like Yale to
urbanization of its
set up technology
premier cities like
centers and enable
Shanghai and Beijing
student exchange
(by 2005, over 50 per
programs
cent of the Shanghai
population would have n English teaching
internet access) combined with IT
training under
computer classes
n ‘China education and

research grid’ to share
IT research efforts
across 100 universities
n ‘Radio and TV’ universities
Source: Press reports, UN / World Bank report. KPMG. 2003–2004.
have been created to
facilitate learning
China has taken significant steps across the education lifecycle in order to ensure that
its human resources are geared up to tap the opportunities presented by the ITeS / IT
industry.
A key step has been the promotion of English language in schools, colleges and
universities. The government has been quick to realize that learning the language can
lead to significantly large business opportunities in the future.
Long-term plans are also in place to develop knowledge in core areas of R&D. The ‘863’
program is focused on developing a highly qualified and competent scientific and
technical staff.
At the same time, a number of infrastructure building activities, such as setting up of IT

parks, is underway to ensure effective deployment of trained students in the ITeS / IT
industry.

Philippines too has made efforts to revamp its core curriculum
approach to develop resources more suitable for ITeS / IT . . .
Case study: Philippines
n Balik IT professionals’ n Established ‘TESDA’ as n Established a unified n Development of

program to attract the driving force for ‘TVET’ program alliances between
changes in curriculum
overseas Filipino IT registration and educational institutions
and implementation of
professionals and inject better training accreditation system in for students to get on-
actual experience and programs consonance with a the-job training and
fresh insights into n Greater focus on quality technical and companies to identify
knowledge workers Maths, Science and vocational education untapped manpower
English at the primary n Identification of specific pools
and higher secondary certification
education level requirements and
n Training courses for dedicated government
graduates and post- programs to carry them
graduates focused on out in areas like
key ITeS areas for Windows, Unix, Java,
Philippines SQL, XML, Linux and
n Use of best of breed C++
methodologies, tools
and practices to train
students
n Training and re-training
teachers in formal
institutions to develop
IT skills
Note: Source: Press reports, UN / World Bank report. KPMG. 2003– 2004.
TESDA – Technical Education & Skills Development Authority
TVET – Technical & Vocational Education Training
Philippines too has undertaken a number of initiatives to enhance the present

educational system and develop manpower for the new ITeS / IT economy.
At the school-level, there is an increased emphasis on basic subjects like Maths and
English that are imperative for language and communication as well as analytical skills.
The government has also begun taking steps towards increasing accreditation of
technical and vocational education. This accreditation would lend recognition to
students when they seek jobs in the ITeS / IT industry.
Universities and colleges are also developing partnerships with companies in order to
help students gain exposure to the working environment in the ITeS / IT industry. This
would help them appreciate the challenges posed by the industry and obtain necessary
skills.
42
Emerging areas in the knowledge domain for India to pursue
and strategy to reinforce status as ITeS / R&D hub
This chapter discusses the potential opportunities in off-shored R&D support services
that India could aim for based on current strengths in terms of people, infrastructure
and industry.
It also looks at some of the best practices followed in other countries and highlights the
issues that India currently faces in the R&D services sector.
We define research and development in the broad sense as a

quest for knowledge . . .
“Creative work, undertaken on a systematic basis, in

order to increase the stock of knowledge (including
knowledge of man, culture, society) and the use of this
stock of knowledge to devise new applications
I. Basic research II. Applied research III. Experimental Development

“experimental / theoretical work to “original investigation to acquire “systematic work, drawing on
acquire new knowledge of the new knowledge, directed primarily existing knowledge stock to
underlying bases of phenomena, towards a specific practical aim or produce / install / improve
without any particular application” objective” materials, products and services”
Source: Frascati Manual (OECD). 1993.
. . . the focus is on the provision of R&D work in the form of support services for
development rather than actual product development
The entire R&D value chain can be split across the areas of Basic Research, Applied
Research and Experimental Development.
Each of the areas has its own characteristics in terms of nature of activities, capital
intensity, labor intensity, commercial viability etc.
There are different players that occupy significant positions in the different parts of the
value chain based on their strengths, priorities and constraints.

Investments in technology related to R&D has been shown to
have direct / indirect contribution to GDP growth . . .
Direct and indirect correlation between R&D investments and economic / social benefits
Inward FDI
Employment
generation
Appropriated Productivity License

research enhancement revenues
Enhanced
competitive-
ness
Investment
Innovation
in R&D Multiple direct and
indirect benefits
Spillover Productivity Trade from R&D
research enhancement benefits
Social /
Knowledge
Environ
stock addition
benefit
Source: OECD Working Papers (Endogenous growth theory). KPMG. 2003–2004.
Research suggests that R&D investments have a positive impact on the development of
a country due to the benefits encompassing most developmental aspects of any nation.
In addition, from the perspective of a developing country such as India, foreign direct
investment in R&D facilities by MNCs is even more attractive.
This is because MNCs’ subsidiaries with strong R&D mandates as well as strategic
geographical or product range responsibilities tend to be stickier to the host economy
and hence are considered to be highly desirable in terms of their effects on local wealth
generation.
44
Governments and educational institutions try to balance R&D
efforts across different areas of potential benefits . . . Illustrative
Economic benefits Social benefits Environmental benefits
IT and n Access to low-cost skills as well as n Application of IT for agricultural n Use of IT / electronics for control
Balancing benefits from R&D
electronics proximity to a cluster from where monitoring, educational delivery systems related to effluent / waste
IT support work is being carried out and medical automation disposal systems
n Reducing the cost of new drug n Crop productivity through genetic n Use of biotechnology in hazardous
Pharma. development and clinical testing engineering and research waste treatment and pollution
and Biotech n Round-the-clock research on n Increased immunity / better control (e.g. bio-remediation for oil
genetic sequencing to reduce time medication through bio-informatics spills)
n Safer and better designed housing

Engineering n Access to low-cost skilled facilities with cheaper, stronger
and Design n Fuel research to reduce pollution
resources for materials and materials
related to automobile exhausts
services component design / testing n Increased productivity and
efficiency in industry processes
Source: Press reports. Ministry of Research, Science and Technology (New Zealand). KPMG. 2003-2004.
R&D activities conducted by government and institutions concentrates on research

areas which may not be remunerative or lead to commercially feasible/attractive value
propositions.
The R&D activities undertaken by the government/institutions have a different objective

function. While economic benefits are important, the benefits of such R&D activities are
not limited to economic areas but also encompass areas such as benefits to the society
and environment that are not directly quantifiable.

The focus of R&D efforts by the private industry, on the other
hand, has evolved from resource driven to customer / business
driven . . .
First-generation R&D Second-generation R&D Third-generation R&D
R&D philosophy n Resource-driven n Project-driven n Business-driven

Evolution of approach to R&D
Link between R&D n R&D seen as a separate unit n R&D as a supplier to overall n R&D efforts as partners adding
and business from business operations business operations to effective business delivery
Link between R&D n No link between R&D and end- n Use of consumer groups / end-
n Remote link
and end-customer customer customers to guide R&D efforts
n R&D as an overhead costs under n Funds based on needs and risk- n Based on technology maturity
Funding approach
annual budget exercises sharing and competitive impact
Knowledge n Management of tacit knowledge n Integrated use of tacit and n Synergy through conversion of
management in compartments explicit knowledge knowledge to explicit form
Source: Nolan Norton & Co. KPMG. 2003.
. . . and are driven by economic considerations
The overriding objectives of R&D activities in the private sector remains economic
benefits such as revenues from new products, reduced time/cost of manufacture etc.
In this sector, R&D function has evolved from being a isolated activity that is loosely
connected to the overall business to being a core part and driver of the overall business
strategy.
As a result, R&D activities in the private sector are now guided by consumer groups
and end customers so that the research yields products/services that are readily
acceptable to the end customers.
46
As a result, the R&D focus areas for government, institutions
and industry, across the world have become divergent . . .
Institutional expenditure on R&D Government expenditure on R&D Industry expenditure on R&D

R&D expenditure distribution R&D expenditure distribution R&D expenditure distribution
(2000) (2000) (2000)
Australia Australia Australia
Denmark Denmark Denmark
France France France
Iceland Iceland Iceland
Japan Japan Japan
Spain Spain Spain
US US US
0% 25% 50% 75% 100% 0% 25% 50% 75% 100% 0% 25% 50% 75% 100%
Basic research Source: OECD R&D database (May 2002-2003). KPMG. 2003-2004.
Applied research
Experimental Development
Balanced approach, Primary focus on

Primary focus on
more on applied experimental
basic research
R&D development
. . . requiring a different R&D focus in terms of approach, time lines and funding
A review of R&D spend across countries suggests that while educational and
specialized research institutions focus more on basic research, government agencies
tend to focus more on basic and applied research. As a result, the approach to R&D is
often that of a process of discovery without strict time-bound funding plans.
R&D spend by the industry is focused on developing solutions to specific business
problems. The approach to R&D is hence more often project-based with specific
investment budgets and return expectations. This is because private sector companies
have to address the requirements of its shareholders who have invested in their
company.
The divergent nature of activities undertaken by the various players in the R&D area
requires them to coordinate their efforts so that they can leverage each other’s
capabilities and knowledge capital.

Across the globe,
– There is an increasing trend of reduction in the government’s contribution to

R&D activities.
– Greater reliance is being placed on the educational institutions, and all sectors
have expanded their participation in a variety of domestic and –
international partnerships both within and across sectors in order to pool
resources and leverage capabilities.
– The share of R&D activities by the private sector is witnessing a significant
rise.
World-wide the funding for R&D is increasingly being driven by

the industry and this is most likely to be off-shored due to its
specific nature . . .
Ratio of R&D spend by industry to government
2.0
1.0
0.0
US UK Turkey Singapore Israel India Germany China Canada Brazil
Source: UNDP –Development Indicators (2002). KPMG 2003 - 2004.
. . . off-shoring service provider countries like India should focus on aspects of R&D
which support experimental development
Globally, the R&D spend is increasingly being driven by industry / business houses
(upto the extent of 50–60 per cent).
This suggests that the nature of R&D spend would be more directed towards specific
product / service related attributes in the form of experimental development work,
could be affected by industry life-cycles and may be subject to specific performance /
productivity targets.
48
A review of historical patent filings suggests that India’s R&D
efforts have been prolific in some key areas . . .
Technology Cumulative patents

Technology description
Class (1995 –1999)
n Drug, Bio-affecting and Body-
Class 514 31
treating compositions
n Chemistry: Molecular Biology
Class 435 26
and Microbiology
n Drug, Bio-affecting and Body-
Class 424 25
treating compositions
n Organic compounds: part of the
Class 549 20
Class 532 – 570 series IT and Electronics
n Organic compounds: part of the For example:
Class 540 14
Class 532 – 570 series - VLSI design
n Catalyst, Solid Sorbent, or - Photonics
Class 502 10
Support: Product / Process - Robotics and AI
n Organic Compounds – Part of
Class 568 8
the Class 532-570 series
Class 326 n Electronic digital logic circuitry 7
Pharma & Biotech
For example:
n Synthetic Resins or Natural - Clinical research
Class 528 7
Rubbers –Class 520 series - Bio informatics
n Chemistry of Hydrocarbon - Gene sequencing
Class 585 7
compounds
n Plastic and Non-metallic Article
Class 264 6
Shaping and Treating: Process Engineering and Design
n Cleaning compositions for solid For example,
Class 510 6
surfaces and process to make - Materials research
n Organic Compounds – Part of - Stress testing methodologies
Class 536 5
the Class 532-570 series - Transportation systems
n Organic Compounds – Part of
Class 246 5
the Class 532-570 series
n Prosthesis, parts or Aids and
Class 623 5
Accessories
Total patents across above 15 classes 182 Source: US PTO (2000) KPMG. 2003.
Others 134
Total patents across technology classes 316
The past few years has witnessed an increase in R&D sourcing from India in the areas
of IT, Pharmaceuticals/Biotechnology and Engineering and Design Services.
In all, a total of 316 patents were filed from India in the period 1995-99 with a 132 of
them being in the 15 classes mentioned in the table above.
Over 50 patents were filed in the areas of molecular biology, micro-biology and drug,
bio-affecting and body-treating compositions.

. . . and India could leverage these strengths into specific
opportunities that promise growth . . .
Market potential Key skills required Illustrative
n Indian bio-informatics market

Bio- expected to exceed USD 2 bn by
technology n Molecular biology, DNA sequencing and RNA transcription
2008
n Molecular biology software packages and molecular modeling
/Bio- n Market for Indian biotech R&D
n Java, Unix, C, C++ and RDBMS like Oracle or Sybase
informatics products and services expected to
be USD 3 bn by 2010
n Embedded system tools such as Micro-controllers, DSPs, FPGAs

Embedded n R&D activity in India expected to go
n Design of embedded hardware and software
systems upto USD 1.5 bn by 2004-05
n Real-time programming skills
VLSI/chip n Basic electronics,digital electronics, micro-processor and micro-computer knowledge

n Expected to be a USD 808 mn
n VLSI design, circuit layout/design, verification and logic design
design industry in India by 2005
n Supporting tools such as Verilog,HDL,VHDL and FPGA
n Worldwide demand for information n Cryptography, AAA framework, software security and reliability, network security,
security services expected to reach secure operating systems, application security, design if security policies, disaster
Information
USD 23.6 bn by 2006. recovery, biometrics and security auditing
security n India market growing at CAGR of n Certified Information Systems Auditor (CISA) and Certified Information Systems
27-30 per cent Security Professional (CISSP)
Source: Press reports. IDC. NASSCOM. KPMG. 2003- 2004.
India’s strengths in the areas of IT, Pharmaceuticals/Biotechnology and Engineering and

Design Services can be leveraged to a large extent.
There are significant market opportunities in specific knowledge domains like
embedded systems and VLSI/chip design. For example, if India taps into the growing
demand for embedded software, R&D activity in India can go upto USD 1.5 bn by 2004-
05.
Similarly, Information Security is another area where companies require significant
R&D services in network security, cryptography etc.The Indian market is growing at a
rate of almost 30 per cent and is expected to develop even further.
50
(continued) . . . and India could leverage these strengths into
specific opportunities that promise growth . . .
Market potential Key skills required Illustrative
High- n PC hardware and software knowledge and troubleshooting

n Expected to be a USD 1.6 bn n Linux operating systems and administration, routing and network analysis
performance market in India by 2005 n C++, development tools and parallel programming
computing n Security administration and computer security forensics
n J2ME, wireless messaging API, Micro Java and MIME

n Worldwide demand for wireless
Wireless n C++ on pocket PC, Brew, Symbian
and mobile applications expected
applications n TCP/IP, HTTP, POP3, XML protocols
to be USD 37.4 bn by 2006
n Knowledge of various industry standards
n Chemistry, electrical engineering, materials, biophysics, physics and maths

Nano- n Global market expected to touch n Molecular electronics, nano-particle manufacture, quantum computers and scanning
technology USD 1 trillion over next 10 years probe microscopy
n Knowledge of semiconductor technologies, magnetic materials, nano-structured
materials, electronic and photonic devices
Digital n Fundamentals like convolution, DFT, FFT, Spectrum analysis etc.

n Global market expected to touch
signal n ‘C’ , C++ programming
USD 19 bn by 2004 n MATLAB and other tools for design and analysis of DSP algorithms
processing
Source: Press reports. IDC. NASSCOM. KPMG. 2003.
India has also made significant progress in the areas of high-performance computing
and wireless applications. These are expected to propel further growth in the IT
economy.
Nano-technology is an area that is increasingly receiving emphasis in the scientific
efforts of many countries.The reason being that it finds use in a number of products
and applications (consumer durables, medicine, semiconductors etc).
However, the key to converting the advantage to significant revenue potential in these
areas is to develop the requisite skilled manpower. Some of these specific skills
required in each area have been mentioned.

Going forward, R&D focus should be on those opportunities
that leverage India’s strengths to meet market requirements . . .
Illustrative
n Water resource
High n Nano-technology
management n Bio-informatics
n Micro-electronics and
n Energy efficiency and n Embedded systems and
photonics
management software
n Bio-technology and crop /
n GIS applications n VLSI and chip design
seed development
n Dairy products research
Benefits expected from R&D n Industrial applications such n Network communication-

n High performance and
as robotics,AI and wireline and wireless
advanced computing
- Economic benefit mechatronics n Information security
n Multilingual technologies
n Disaster forecasting and n Consumer electronics and
- Social benefit management
n Digital signal processing
capital equipment
- Environmental benefit
n Strategic and professional
electronics n Clinical drug trials
n Transportation technology n Auto component design
Low n Materials and components
Low India’s key strengths High
- Human resources
Potential areas for Indian R&D focus - Infrastructure
- Industry interface / exposure
Source: Industry interactions. Department of IT. KPMG. 2003-2004.
. . . these could be reviewed over specific intervals ( 2-3 years) in order to revise
and refine
Given India’s strengths in the form of availability of human resources, training

infrastructure and past experience / background as well as the potential for direct
benefit (economic as well as other) to India, we have identified an illustrative list of
opportunities towards which Indian R&D efforts could be directed.
Certain areas like bio-informatics, embedded systems and VLSI/chip design should be
immediately focused upon since they pose long-term benefits (to the economy,society
and environment). Moreover, India also has inherent strengths in terms of human
resources, infrastructure and industry exposure to realize these benefits.
Policy makers should also review these focus areas every 2-3 years in order to take
stock of the benefits accrued and progress made. New areas of development should be
studied and made part of the long-term agenda.
52
The current approach to attracting and deploying manpower for
high-end R&D has had some shortcomings . . .
Current low attraction of highly-qualified personnel

towards R&D . . .
n Low base of PhDs in R&D
- Total Ph.D.s (1996): 16,839
n Low enthusiasm of higher educated staff into R&D activities

- Sci. / Tech. graduate base (1996) in PhD: 8.2 per 10000
- Approximate Ph.D. candidates p.a. (2003): 5,000
- Share going into teaching / research: approx. 37 - 40 per cent
n Low growth in R&D staff . . . with little improvement in staffing mix for
- CAGR (1988 – 98) for total R&D staff: 0.7 per cent productivity in the last decade
- CAGR (1988 – 98) for core R&D staff: - 0.1 per cent
Total R&D personnel
1992: 0.29 million 1998: 0.31 million
32 per 31 per
cent cent
Core R&D staff Aux. support Admin. support
Source: Press reports. Institute of Applied Manpower Research. KPMG. 2003.
. . . increased presence of the private sector in R&D could drive more effective
manpower development and deployment
A review indicates that R&D activities in India did not attract the highly skilled
personnel. In comparison to the figure of 8.2 per 10,000 skilled personnel involved in
R&D activities in India, Singapore has a ratio of 56 per 10,000 skilled personnel in 1996.
A large proportion of R&D staff are not involved in R&D activities and instead end-up
supporting administrative functions.
While R&D activities in India in the past were primarily driven by government and
educational institutions, there is increasing participation of the private sector (Indian
companies and MNCs) in R&D activities. For example, out of the 50 research scientists
deployed by one of the leading multinational pharmaceutical companies at its R&D
center in Bangalore, 45 are Indian scientists who have returned back to the country
leaving similar overseas employment.
Many MNCs have started leveraging capabilities and competencies offered by Indian
educational institutions. The effect of such sourcing on the educational institutions has
been manifold - increased enthusiasm in conducting research in cutting edge areas,
renewed interest in R&D activities due to the economic benefits etc.
Going forward, the government could play the role of a facilitator as against the
principal initiator of R&D activities, to foster strength and interest of highly skilled
personnel in the R&D sector in India.

The new Science & Technology Policy (2003) has indicated
some potential steps towards meeting manpower requirements
for R&D . . .
n Providing curriculum changes, career progression options, fiscal incentives to enhance

Raising R&D
R&D aptitude and raise conversion factor from current 8 per cent (60 per cent in
interest
Singapore,16 per cent in South Africa)
Suggested actions for HRD for R&D
Attracting R&D n Providing lifestyle incentives to attract Science and Engineering graduates from other
staff of Indian countries (approx. 12.5 per cent of those in the US in 2000 were people of Indian
origin origin)
Attracting n Staff from industry and academia need to be rotated to support resource requirements
resources from
as well as benefit R&D productivity through increased exposure and part-time
industry /
academia involvement
Attracting n Need for special incentives / work culture to attract more women into R&D (only 11 per
women into cent of R&D staff are women although 20 – 25 per cent of Science & Engineering
R&D graduates are women)
Source: Ministry of HRD. Science & Technology Policy (2003). KPMG. 2003.
. . . but these need to be elaborated upon and implemented through a

comprehensive action plan
The government as identified policy initiatives related to improving interest in the R&D
area but these need to be supported by specific actions related to funding,
infrastructure / institutional support and monitoring mechanisms.
For example, the current process of plan / non-plan funding may not be relevant in the
context of R&D investments and could be changed based on practices in other
countries.
Finland uses the concept of Centers of Excellence, where funding for research as well
as research related training is provided as a unit for a period of six years.
In Germany, the 16 public, non-university labs were re-organized under the common
Helmholtz Association and funding was provided based on ex-ante review on a
program / project basis.
Recommendations on specific actions required are provided separately in detail (ToR
VIII).
54
The US provides a good case study of successfully promoting
R&D through a mix of policy, investments and infrastructure
initiatives . . .
Case study: R&D in US
The US’ success in R&D . . .
n 298 patents per million residents (1999)

n 2.7 per cent of GDP spent on R&D (1996 – . . . is based on an overall strategy encompassing HRD and other
2000) initiatives . . .
n 4,099 scientists and engineers in R&D per - Use of federal body to co-ordinate and balance R&D efforts, funding
million people (1996 – 2000) Policy - Balancing market forces against social considerations (i.e. reliance on
initiatives research institution rankings) for R&D resource allocation
- Streamlining of funding administration through co-operation and
Note: Corresponding figures for India were: simplification (Federal Demonstration Partnership)
1 patent per million residents
1.2 per cent of GDP on R&D - Investments in ‘education centers’, ‘centers of excellence’ and ‘quality
157 scientists / engineers in R&D per million people Infrastructure of life’ related facilities to attract R&D resources from across the world
initiatives - Support and encouragement to corporate philanthropy to fund
research (e.g. Carnegie, Hewlett and Gates Foundations)
- Invested in intermediate research funding level (funding to fund R&D)
- Attracting greater proportion of graduates to R&D by marking grant /
HRD scholarship levels against alternative employment prospects
initiatives - Use of professional networks to increase awareness and guide
enrolment across the K-12 level based on future R&D requirements
- No mandatory age for retirement of academics (and hence R&D staff)
Industry / - Industry role in R&D much greater than government involvement

Academia - Most of government investment in R&D channeled through University-
involvement based R&D
- Rotation of staff to ensure strong relevance of R&D on industry and
global economic requirements and constraints
Source: UNDP-HRD. OECD Case Studies. KPMG. 2003.
The US has been extremely successful in its approach to R&D, driven by a mix of
policy, infrastructure and development initiatives. It is a benchmark model that India
should follow in order to develop a successful R&D programme.
The entire system is well organized to promote regular interaction between the
government bodies, industry as well as universities. As a matter of fact, some of the
best research endeavours in the US take place in the universities through privately
funded programmes.
Scientists and faculty get tremendous exposure to the latest technologies and initiatives
by interacting with peers from other universities as well as countries. Students get
good scholarships to pursue research activities. At the same time, private firms take
them in on projects and provide the necessary exposure and training.

The PITAC* chartered by the U.S Congress is one of the many
initiatives in place to drive future R&D activities in the US . . .
Case study: R&D in US
Objectives of PITAC Defining National

Defining the Recommendations of
Setting up an Expert Challenges and
Government’s role in Committee to the
Committee Transformations
R&D Government
required
– A Committee represented by – R&D activity to be based – Defining the areas where the – The recommendations were
n To provide the President and the Federal eminent scientists, upon top issues faced by the government will provide related to:
academicians and industry country and people support to IT R&D activity – Amount of government
agencies involved in information technology
professionals – Identification of needs, the based on Phase 2 results funding required for
research and development (IT R&D) with – The objectives of the challenges faced, and the – Defining the areas that the focus areas of R&D
Committee are to benefits to the society will Government will not – Channelization of
expert, independent advice on maintaining
recommend key focus areas determine the key focus undertake and leave to funding-based on Phase
America's preeminence in advanced and funding necessities and areas of technology industry players 2 and Phase 3 results
to provide an external – Completeness of R&D
information technologies
perspective rather than an portfolio
internal resource based
perspective
n To focus on critical elements of the national
infrastructure as high performance computing,
large-scale networking, and high assurance Areas of Focus recommended by PITAC
software and systems design
Scalable
High-end Socio-economic
n To review the Federal Networking and IT Software Information
Computing research
Structure
R&D program
§ Software § Network § Transformation
engineering Research § High-end of social
n To help guide the administration's efforts to § Component § Large Scale software institutions
Technologies systems and § Architectures § Governance
accelerate the development and adoption of
§ Human- applications § High-end § E-commerce
information technologies vital for American computer acquisitions research
prosperity in the 21st century interaction § Social and
§ Information economic
Management simulation and
modeling
* President’s Information Technology Advisory Committee
The PITAC is the advisory committee that guides state funding for new R&D
opportunities in the US. Its role is to guide the R&D activities of the various support
agencies in the area of IT R&D and provide the White House with strategic inputs on
focus areas for the future.
The committee on the PITAC is represented by a right balance of industry experts,
scientists and government officials.
The role of the committee is to identify the needs and challenges faced by the American
society, define the government’s role in solving these issues (while also identifying the
role of the private sector) and make recommendations on funding requirements for the
R&D areas that will resolve these challenges.
56
Other countries have taken specific, structured steps to
promote HRD for their planned R&D requirements . . .
Illustrative
HRD strategy for R&D Case examples
n Finland’s LUMA program (since 1996) has helped

Feeding the n Improve interest in R&D related
supply pipeline improve science / mathematical knowledge within
Overall agenda for R&D courses through: teaching fraternity at a national level by adding to
- Curriculum improvements teaching tools, materials and through free training
n Increasing / encouraging overall - Increasing supply of teachers
funding (public + private) for R&D - Increased funding for PhDs n Sweden, despite huge base of R&D staff has set
aside EUR 12 million to attract young researchers
n Putting available research funds to
n Attracting women and under- n The ATHENA project (UK) is addressing women’s
optimal use
represented minorities through: under-representation in higher edu. employment
n Directing research efforts into - Incentives n The US and Australia have systematically grown the
priority areas - Part-time options share of non-tenured, temporary staff in R&D
n Improving research capabilities n Attracting talent from abroad through: n In 2001. Sweden passed a law to alleviate tax
of institutions / industry - Educational centers of excellence burden on highly-skilled foreign workers upto 5 yrs.
- Administrative / Fiscal incentives n Australia is extending immigration opportunities to
n Developing evaluation structures
and processes for institutions, 2,500 Australia-educated overseas students
related to R&D
Adapting to n The US national academy has recommended
n Making best provisions for future meet resource n Increasing industry involvement in changes to PhD curriculum to facilitate employment
supply of quality researchers requirements Ph.D. training through:
n The NSERC in Canada encourages industry
- Curriculum changes
n Strengthening the international involvement through co-funding of fellowships
- Co-funding
R&D links
- Industry / academia involvement n Since 1990, Netherlands has supported special
Source: UNDP-HRD. OECD Best Practices. ‘graduate schools’ focused on high-quality research
KPMG. 2003.
Efficiency in n Improving public sector R&D

public sector n Most other countries have managed significant
efficiency through:
R&D private sector involvement and process automation
- Private sector partnerships
to ensure reduced administration costs
- Process / systems revamp
A review of specific efforts being made in other countries to develop and encourage
human resources in the knowledge space shows a structured approach involving
attracting more talent, driving curricular changes to meet employment requirements
and managing R&D activity more efficiently.
Some of the Scandinavian countries especially Sweden and Finland are forerunners in
R&D initiatives. Australia and Canada are also carrying out significant work in science
and technology.
Most of the efforts are directed towards curriculum improvements, better supply of
competent teachers, incentives to industry involvement and improving public sector
R&D efficiency.

Design of standards and common test for
ITeS skills based on industry requirements
This chapter discusses potential options to design and use a common test for ITeS
skills.
It also provides a case example of attempts at common tests for ITeS being tried out in
various states.
A centralized common test and certification for ITeS skills offers

a number of benefits for the ITeS industry . . .
Benefits of certification test for ITeS
n More effective hit ratios for recruitment and selection as compared to

Reduced
recruitment costs 2–5 : 100 as currently
n Lower time for recruitment screening with standard certification
Reduced training n Lower training time required for certified skill-sets at a common level,
costs leading to reduced trainer and other overhead costs
n Certified skills could be deployed faster into client service operations

Higher agent
productivity n Attrition rates could be higher given that agents would have invested in
training for ITeS as at least a mid -term career option
. . . however a completely common testing model may not be possible given

the diversity of skills required for the ITeS / IT sectors
Having a common test could benefit the ITeS / IT industry in terms of reduced
recruitment costs, reduced training costs and higher productivity brought about by the
process of specialized certification.
However, as discussed, different functions within ITeS / IT may lay greater stress on
specific skills and qualifications, thereby making a common test difficult to develop and
administer.
In this context, it is better to consider a common test for necessary skills as a pre-
certification for employment. The test could also be used to identify specific training
requirements or even counseling against entry into ITeS / IT.
58
High-level estimates suggest that a pre-certification of core
skills could save as much as 19-23 per cent of relevant costs . . .
Illustrative
Savings in agent recruitment costs Savings in agent training costs for

for ITeS company ITeS company
INR / agent INR / agent
Current 11,250 Current 6,400

estimates estimates
Revised Revised
8,700 5,200
estimates estimates
23 per cent 19 per cent

reduction reduction
Key assumptions:
1. Costs shown as loaded cost for an ITeS company for a 500 agent call center company in Delhi / Gurgaon with
growth estimates of 30 per cent and targeted attrition of 30 per cent
2. Recruitment channel costs assumed to be INR7,000 (1 month salary at agent level)
3. Recruitment executive and trainer costs assumed as INR 17,000 – 20,000 per month
4. Overhead costs associated with executives assumed as 2 – 3 x salary costs
5. Standard training time assumed as 40 hours for voice/accent, 40 hours for soft skills under a class size of 10 - 15
Source: Industry interactions. KPMG. 2003-2004.
. . . this is in addition to benefits associated with higher employee productivity

as mentioned
High-level estimates suggest that an ITeS / IT could save as much as 19–23 per cent of
relevant costs associated with recruitment and training through the use of a common,
certification test that could be used as a pre-screening tool for potential applicants.
While training costs for an ITeS company could come down from INR 6400 to INR 5200,
recruitment costs could come down from an average of INR 11250 to INR 8700.
The assumptions for these calculations have been stated in the exhibit above.

The ITeS industry has already identified alternative certification
for domain-specific skills . . .
Examples: Resourcing for high-end ITeS in India
- Use of Microsoft Certified E.g.:

MCSE / CCNE Software Engineers and Cisco - IT help-desk
certified IT staff
‘Proxy’ filters used for high-end work
Certified Network Engineers for IT - Network equipment support

help-desk requirements - Application support
Doctors / - Use of qualified doctors /

pharmacists for transcription E.g.:
Genetic
- Special coding for claims adjudication
Engineers - Use of genetic engineers / PhDs
- Genetic research
for research support
- Use of ICAI certified chartered

Chartered E.g.:
accountants for back-end
Accountants accounting and financial - Finance processing and Accounting
- Tax preparation and Accounting
statement / tax preparations
Masters in - Use of second-tier MBA E.g.:

Business graduates for back-end research, - IPR filings
Administration economic research, presentation - Macro-economic research
preparation and special filings - Equity research
Source: Press reports. Industry interactions. KPMG. 2003-2004.
. . . but lacks a common certification for the basic skills requirement
Companies in the ITeS industry have been able to use alternative certification from
specialized post-graduate courses in lieu of their requirements for domain-specific
testing.
For example, the ITeS industry is employing qualified chartered accountants for back-
end accounting operations as well financial statement preparation and analysis.
However, the industry lacks a common certification for the basic skills requirement and
ends up spending an additional amount related to screening and training.
60
Components of the common testing system could be modeled
upon some existing standard and proven testing methods . . . Illustrative
Ease of Standard tests on which specific
Nature of testing
testing components could be modeled
Language Skills
Spoken English n Will measure fluency, clarity, quality of speech and intonations
n Tests such as theTOEFL® (Test of English
Written English n Will measure fluency, vocabulary, sentence construction as a Foreign Language), TSE® (Test of
Foreign Languages n Ability to speak and write foreign languages Spoken English), IELTS® (International
English Language Testing)
Accent Understanding n Ability to comprehend and respond to various accents
Basic
Analytical Skills
skills
Logical reasoning n Objective reasoning type of items consisting of numerical ability n Aptitude tests such as the DAT ®
problems, syllogisms, analogies, logic games etc. (Differential Aptitude Test)
Problem Solving / Num. ability
n Assessment of creative pursuits and review of performance under n Objective tests for these skills such as The
Comprehension / Creativity specific problems Guilford Creativity Test ®
Computer proficiency
n On-line practice test involving speed of response, accuracy and PC
Keyboard skills / Browsing etc. applications usage n Standard computer typing tests
Technical / programming skills n Structured paper tests for problem-solving, syntax/structure etc. n Standard programming problems tests
Customer Service Orientation

Listening / empathy
Initiative/Enthusiasm n Behavioral skills are best measured using
n Can be measured using situational, simulated exercises
Team Player simulation exercises.
Candidate Multitasking / Time management

profile
Behavioral traits
Assertiveness and Confidence
n Standard personality measures such as the
Integrity / values and discipline
n Will consist of standard personality measurement type items 16PF, MBTI (Myers -Brigg Type Indicator),
Motivation / Drive
EPQ ® (Eysenck Personality Questionnaire)
Sociability / Dependability /
Reliability
Note: Source: Industry / Academia interactions. KPMG. 2003-2004.
Easy to test
Testing possible under constraints
Difficult to test
Some of the common skills necessary for ITeS could be tested using a mix of questions /
situations and these could be modeled upon existing standard / proven testing methods.
For example, the TOEFL (Test of English as a Foreign Language) and TSE (Test of Spoken
English) have become internationally recognized and accepted as tests for fluency,
vocabulary and comprehension in English. The common test for ITeS could be modeled
upon the testing philosophy and approach of these examinations.
Various existing common entrance tests (Management Entrance, Clerks’ Entrance, IAS,
CAT etc.) could also be used to design the test, along with inputs from industry
practitioners in the non-formal ITeS / IT training system (e.g. Aptech, NIIT).

The common test for ITeS should be designed to meet the basic
skills requirement of the industry . . .
Indian ITeS Certification Test (IICT) ITeS Domain Tests (ITDT)
n Objective measure in various key domain areas

n Objective measure of the candidates aptitude
n Paper pencil tests that will be developed into a
Nature of test (inherent abilities) and not educational achievement.
computer adaptive pattern over the next two years
and delivery n Computer adaptive test pattern providing a
n Students can take as many domain specific test as
Overall philosophy for ITeS test design
consolidated score on each section

desired
n Will be available for administration at authorized n Paper pencil tests will be available for
Frequency of testing centers around the country administration over six months. Testing agency may
administration n Can be accessed and taken during specific periods tie up with educational institutions to use their
during a month / quarter infrastructure to conduct large scale group testing
n Score will be valid for a period of six months as

industry standards and requirements are fast n Score will be valid for a longer period, of 10 - 12
Period of validity
changing and the test will be required to be months
of scores
constantly revalidated n Once employed, the test need not be taken again.
n Once employed, the test need not be taken again.
n Standardization and norming processes must be

n Standardization and norming processes must be
well established
Standardization well established
n Score reports will provide individuals score along
and Norming n Test content must be created with inputs from the
with a comparative percentile rank for the last six
industry in terms of content and proficiency levels
months.
Source: Industry / Academia interactions. KPMG. 2003 - 2004.
The overall philosophy of designing the common test involves an understanding of

how the test would be administered, the frequency of administration, period of validity
for the scores and standardization / norming processes to be adopted.
The Indian ITeS Certification Test (IICT) would be a computer adaptive pattern test that
measures the aptitude of candidates. Details of the employment of the test have been
illustrated above.
Testing for domain-specific skills would require a separate set-up. These could be called
ITeS Domain Tests (ITDT), and could be better managed by individual business-specific
tests, depending on their specific function requirements. Details of the employment of
the test have been illustrated above.
62
A hybrid model with a base-level common testing and
certification supported by company-specific requirements is
more suitable . . . Illustrative
Indian ITeS Certification Test (IICT) Company-specific tests
ITeS Domain Test (IDT)

L1: Basic Skills L2: Candidate
n Language skills Profile n Structured interviews
n Domain specific testing
n Analytical skills n Customer service n Problem-solving (paper-pencil)
related to, for example:
n Computer orientation tests
- Finance / Accounting /
proficiency n Basic personality n Situational tests / workshops
Insurance
- Pharma / Healthcare
- Design
- HR
Certified - Legal
Employable at L1
ITeS training
Certified Trainable
at L1
n Training for ITeS skills under
formal or non-formal systems
Certified Non-
Trainable at L1
Denotes required test
Note: IICT and even IDT would be common tests under a body that is Denotes optional test
recognized by the government and accepted by the industry
Source: Industry-academia interactions. Department of IT. KPMG. 2003-2004.
A common test in the form of the ‘Indian ITeS Certification Test‘ (IICT) could help certify
basic skill levels required for ITeS (L1), related to language capabilities, analytical
abilities and computer proficiency as well as candidate profile characteristics (L2) such
as orientation for customer service and basic personality traits.
The certification mechanism could even classify applicants based on performance on

each of the parameters chosen as employable, trainable or non-trainable.
Personnel with L1 certification as employable could join the industry directly or after
undergoing L2 and IDT certifications if required specifically by employers.
Personnel with L1 certification as trainable would undergo training at their own or

company-sponsored expense before they are deployed into ITeS.
Personnel with L1 certification as non-trainable could be counseled against applying for

ITeS jobs and seek alternative opportunities.

Results of the test could categorize potential applicants into
specific categories to also identify training requirements . . .
Illustrative
n Those scoring above pre-determined score in L1 test could

Employable: be certified as employable under the IICT
n These personnel can appear for L2 test, if required and could
also apply to specific companies with their certificates and
may / may not have to undergo the domain-specific test
Scoring System (for L1 under IICT) (IDT), depending on employer preferences
n Those scoring above the minimum requirements but less

Trainable: than the pre-determined score could be signaled as
‘trainable’ for ITeS
n These personnel may not be eligible for L2 test until they
Non-Trainable Trainable Employable
are certified as ‘employable’ under L1 but may be hired by
0 Score Range 100 companies willing to invest in their training
Non-trainable: n Those scoring below the minimum requirements may be

signaled as ‘non -trainable’ for ITeS
n These personnel may not appear for L2 certification test and
may be counseled against an ITeS career without first
improving upon basic skills required
Source: Industry / Academia interactions. KPMG. 2003-2004.
Categorization of Employable / Trainable / Non-trainable categories could be based on a

normalized score with agreed cut-offs that may be tuned based on industry demands.
Those that are ‘Employable’ may not necessarily have to appear for the ITDT. However,
that would be determined by the specific requirements of the companies. They can
further enhance their employability by taking the L2 test as well.
Those in the ‘Trainable’ category would need to clear the L1 test and become
‘Employable’ before they can be considered eligible for the L2 test. However, in some
cases, where companies have large training budgets, they may even get hired.
‘Non-trainable’ people would need to review their basic skills before considering ITeS
as a feasible career option. A strong counseling system would need to be in place in
order to guide such people.
Thus, this system would ensure quality control for the industry when it comes to
recruitment.
64
The state of Andhra Pradesh is experimenting with such
centralized testing and certification under its Graduate
Employability Test (‘GET’) . . . Case study: Andhra Pradesh
n The state government instituted the GET / IITeST as an ‘employability test’ following an 11 -week
training program related to voice skills
Policy and legal
n The course content has been designed by various non-formal, private-sector education service
framework
providers in association with Linguaphone (UK) and Monster.com (India)
n The test is not mandatory and the scores are shared with leading ITeS companies in the state
Funding and
n The GET / IITeST is subsidized by the state government to the extent of 50 per cent and applicants
budgetary
allocation need to pay a fee of only INR 100 for each administration
Infrastructure
n The GET / IITeST is administered on-line, at facilities of various training and testing partners of the
and institutional
set-up state government (e.g. NIIT, Aptech, Hero MindMine)
n The state government has identified the APSCHE (State Council for Higher Education) as
Monitoring responsible for execution of the GET / IITeST and uses its own marketing body (APFIRST) to
systems generate awareness about the test
The Government of Andhra Pradesh has already initiated pilots to review and certify
specific skills for the ITeS industry and has reported some success.
It has introduced a Graduate Employability Test that specifically caters to certification

for the ITeS / IT industry. It is administered online and is offered at various training and
testing centers.
Learning from the experiment could be used to drive the roll-out of a nation-wide
certification test as planned.

. . as is the Government of Karnataka with its BPO Skills
Assessment Test (BSAT) . . .
Case study: Karnataka
n The BSAT measures generic skills related to verbal, numerical and analytical abilities in addition to
Policy and legal
communication skills (written and oral) as well as key-board skills
framework
n The test is not mandatory and the scores are shared with ITeS companies, if desired by applicant
Funding and
n The total cost for the test is INR 200 and the ‘Board for IT Education Standards’ (BITES) contributes
budgetary
allocation around INR 100 for every eligible candidate, providing a 50 per cent benefit
Infrastructure
n The BSAT is administered through an identified third-party service provider (MeriTrac) as an on-line
and institutional
set-up test at facilities of other non-formal, private-sector education service providers
n The BSAT is administered by the BITES, registered under the state government as a non-profit
Monitoring
society, in co-operation with the local IT industry and other educational institutions
systems
n MeriTrac, an independent local firm, has been identified as the assessment partner for the BSAT
The Government of Karnataka has introduced an aptitude test called the BPO-SAT or
BSAT to measure verbal and analytical skills.
A private company has assisted the government in designing the test and is also
helping out in the assessment of candidates.
However, currently the test is not mandatory and the scores are only revealed to ITeS
companies if the candidate desires so at the time of application.
While being a good source of revenue to the government, it also provides the
necessary confidence to companies at the time of recruitment.
66
Measures for optimizing deployment of
non-IT personnel in ITeS and R&D
This chapter highlights the potential resource available in the form of non-IT / non-
employed personnel. It also looks at the possible actions required to attract and deploy
these personnel into ITeS / IT.
Non-IT personnel represent a significant proportion of India’s

resource pool . . .
Manpower profile of graduate employees in India (2001–02)
(000s)
2,500 2,356 Of total annual
graduate output 35
per cent is non-
employed Of total annual graduate
2,000 825 output 58 per cent is in non-
IT work and some of these
could be attracted based on
91 demands in the other sectors
1,500 36 32
1,000
1,372
500
0
Annual Graduate Graduates not Engineers Other Engineers Other Graduates Graduates in the
output participating in the (Deg./Dip.) in IT entering into IT entering into IT work-force in non-
work-force IT areas
Source: Institute of Applied Manpower Research (2002). Press reports. NASSCOM. KPMG. 2003–2004.
. . . these could potentially be trained for and attracted into the ITeS and R&D
occupations
As much as 93 per cent of annual graduates in India prefer to join non-IT related work
or prefer to be non-employed (i.e. opt out of work-force participation due to social or
other factors).
For example, in 2002, out of the total 2.4 million graduates, 0.9 million opted out of the
work-force (higher share for women as compared to men) while around 1.4 million
joined non-IT jobs.

Personnel entering the work-force have a number of potential
employment options based on their qualifications . . .
Illustrative
n B.A. n Journalism, Market Research, Social work, Administration, Sales, Airline Services
Graduation
n B.Sc. n Market Research, Social work, Administration, Sales, Airline Ser vices, Med. Reps.
n B.Com. n Sales, Accounting & Book-keeping, Airline Services
n LLB. n Legal research, Corporate law, Administration, Practicing law
n B.Ed. n Teaching, Social work
n B.Pharm. n Clinical research, Medical Representatives, Chemists
n B.E. / B.Tech. / B.Arch. n IT, Product testing / design, R&D, Sales
n B.M.M. (Mass Media) n Journalism, Advertising, Digital Content, Market Research
n B.C.A. (Comp Appln) n IT
n Armed Force (Officers) n Teaching, Social work, Administration / Security services
Post-graduate n Finance / Banking - Function specific role (officer / supervisor / executive)

Diploma /
n HR - Function specific role (officer / supervisor / executive)
Courses
n Travel & Tourism - Function specific role (officer / supervisor / executive)
n Design - Function specific role (officer / supervisor / executive)
n Hotel Mgmt / Catering - Function specific role (officer / supervisor / executive)
n Sales & Marketing - Function specific role (officer / supervisor / executive)
n Secretarial - Function specific role (officer / supervisor / executive)
n ICWA - Function specific role (officer / supervisor / executive)
n CA - Function specific role (officer / supervisor / executive)
Post- n M.A./ M.Sc./ M.Comm. n High-end expert role in specific area (e.g. VLSI design, Library services)
graduation /
n M.B.A. n Managerial / Advisory role (e.g. HR, Operations, Finance. Strategy)
Masters
n PhD. / Doctorate n Expert role and R&D work in specific area (e.g. Bio-informatics)
Source: Press reports. Interaction with industry and academia. KPMG. 2003-2004.
Graduates preferring to join non-IT work have a number of options available to them,
based on their specific background. This has been highlighted in the table above.
Specialized post-graduate diploma courses narrow down the employment options to
some preferred sectors. For example, a Ph.D. or Doctorate course necessitates
employment as an expert in a very specific area. At the same time, a course like B.Com.
(graduation in commerce) opens up careers in sales, accounting and book-keeping,
equity research and analysis etc.
68
Graduates have specific opportunities in the ITeS/ IT sector . . .
Illustrative
Data entry / Back-office Corporate support Knowledge services and R&D and Development
processing Customer contact support functions Decision support
Data Data Doc. Cust. Mktg and Search and Decision Consult. IT and BioChem Engg.
entry Proc. Mgmt. services Collectn sales HR Finance IT analyses support and advise Electr. / Pharma Design
B.A. üü üü üü üü üü üü üü üü ü ü ü
B.Sc. üü üü üü üü üü ü ü ü ü ü
B.Com. üü üü üü ü ü ü üü üü ü
LLB. üü üü üü ü
B.Ed. üü üü üü üü ü
B.Pharm. üü üü üü ü
B.E. / B.Tech. / B.Arch. üü üü ü üü
B.M.M. (Mass Media) üü üü üü üü üü ü
B.C.A. (Comp Appln) üü üü üü üü ü
Armed Force (Officers) üü üü üü ü
Finance / Banking üü üü üü üü
HR üü üü üü ü ü
Travel & Tourism üü üü üü
Design üü
Hotel Mgmt / Catering üü üü üü ü
Sales & Marketing üü üü üü ü
Secretarial üü üü üü
ICWA üü üü
CA üü üü üü
M.A. / M.Sc. /
üü üü üü üü üü üü üü üü üü
M.Comm.
M.B.A. üü üü üü
Ph.D. / Doctorate üü üü üü üü üü
Note: Source: Press reports. Interaction with industry and academia. KPMG. 2003 - 2004.
üü Direct fit with requirements
ü Fit into requirements with some specific training / some stretch
Even within ITeS / IT industry, based on the nature of work required and empirical
evidence of current practices, some qualifications may be better suited for specific roles
/ functions.
For example, the nature of training for a graduation in education (Bachelor of Education
- B.Ed.) enables the person to be better equipped for customer contact support services
as compared to a graduation in Commerce (Bachelor of Commerce - B.Comm.), which
may be better suited for data entry and processing work.
Also, specific qualifications such as Chartered Accountancy could enable a person to be
in a better position to support knowledge services related to data modeling and
advisory services.

In addition, there is a large base of people not participating in
the labor force directly (i.e. prefer to be non-employed) . . .
Non-employed segments of educated personnel
Higher n Around 7 – 10 per cent of graduates each year opt out of the labor
education force and continue to study post-graduate / other doctoral courses
aspirants (another 0.1 per cent go abroad to study)
n Only 25 – 30 per cent of women graduates in India (compared to 80 –

Women 85 per cent men) participate in the workforce, very often due to family
reasons (marriage / social pressures)
n Personnel with physical disabilities (60 – 75 million) either rely on

Handicapped
government subsidized employment opportunities or drop out of labor
people
force due to lack of industry / social support for pursuit of employment
n Retired people and people with short-term employment / short-service

Retirees
commissions often find it difficult to get re-employed in other sectors
Source: IndianNGOs.com. Institute of Applied Manpower Research. KPMG. 2003.
Over the years there has been a large base of ‘non-employed’ people, some of which
may be interested in re-entering the work-force but may find it difficult to do so due to
lack of awareness of opportunities or the capabilities required.
A large portion of this base includes women who complete graduation but opt out of
work-force participation.
Others include handicapped staff, early retirees (especially given the increasing
adoption of Voluntary Retirement Scheme – VRS – in most large businesses) and those
who opt to continue education.
70
The choice of ITeS / R&D as a profession by these groups of
personnel will be driven by their understanding of specific
benefits and issues . . .
Illustrative
n ITeS employment offers 20 – 50 per cent
Financial n Personnel have often identified late night
more salaries, including other benefits Shift working
benefits and inconsistent shift working as the
related to transportation / food, as
primary reason for leaving the industry
compared to other employment options
Issues related to working in ITeS

Benefits of working in ITeS
Training and n Increasingly, agents are found to be

n ITeS employment involves significant Work -related
skills complaining of food / digestion and sleep
domain specific training as well as soft stress
development problems, associated with work-related
skills and voice training opportunities
stress
n The workplace in most ITeS businesses is n Majority of the work in ITeS involves
Work
more ergonomically designed as compared Monotony rigorous and often monotonous work with
environment
to other occupations and offers an high repetition, which may lead to loss of
environment and culture of fun and youth interest
n The prominent ITeS companies in India Career n The nature of the operations and need for
Global
include MNCs or large Indian set-ups and progression high agent base implies that the
exposure
employment offers a global exposure challenges competition for career advancement within
including internal rotation opportunities the organization is very intense
Source: KPMG. 2003.
. . . however, the issues related to ITeS employment exist in other occupations

(like nursing / airline services, sales, secretarial work, production) as well
ITeS/ IT as a profession offers some specific benefits and issues which could drive the
choice of employment amongst the potential employee base.
While ITeS / IT in general offers greater financial benefits in addition to development

and growth opportunities, they may involve shift-working and monotonous work.
However, these depend on the specific nature of the service provided and the specific
HRD policy of the company related to job rotation / promotions.
It must, however, be noted that a number of issues related to ITeS are common to other
professions like airline services (monotonous), secretarial work (work-related stress)
and nursing (night-shifts) and proper counseling could help attract these segments.

Attracting personnel from these groups of personnel into ITeS
will require a structured approach . . .
Illustrative
Positioning Attracting Retaining
Graduates n Generating awareness as a n Better structuring of benefits n Simultaneous higher education
(employed / non- n Specialized and on-the-job affiliations with partial fee
preferred occupation, through:
employed) training opportunities support (upto 50 –70 per cent)
- Career fair representation
n Possibility of foreign travel n Cross functional training (Sales,
- Pointed news articles
related to process migration, Operations, HR, Quality) and
- Youth oriented advertising training or exchange programs career progression options
n Generating awareness about n Greater control over work-place n Simplicity in exit / re-entry into
Housewives
flexibility in ITeS, through: and work-timing with additional ITeS occupation through
- Social group workshops facilities related to child care sharing of background records
- Articles in women’s mags. n Special concessions related to and employment history under
- TV advertising family support a central database
Handicapped / n Awareness drives and n Provision of special workplace n Flexibility in minimum working
Disabled discussion on skills required for related facilities (ramps / hour requirements
ITeS, through: elevators / medical support ) as n Subsidies and support related
- Rehabilitation / support well as work operation to extended leave under
center workshops concessions (frequent breaks) medical considerations
n Awareness drives and n Describing (during interactions),

Teachers n Foreign travel opportunity
presentation on skills required, the overall workplace
n Career progressions options
through: environment (culture, flexi-time,
including foreign placements
- Presentations in schools youth) as well as financial
for teaching
- Teachers’ fora benefits (salary, other support)
Professional / n Providing salaries comparable /

Technical n Positioning based on n Interactions with global client /
exceeding those in other
personnel opportunities for challenging peer group
domestic professions
work and recognition with n Job rotation and content
n Defining career growth path
world-class working facilities enrichment
options
Source: KPMG. 2003 - 2004.
Specific actions would be required to position ITeS as a favorable employment option,

attract the right kind of talent and retain selected staff from across the different target
categories.
This may require changes in policy and incentives provided to relevant companies,
infrastructure made available and a monitoring mechanism to review success of
companies with these categories.
For example, to attract housewives into the workforce, especially for ITeS, there needs
to be an awareness drive managed through the relevant channels such as social groups
and TV advertising, This must be supported by specific incentives related to flexi-time
and availability of day-care / creches to meet the specific requirements of this category
of potential employees.
Similarly, special efforts are required to attract high-end professionals such as actuaries,
trained lawyers, management graduates and Ph.D.s for specific high-end support work
required.
72
Some companies in India that have experimented with such an
approach are already realizing its benefits . . .
Case studies: Attracting non-IT personnel into ITeS
Typical benefits to organization

Attracting ‘non-
III party service provider in NCR VC-funded III party outfit in Mumbai n Ability to leverage past experience
employed’
n Developed relations with resettlement n Action plan to hire handicapped and retired and maturity which reflects in
people into ITeS
/ R&D boards of the Army and Air Force to recruit people higher productivity and end-
retiring personnel n Facilities and equipments to meet special customer empathy
n Employs retired school teachers and requirements of these employee groups n Realistic salary and growth
housewives as agents / support staff n Developing plan to attract housewives for expectations for personnel
n Planning to employ handicapped personnel morning / afternoon half-shifts employed
Attracting
BPO subsidiary of an IT services company High-end BPO company in NCR n Ability to leverage qualifications
highly qualified
n Employs a number of Chartered n Employs over 180 MBAs from India as and certification to meet
staff into ITeS /
R&D Accountants / ICWA certified staff for well as abroad to support economic / regulatory as well as work related
support with tax preparation / filing and business research services requirements at lower costs,
account preparation related work n Also hiring specialized skills to support IPR without additional training
filing and other legal documentation
services
Attracting high- BPO division of one of the leading IT One of the largest captive BPOs n Ability to attract right profile of
end PhDs into companies n Employs scientists and doctoral staff in people at lower costs by offering
ITeS / R&D n Employs 10 – 15 Ph.D.s in microbiology / the John F Welch technology center to access to global knowledge base
bio-technology to support research focus on R&D support services for group and emerging opportunities
requests from clients companies world-wide, in the areas of n Greater loyalty by personnel due
n Plans to expand this team to build a materials, heavy engineering and to lack of adequate alternative
‘Knowledge Center’ in India with a electronics / medical systems employment options
database on R&D in biology
Source: Press reports. KPMG. 2003-2004.
. . . efforts must be made to broad-base these through government support
Many companies in India have begun utilizing the resource pool mentioned earlier and
are slowly bringing about changes in their hiring policies. Some of these companies
and their hiring initiatives have been illustrated above.
The biggest advantage for companies that have offered employment to some of these
categories include higher loyalty of employees at a relatively lower salary cost.
Some companies have even been able to leverage past skills and experience to
enhance the overall service delivery under ITeS / IT.

Efforts being considered in other countries suggest action steps
for the government and other related bodies in India to attract
non-IT personnel into ITeS / R&D . . . Illustrative
Driving
n The US and UK have long been practicing employment- n Counseling at the graduate level on employment
preference to be
conditional benefits under which specific benefits (tax credit, benefits
employed
subsidies, access to social support facilities) are made available n Implementing fiscal incentives / disincentives to
to individuals / families that are gainfully employed drive employment-seeking (esp. women)
Driving
n France and Netherlands have encouraged personnel to develop n Highlighting typical skills requirements for
appropriate
higher skills through reduction in employers’ contribution various employment options
skill-ing
towards social security (pension) for low-end jobs n Co-financed educational schemes in association
n Austria provides corp. tax deduction for specific training invstmt. with industry/pvt training centers (upto 70 percent)
Driving
n Countries like Ireland direct 0.5 per cent of GDP and approx.50 n Mandating special reservations / providing
employer
per cent of spending towards labor market development specific subsidies related to employment of
preferences
towards targeted employment subsidies (of which 33 per cent under-represented groups
is related to employment in the private sector)
Enabling n The US and Canada have combined job-search assistance within n Working with industry to redesign labor laws,
employment training and financial incentives to re-deploy sections of the workplace standards to attract specific groups
labor force into specific occupations n Co-ordinating efforts by industry to attract non-
n Significant spending on vocational rehab. for disabled personnel conventional talent into ITeS through seminars
Special
n Germany and Netherlands introduced special laws in 2001, to n Implementing special requirements in
situation
allow greater control over working hours for part-time conjunction with the ITeS industry (e.g. flexi-
support
employment options hours) as well as independently
Source: OECD Employment Outlook. KPMG. 2003.
Best practice efforts by some OECD countries related to attracting resources to specific
employment opportunities suggest that there needs to be a stronger push from the
industry side as well as the potential applicant’s side.
For example, in the US and Canada job search assistance within training and financial
incentives have been combined to re-deploy sections of the labour force into specific
occupations. Similarly, in Germany and Netherlands special laws have been introduced
to allow greater control over working hours for part-time employment options.
Thus, in India, efforts could be made in the areas of policy as well as funding and
infrastructure, in order to attract non-IT persons into ITeS / IT employment.
74
Fiscal policy measures to maximize private
sector participation in HRD for ITeS / IT
This chapter reviews the direct / indirect incentives available within the Indian context.
It also looks at possible changes based on practices in other countries to encourage
private sector participation and individual preference for higher education related to
ITeS / IT.
There are already a number of fiscal incentives in place related

to support for HRD in ITeS / IT . . .
n Tax rebates for expenses towards children’s education
n Shops and Establishment Act has been liberalized to allow for around the clock functioning
(subject to certain conditions being met)
n Commercial training or coaching provided by certain computer coaching / training centers

are currently exempt under service tax regulations
n Certain exemptions from Customs to computers and peripherals donated to educational

and research institutions by units under 100 per cent EoUs, STP, EPZs
n Certain exemptions from Customs for research equipment imported by public-funded and
non-commercial research and academic institutions
Note: List of incentives / concessions Source: Government of India. KPMG. 2003-2004.

mentioned is indicative not exhaustive.
A number of fiscal incentives are in place related to labor laws, income tax benefits and
location preferences. However, most of these are relevant at the institutional / company
level rather than individual.
As a result, there is a lack of individual interest and inclination towards spending
towards higher education / vocational training.
The example of the housing finance industry suggest how tax breaks on housing loan
repayments led to massive growth in the housing finance industry – a similar elasticity
could be expected if educational expenses including expense on vocational courses
were to be given tax breaks.

A review of OECD countries shows how policy is designed to
make investment in tertiary education more attractive . . .
IRR for choice of higher

education, per cent United States United Kingdom Canada
Industry appreciation of skills Earnings

18.9 18.1 8.4
gained increase
Tax on additional income Taxes 2.3 2.1 0.5
Application lifetime of skills Unemployment

0.9 1.6 1.3
gained risk
Cost of higher education Tuition fees 4.7 2.7 2.3
Government / Industry funding Funding

2.1 3.6 1.8
support for higher education support
Comprehensive
benefit 14.9 18.5 8.7
Commercial lending rates 1.3 5.1 5.8
Note: Source: OECD Economic Studies (2002). KPMG. 2003-2004.

n Methodology
Costs involved with higher education include:
= Tuition fees + Foregone post -tax earnings (adj. for employment prob.) - Resources through grants / loans
Benefits from higher education include:
= Post-tax earnings (adj. for employment probability) - Repayment associated with public-support grant / loans
n Assumptions
Full-time employment with no income during study; Course drop -out not considered
. . . different countries have used different mechanisms to ensure that higher

education remains an attractive choice for people
If we were to consider countries with a similarity of approach to education as in India

(i.e. the US, UK and Canada), analyses by the OECD indicates that higher education
leads to cash flows with a positive IRR, greater than the real interest rates (e.g.
commercial lending rates) for the respective economies. This suggests that investment
in human capital is a more attractive way for an average person to make wealth.
Different countries have introduced varied fiscal measures to provide incentives to

personal investments in higher education.
– For example, in the US, this is driven by the substantial increase in wages
possible through higher education – an indirect appreciation of skills gained
through education.
– In the UK, the high availability of funding support in the form of scholarships /
grants etc. makes up for up to 47 per cent of tuition costs involved – an indirect
way of the state influencing funding for employment. Funding is available in the
form of Career Development Loans for vocational courses.
– In Canada, incremental salary from higher education is not substantially high

although the risk of unemployment decreases (i.e. term of employment
increases) substantially, to provide a net benefit from education.
76
Malaysia has made specific efforts at promoting private and
personal investments into HRD . . .
Case study: Malaysia
Incentives directed at individuals Incentives directed at institutions / corporates
n Double Deduction Incentive for Training (DDIT)

n Attracting global ICT skills
- The DDIT scheme (allowing double deduction of
- Income remitted within two years of arrival exempted
training expenditure for tax calculation) between
from tax
1988 -1993 was very attractive to MNCs operating in the
- Personal effects brought are tax exempt
electronics industry in Malaysia
- Owned assets in country of residence (e.g. cars)
- Since 1993, the scheme has been restricted to small
exempted from import duty and sales tax
firms (less than 50 employees) and a levy rebate has
- Permanent Resident status to close family of
been offered to larger companies
applicants within six months from the date of arrival
n Human Resource Development Fund (HRDF)

n Investing in skills development fund
- HRDF instituted in 1992 as a contribution fund
- Skills Development Fund Division to use the fund to
managed by the government and industry, reimbursed
provide loans to students in technical / vocational
against training expenses
courses
- Led to increased training expense for almost 50 per
- Loans available at nominal administrative charges and
cent of those companies registered under the HRDF,
long repayment terms
especially those in the instrumentation industry
The Malaysian government believed that the industry in Malaysia spent little on Human
Resource Development in the form of education / training.
Hence it invested in specific contributory funds as well as instituted specific incentives,
at the individual and company level. The table above highlights some of these
incentives.
The primary objective of these initiatives was to drive greater spend on education and
training.

Philippines have specific fiscal incentives directed towards HRD
for the ICT industry . . .
Case study: Philippines
n ICT scholarship program n Incentives to ICT training institutions

- Administered by the TESDA for students who pursue - ICT training institutions (formal / non-formal) are
careers in ICT sector eligible for a three-year income tax holiday
- Assistance includes tuition fee subsidy for approved - Additional incentives are provided in terms of
courses and up to 50 per cent subsidy for ICT skills additional deduction of labor expenses (teachers) and
certification unrestricted use of consigned equipment (computers)
n Private sector involvement

- ‘Adopt -a-school’ programs allow generous tax
incentives to the private sector in return for
technology systems provided to schools
The Philippines government has introduced an ICT scholarship scheme for students
wanting to pursue a career in information and technology.
It has provided incentives in the form of tax holidays to training institutes. There are
also additional incentives like unrestricted use of consigned equipment.
The private sector has also been provided incentives by taking up socially relevant
projects as well as sponsoring the computer classrooms in schools.
78
Sweden has been very successful in developing requisite HRD
skills for R&D, through special incentives . . . Case study: Sweden
n Financing of competence building n Specialized vocational training

- Swedes can open an Individual Learning Account - Advanced Vocational Education (AVE) is financed by
where their investments for training and competence the Education Administration budget to offer a new
building are matched by state investments and form of post-secondary training involving theoretical
incentives and practical applications
- Adult education under the state schools system is free
- Special grants are provided to the unemployed n Connectivity support
towards higher secondary education - The state and municipal funds provide limited period
support to special computer / education centers to
enable connectivity to the Internet
Sweden has undertaken initiatives to build the competence of its working population.
For example, the state provides support to individuals who are keen on getting trained.
It also provides them with incentives to learn.
At the institutional level, incentives are provided for specialized vocational training and
connectivity support through computers and internet provision.
All these initiatives have helped Sweden develop into one of the front-runners in global
IT, innovation and R&D.

There are a number of additional fiscal measures possible to
promote personal and private sector involvement in HRD . . .
Illustrative
n Tax incentives could be extended to training / coaching activities even under IT related industry.
n Investments in educational / coaching activities in IT sector could be given incentives by way of

tax exemptions / 100 per cent depreciation treatment, etc.
n Grants/ donations could be made by the government to English speaking colleges / schools to
give an impetus to the ITeS industry.
n Vocational training / coaching in IT related sectors could be made compulsory in colleges with
linkages to fiscal directives.
n Expenses incurred with respect to training and certification for ITeS could be supported through
special loans, repayment of which could qualify for individual tax exemption.
n Allowances received for working late shifts by personnel in the ITES industry could be tax
exempt.
n Special incentives could be provided to women for employment in ITeS / IT sector.
Source: Department of IT. Industry interactions. KPMG. 2003.
A review of practices in other countries such as Malaysia, Philippines and Sweden,

suggests that India could adopt a number of tax-related incentives.
The focus should be more so at the individual level, to drive HRD as well as
employment preference towards ITeS / IT industry.
Detailed recommendations on specific policy initiatives are provided under the Action
Plan.
80
Comprehensive action plan for HRD in ITeS/IT
This chapter provides suggested recommendations of the Task-force on actions to meet
HRD requirements for the ITeS / IT industry.
Specific responsibilities have been assigned under each of the recommendations and
the overall implementation structure has also been discussed.
Studies in the past have highlighted what drives and inhibits

successful implementation . . .
Successful implementation Failure in implementation
n Agreement on a common agenda and the n Lack of involvement of all the key stakeholders
benefits of achieving it by all the key including ministerial departments, industry and
stakeholders academia
n Strong support from influential individuals within n Lack of agreement on and acceptance of a
the government who can drive the agenda and common implementation plan and
resolve roadblocks responsibilities
n Focused, dedicated leadership and ownership by n Lack of accountability and inability to achieve
relevant bureaucrats to drive the process through planned actions by those appointed
to conclusion
n Lack of continuity and focus / direction by the
n Continuous pressure to achieve planned government
objectives through reviews and performance
criteria
Source: BCG-High level Strategic Group. Department of IT. 2003.
. . . actions planned must therefore be supplemented by specific performance

monitoring criteria, timeline and responsibilities
Studies in the past have highlighted that implementation of action plans often falls
behind targets due to the inability to define a specific group accountable for the
implementation.
The inability of different groups from across ministry boundaries to work together is
another major cause of the failure of such action plans.
It is therefore critical to identify the key individuals who would take responsibility for
the implementation and be accountable for their actions.
Continuous monitoring of progress, supported by strong leadership would be the key

to successful implementation.

Meeting the manpower requirements by 2012 could require a
number of actions directed at specific objectives . . .
Illustrative
Number (000s) Estimated gap based Options to bridge

on current trends the gap n Requiring specific fiscal incentives
3,000 n Requiring work environment changes to
attract workforce participation
195
n Requiring greater awareness of ITeS
605 opportunities
n Requiring interaction platform between
2,000
industry and potential employees
549
n Requiring changes in the curriculum
2,717 n Requiring a pre-certification mechanism
for ITeS / IT skills
1,000
1,367
0
Expected demand Projected supply Priority 1: Priority 2: Priority 3:
(2012) at current trends Improving Improving Increasing work-
conversion ratio applicants share force participation
Note: Calculations are illustrative only and assume that actions are conducted as per priority and Source: Industry interactions.
the effects are multiplied. KPMG. 2003.
Key assumptions include -
1. Increase in pure conversion ration from 25 per cent to approximately 35 per cent (adj. for double-counting of repeat applicants)
2. Increase in applicant share from approximately 11 per cent to approximately 15 per cent (adj. for double-counting of repeat applicants)
3. Growth in workforce participation from 65 to approximately70 per cent
. . . requiring policy, infrastructure and funding related actions
Bridging the manpower requirement gap for ITeS / IT requires specific actions on a
priority basis:
– Priority 1: Improve the employment conversion ratio through use of pre-
certification and counseling such that the resources attracted invest in developing /
assessing specific skills and are focused on working in ITeS / IT as a career.
– Priority 2: Use of counseling as well as providing adequate industry awareness

building opportunities to attract a greater share of applicants from target employee
base. This could be the biggest source of manpower as the ITeS / IT is still
concentrated in specific clusters and attracting of talent from other smaller towns
has not been utilized to the fullest extent.
– Priority 3: Expand the workforce pool through specific incentives to drive workforce
participation, especially by women and other under-represented groups who
otherwise drop-out of the workforce due to social or economic pressures.
82
Our framework for overall recommendations for action
encompasses the multiple dimensions that can influence
manpower development . . .
Policy changes /
Policy measures to
extension
clarify / guide / enforce
required
Funding / Fiscal
Funding allocation and
incentives
incentives
required
Infrastructure / facilities
Infrastructure /
and institutional
institutional
support (formal / non-
support
formal)
Monitoring Monitoring body,

mechanisms frequency and
required reporting
Generating awareness
Providing specific skills Use of common Involving industry in
and preference
as part of general / certification test for employing trained and
amongst graduates as
special education basic skills certified resources
well as non-employed
We have developed a comprehensive framework to suggest recommendations related

to attracting, training, certifying and deploying resources for ITeS / IT industry
requirements, on a long-term, sustainable basis.
This framework would help define the policy changes, funding requirements,
infrastructure /institutional support as well as monitoring mechanism required for the
action plan to be successful.
Across the education lifecycle, the primary objective would be to generate awareness
of ITeS / IT , provide specific skills, certify students through a common test and finally
involve the industry to effectively deploy human resources.

A number of gaps have been identified associated with the
entire lifecycle of education in India . . . Illustrative
n People are not aware n Key skills required by the n Lack of national-level n Lack of feedback loop on
about employment industry are not mechanism for pre- resource deployment
options, including developed through certified pool of and skills provided
flexibility offered current educational resources
system n Lack of direct placement
n ITeS perceived as largely n Lack of understanding of links between
requiring IT skills n Lack of adequate specific parameters to institutions and ITeS
interaction between test and certify upon industry, especially in
n Jobs in the ITeS industry formal and non-formal Tier-II and smaller cities
lack esteem education systems
n Employment not seen as n Lack of a standardized,

a long-term career option modular curriculum for
ITeS
n In-industry attrition
remains high Source: Industry / Academia interactions. Department of IT. KPMG . 2003.
Currently, the Indian education system is not well geared up to cater to the specific
needs of the ITeS / IT industry.
One of the main issues related to attraction to the industry is that most employees do
not look upon ITeS as serious career option. This results in high rates of attrition.
Lack of a proper placement mechanism in most educational institutions is another

major hindrance in students getting good jobs. The industry interface is not well
established especially in smaller cities and towns.
84
As a result, the recommended solutions must effectively be
designed to address these gaps . . . Illustrative
n Awareness creation n Changes in the n Creation of a national n Encourage placement

programs educational curriculum testing institution cells within the
from the primary to framework and education system
n Systematic counseling to graduate level as well as infrastructure
enhance the perceived new vocational courses n Establish platforms for
image n Develop and norm a test industry – academia
n Increase co-operation for basic ITeS skills interface to assess
n Define career paths between non-formal and employability of
under employment in formal systems through resources, especially in
ITeS / IT industry sharing for Tier-II and smaller cities
infrastructure, faculty,
n Provide specific testing systems etc.
incentives for ‘out-of-
industry’ hiring n Creation of institutional
capacity for specialized
training Source: Industry / Academia interactions. Department of IT. KPMG . 2003.
In order to tackle the issues highlighted previously, it is imperative that certain steps are
taken in a focused manner across the education lifecycle.
One of the main focus areas would be to generate awareness of the various career
options that are available to students and professionals. With India being increasingly
looked at as a destination of choice, more and more opportunities would be available.
Another key area would be the revision of curriculum to create a more IT sensitive
workforce with greater domain knowledge. Specialized training courses would need to
be developed for enhancing human resource skills.
Certification of skills would need to take place by the creation of a standardized test for
checking basic ITeS skills. At the same time a monitoring mechanism with adequate
control would need to be set up.
Finally, the loop would be completed with effective deployment of trained and certified
personnel. A greater role would need to be played by placement cells in colleges and
universities.
The key recommendations and time–frame for implementations have been highlighted
further in the report.

The specific recommendations on actions required include . . . Illustrative
n Attracting resources into ITeS / IT (including R&D)

Create an ‘ITeS / IT awareness fund’ with industry support to 0 – 6th month: Identify potential
generate awareness about ITeS / IT employment, especially in contributors to the fund, size of the
- Ministry of Comm. & IT
Tier II / III cities through advertisements, workshops, seminars corpus as well as the administration
1. - Ministry of Finance
and counseling sessions 6 – 9th month: Pilot the use of the
- NASSCOM
fund to check effectiveness in select
cities
Leverage existing infrastructure in the form of universities / 0 – 3rd month: Prepare relevant
colleges and existing vocational counseling centers, especially in information to be disseminated - Ministry of HRD
2. Tier II and smaller towns to provide career counseling on ITeS / 0 – 6rth month: Identify industry - Ministry of Comm. & IT
IT opportunities involvement opportunities for - NASSCOM
counseling
Provide special incentives (e.g. tax exemption, resettlement 0 – 6th month: Identify and agree on - Ministry of External Affairs
allowance, residence status) to attract experienced expatriate nature of benefits to be provided and - Ministry of Finance
3. talent for high-end ITeS / IT and R&D work the specific eligibility criteria - Ministry of Comm. & IT
6 – 9th month: Establish specific - Dept of Science and Tech.
monitoring and reporting mechanisms
Introduce changes in the telecom and customs / excise 0 – 6th month: Assess impact on - Ministry of Finance
regulations to enable working from home for ITeS / IT industry Telecom / Tax and prepare a benefits - Ministry of Labor
4. case for representation - Ministry of Comm. & IT
6 – 12th month: Work out specific (DOT)
details and reporting requirements
Note: Source: Dept of IT. Industry interactions. KPMG. 2003-2004.
High priority
Medium priority
Low priority
Recommendations:
1. Create an ‘ITeS / IT awareness fund’ with industry support to generate awareness
about ITeS / IT employment, especially in Tier II / III cities through advertisements,
workshops, seminars and counseling sessions.
2. Leverage existing infrastructure in the form of universities / colleges and existing

vocational counseling centers, especially in Tier II and smaller towns to provide
career counseling on ITeS / IT opportunities.
3. Provide special incentives (e.g. tax exemption, resettlement allowance, residence

status) to attract experienced expatriate talent for high-end ITeS / IT and R&D work.
4. Introduce changes in the telecom and customs / excise regulations to enable

working from home for ITeS / IT industry.
86
Illustrative
Recommendations (continued) . . .
n Educating / providing skills to resources for ITeS / IT (including R&D)

Bridge gaps in the formal education system to provide specific 0 – 12th month: Encourage industry
skills related to ITeS / IT as part of the primary/secondary, higher and academia to review and - Ministry of HRD
5. secondary and tertiary education systems recommend changes required - Ministry of Comm. & IT
12 – 24th month: Implement and - NASSCOM
monitor impact of change
Update curriculum under the formal education system more 0 – 6th month: Agree on framework
frequently to reflect global industry developments and skill - Ministry of HRD (AICTE,
for review and revision of curriculum
requirements NCERT, CBSE, IGNOU)
6. 6 – 12th month: Appoint a nodal body
to monitor need for curricular
- NASSCOM
changes and to recommend changes
Change the evaluation system under the formal education 0 – 6th month: Assess the nature of
system to encourage creativity and learning through continuous change required with respect to
evaluation and learning through experience evaluation - Ministry of HRD (AICTE,
7.
6 – 12th month: Work with the formal NCERT, CBSE, IGNOU)
sector of education to roll-out revised
evaluation process
Develop specialized vocational courses for ITeS / IT under the 0 – 6th month: Identify specific
- Ministry of HRD (UGC,
formal and non-formal systems to achieve speed –to-market, colleges / universities in select cities
Assoc. of Universities,
lower costs and better penetration of specialized courses with to introduce specialized courses
8. NIEPA)
industry support for training and curriculum 0 – 9th month: Launch ‘train-the-
trainer’ programs with industry
- NASSCOM
support
Establish and encourage global linkages within the formal - Ministry of HRD (UGC,
education system (e.g. student / faculty exchange, joint R&D, 0 – 9th month: Revise and clarify Assoc. of Universities,
9. internships) by linking funding to such efforts funding norms by the Department of NIEPA)
IT with respect to R&D funding - Ministry of Comm. & IT
- NASSCOM

High priority
Medium priority
Low priority
5. Bridge gaps in the formal education system to provide specific skills related to ITeS
/ IT as part of the primary/secondary, higher secondary and tertiary education
systems.
6. Update curriculum under the formal education system more frequently to reflect
global industry developments and skill requirements.
7. Change the evaluation system under the formal education system to encourage
creativity and learning through continuous evaluation and learning through
experience.
8. Develop specialized vocational courses for ITeS / IT under the formal and non-
formal systems to achieve speed–to-market, lower costs and better penetration of
specialized courses with industry support for training and curriculum.
9. Establish and encourage global linkages within the formal education system (e.g.
student / faculty exchange, joint R&D, internships) by linking funding to such
efforts.

Illustrative
n Educating / providing skills to resources for ITeS / IT (includi ng R&D)

Emphasize and promote the uptake of alternative languages (e.g. 0 – 6th month: Agree on supporting - Ministry of HRD (UGC.
W. European, Japanese) through courses at the graduation level, agencies and curriculum structure for Assoc. of Universities,
10. with support from specialized agencies alternative language courses AICTE)
th
6 – 12 month: Identify courses / - Ministry of Comm. & IT
institutions where to be introduced - NASSCOM
Revise R&D funding norms for universities / colleges from 0 – 9th month: Identify R&D - Ministry of HRD
current plan-based system to a project-based system across performance monitoring metrics with - Ministry of Comm. & IT
11. universities and monitoring output targets (e.g. publications, norms for awarding project-based - Dept of Science and Tech.
patents, consulting revenues etc.) funding
th
12 – 24 month: Roll-out new system
Networking of institutions at the graduate and post-graduate 0 – 12th month: Co-ordinate efforts of
levels to promote ‘networks of excellence’ as well as to share the UGC and ERNET to classify major - Ministry of HRD (UGC)
12. knowledge on industry trends, curriculum and teaching practices institutions under clusters and - Ministry of Comm. & IT
negotiate bandwidth required with (ERNET)
BSNL and other players
Provide easy access to the IT systems and Internet facilities 0 – 12th month: Work with the
- Ministry of HRD (UGC)
within the formal education system for registered students, at ERNET, UGC and industry to find
13. minimal fees options to reduce costs for IT and
(ERNET)
Internet usage by students (e.g. bulk
- NASSCOM
discounts, fiscal incentives)
Allocate specific share (10 - 20 per cent) of funding support 0 – 12th month: Work with the - Ministry of HRD (UGC)
towards faculty development and training through workshops, universities and industry to finalize - Ministry of Comm. & IT
14. paid sabbaticals into the industry and knowledge-sharing options for faculty development and (ERNET)
practices across universities link to funding - NASSCOM

High priority
Medium priority
Low priority
10. Emphasize and promote the uptake of alternative languages (e.g. W. European,
Japanese) through courses at the graduation level, with support from specialized
agencies.
11. Revise R&D funding norms for universities / colleges from current plan-based
system to a project-based system across universities and monitoring output targets
(e.g. publications, patents, consulting revenues etc.) .
12. Ensure networking of institutions at the graduate and post-graduate levels to

promote ‘networks of excellence’ as well as to share knowledge on industry trends,
curriculum and teaching practices.
13. Provide easy access to the IT systems and Internet facilities within the formal
education system for registered students, at minimal fees.
14. Allocate specific share (10-20 per cent) of funding support towards faculty
development and training through workshops, paid sabbaticals into the industry
and knowledge-sharing practices across universities.
88
Illustrative
n Educating / providing skills to resources for ITeS / IT (including R&D)

Impose greater discipline associated with information security 0 – 6th month: Work with the industry
adherence through propagation of data security policies and and associations to develop specific
15. related training regulations based on practices in EU
- NASSCOM
/ OECD / US to develop a framework
for India
Support alternative use of the ITeS / IT facilities and 0 – 6th month: Assess specific issues - Ministry of Comm. & IT
infrastructure of various industry players for training and related to infrastructure sharing / (DOT)
16. domestic services utilization and prepare a benefits case
- NASSCOM
6 – 12th month: Launch pilot with
volunteer companies in select cities
Extend tax incentives under Section 12A to recognized 12 – 18th month: Assess tax
vocational training institutions as well as companies focused on - Ministry of Finance
implications and monitoring /
17. IT / IT-enabled services - Ministry of Comm. & IT
reporting requirements associated
- NASSCOM
with the same

High priority
Medium priority
Low priority
15. Impose greater discipline associated with information security adherence through
propagation of data security policies and related training.
16. Support alternative use of the ITeS / IT facilities and infrastructure of various
industry players for training and domestic services.
17. Extend tax incentives under Section 12A to recognized vocational training
institutions as well as companies focused on IT / IT-enabled services.

Illustrative
Recommendations (continued) . . . Attract Educate Certify Deploy
n Certifying skill levels of resources for ITeS / IT (including R& D)

Co-ordinate efforts to develop a common, on-line test for ITeS 0 – 6th month: Agree on on-line
(IICT) with inputs from the industry and academia to test and testing framework in terms of - Ministry of Comm. & IT
18. certify relevant skills specific skills to be tested and
possible existing tests to be drawn - NASSCOM
upon
Provide partial funding support for IICT certification in the form 0 – 12th month: Agree with industry
of soft-loans / bonds / subsidies by the central / state - Ministry of Finance
and academia the costs for a
19. government and industry players - Ministry of Comm. & IT
common test and the alternative
- NASSCOM
options for funding
Appoint a non-government, industry-approved national body like 0 – 6th month: Decide on the body for
NASSCOM for administration of the IICT and to gather feedback implementation and monitoring of the - Ministry of Comm. & IT
20. from industry on the testing / certification process IICT across the country and define - NASSCOM
specific responsibilities
Design standards for the IICT (including nature of test, delivery 0 – 12th month: Design, test and roll-
mechanisms, testing benchmarks) based on industry out of the IICT based on inputs
21. requirements and with inputs academic experts received from industry, academia and
- NASSCOM
the learning from various state
government efforts
High priority
Medium priority
Low priority
18. Co-ordinate efforts to develop a common, on-line test for ITeS (IICT) with inputs
from the industry and academia to test and certify relevant skills.
19. Provide partial funding support for IICT certification in the form of soft-loans /
bonds / subsidies by the central / state government and industry players.
20. Appoint a non-government, industry-approved national body like NASSCOM for
administration of the IICT and to gather feedback from industry on the testing /
certification process.
21. Design standards for the IICT (including nature of test, delivery mechanisms,
testing benchmarks) based on industry requirements and with inputs academic
experts.
90
Illustrative
n Deploying trained / certified resources into ITeS / IT (including R&D)

Reform labor laws to support part-time and temporary working
with clarifications on benefits, employment policies, rights in 0 – 12th month: Work with the ITeS / - Ministry of Labor
22. case of disputes etc. IT industry to assess specific issues - Ministry of Comm. & IT
and changes required - NASSCOM
Providing exemptions under the Income Tax Actfor expenditure 12 – 18th month: Assess tax impact - Ministry of Finance
on IT equipment and communication for employees working and monitoring / reporting - Ministry of Labor
23. from home requirements and responsibilities - Ministry of Comm. & IT
related to such incentives - NASSCOM
Set-up a database of trained and certified personnel and trainers 0 – 12th month: Define and
for the ITeS / IT industry under a common, national body, to be parameterize the database to be
24. shared with industry players as required for marginal fees shared with industry participants
- NASSCOM
On-going: Update database based on
regular reports / filings by industry
Using industry and institutional inputs to develop ‘National 0 – 12th month: Involve all key
Technology Plans’ on R&D focus area to guide deployment of stakeholders to assess potential
R&D personnel and drive efforts in specific R&D areas opportunities and specific strengths - Ministry of Comm. & IT
25.
for India to address those - NASSCOM
On-going: Monitoring of technology
focus plans
Appoint a dedicated committee to undertake periodic reviews 6 – 12th month: Identify sub-
and suggest corrective / alternative actions in order to ensure committee participants and their roles
26. that HR development efforts match industry requirements / responsibilities
- NASSCOM
12 – 18th month: Identify key metrics
and reporting systems
High priority
Medium priority
Low priority
22. Reform labor laws to support part-time and temporary working with clarifications
on benefits, employment policies, rights in case of disputes, etc.
23. Provide exemptions under the Income Tax Act for expenditure on IT equipment and
communication for employees working from home.
24. Set-up a database of trained and certified personnel and trainers for the ITeS / IT
industry under a common, national body, to be shared with industry players as
required for marginal fees.
25. Use industry and institutional inputs to develop ‘National Technology Plans’ on
R&D focus area to guide deployment of R&D personnel and drive efforts in specific
R&D areas.
26. Appoint a dedicated committee to undertake periodic reviews and suggest
corrective / alternative actions in order to ensure that HR development efforts
match industry requirements.

The implementation of the recommendations should be
coordinated by a dedicated team that is representative and can
be held accountable . . .
Illustrative
Government
Appointment for a term of six years with
rotation of members every two years;
Ministry of Comm. & IT
Accountability for development and
performance targets
Ministry of HRD
Committee on HRD in IT
Ministry of Finance
Sub-committee on awareness efforts
Ministry of External monitoring
Affairs
Sub-committee on educational changes
monitoring
Industry
Sub-committee on certification
IT/ ITeS industry performance monitoring
IT/ ITeS training service Sub-committee on industry deployment /

providers feedback measurement
Industry associations Sub-committees involving

dedicated resources for
long-term support
Source: Dept of IT. Industry interactions. KPMG. 2003-2004.
The illustrative identifies the key stakeholders from both government and the industry.
A dedicated team would be needed to effectively coordinate activities of both the
spheres.
The Committee on HRD in IT would be the nodal point for all suggestions and action
points. This committee would in turn be organized into four sub-committees looking
after various activities related to each aspect of the education lifecycle.
This Committee on HRD would be appointed for a term of six years with rotation of
members every two years. The sub-committees as well as the Committee on HRD
would be accountable for the implementation of programmes and would have key
performance indicators to measure success.
92
KPMG
KPMG is the global network of professional services firms whose aim is to turn
understanding of information, industries, and business trends into value. With nearly
100,000 people worldwide, KPMG member firms provide audit and risk advisory, tax
and legal, and financial advisory services from more than 750 cities in 150 countries.
The Indian practice of KPMG was established in 1993, where it operates out of its offices
in Mumbai, Delhi, Chennai, Bangalore, Hyderabad and Kolkata. KPMG India gives its
clients full access to the resources and infrastructure of KPMG’s global network of
professional service firms. KPMG in India offers a range of services that include
assurance, risk advisory, tax and regulatory, financial advisory and business advisory
services.
The firm has access to the resources of Indian and expatriate professionals with diverse
educational backgrounds including business administration, economics, accountancy,
law, engineering, computer science and other disciplines. Many of its professionals are
internationally trained.
NASSCOM
National Association of Software and Service Companies
The National Association of Software and Service Companies (NASSCOM) is the apex
boy and umbrella organization of IT services and IT-enabled services organizations in
India. It was formed in 1988 with the primary objectives of being a catalyst for the
growth of the software-driven IT industry in India. NASSCOM is a non-profit
organization and is registered under the Societies Act, 1896. It currently has over 850
member companies who collectively contribute to more than 95 per cent of the
revenues of the IT services and IT-enabled services industry in India.
NASSCOM’s aims and objectives include facilitating trade and business in IT services,
IT-enabled services and the e-commerce industry; encouraging the advancement of
research, facilitating the education, employment and growth of the Indian economy.
NASSCOM works with the Government of India and various state governments to
formulate policies and procedures in the IT services and IT-enabled services industry.
NASSCOM organizes conferences, seminars, workshops and exhibitions in India and

abroad. These events focus on areas such as Internet, e-commerce, e-governance, IT-
enabled services, ERP, networking and banking. It also organizes specialized export
promotion events in various countries of the world where overseas companies are
encouraged to interact with Indian companies.

Key contacts for the report
Kiran Karnik Narayan Seshadri

kkarnik@nasscom.org nseshadri@kpmg.com
Sunil Mehta Rajesh C Jain

sunil@nasscom.org rcjain@kpmg.com
NASSCOM KPMG
International Youth Centre KPMG House
Teen Murti Marg, Chanakyapuri Kamala Mills Compound
New Delhi - 110 021 448, Senapati Bapat Marg
http://www.nasscom.org Lower Parel
Mumbai 400 013
Phone : +91 11 23010199 http://www.in.kpmg.com
Fax : +91 11 23793936
Phone: +91 22 2491 3030
Facsimile: +91 22 2491 3132
The information contained herein is of a general nature and is not intended to address the
circumstances of any particular individual or entity.The content provided here treats the subjects
covered here in condensed form. It is intended to provide a general guide to the subject matter and
should not be relied on as a basis for business decisions.
Although we endeavor to provide accurate and timely information, there can be no guarantee that
such information is accurate as of the date it is received or that it will continue to be accurate in the
future. No one should act upon such information without appropriate professional advice after a
thorough examination of the particular situation. Specialist advice should be sought with respect to
any individual circumstances.
KPMG International is a Swiss cooperative consisting of separate KPMG member firms in countries
throughout the world.
Strengthening the
human resource foundation of the
KPMG in India Indian IT enabled services/ IT industry
For further information about KPMG in India and our services, please contact:
Report by KPMG Advisory Services Private Limited
Bangalore in association with
KPMG House NASSCOM
20/2, Vittal Mallya Road under the aegis of the
Bangalore 560 001
Telephone: +91 80 227 6000
Department of IT,
Facsimile: +91 80 227 3000 Ministry of Information Technology and Communications,
Government of India
Chennai
Wescare Towers, I Floor
16, Cenotaph Road, Teynampet
Chennai 600 018
Telephone: +91 44 2433 2533/ 2433 3962
Facsimile: +91 44 2434 8856
Delhi
4B, DLF Corporate Park
DLF City, Phase III
Gurgaon, Haryana 122 002
Telephone: +91 124 254 9191
Facsimile: +91 124 254 9101
Hyderabad
II Floor, Merchant Towers
Road No. 4, Banjara Hills
Hyderabad 500 034
Telephone: +91 40 2651 1370/ 2335 0060
Facsimile: +91 40 2335 0070
Kolkata
Park Plaza, Block F, Floor VI
71, Park Street
Kolkata 700 016
Telephone: +91 33 2217 2858/ 64, 2246 8626-8
Facsimile: +91 33 2217 2868
Mumbai
KPMG House, Kamala Mills Compound
448, Senapati Bapat Marg
Lower Parel
Mumbai 400 013
Telephone: +91 22 2491 3030
Facsimile: +91 22 2491 3132
www.in.kpmg.com
© 2004 KPMG Advisory Services Private Limited, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in India.
National Association of Software and Service Companies India

Human Resource Foundation of The Indian IT Enabled Services IT Industry

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Strengthening the

human resource foundation of the

National Association of Software and Service Companies India

NASSCOM, however, is committed to supporting the implementation of these

National Association of Software and Service Companies

A special thanks goes to the

Gap between demand and supply of manpower 12

Strategy to enhance institutional capacity (formal and 32

Emerging areas in the knowledge domain for India to pursue 43

Design of standards and common test for ITeS skills 58

Measures for optimizing deployment of non-IT personnel 67

Fiscal policy measures to maximize private sector participation 75

Comprehensive action plan for HRD in IT / IteS 81

Companies world-wide are faced with increasing pressures to

n Rapidly ageing population (e.g. increase in median age in OECD

Productivity n Business productivity in form output production efficiency (through

. . . even as overall budgets get reduced

Companies world-wide are faced with increasing pressures to improve business

National Association of Software and Service Companies 1

Benefits from off-shoring to the extent of 35 – 55

Off-shoring of business processes and functional activities is one of the options

- Excludes on-site / in-country

. . . largely enabled through - Excludes body-shopping services

. . . to access relevant skills / - Expands role of ITeS / IT beyond

Source: KPMG. 2003-2004.

Off-shore IT and IT-enabled services include:

National Association of Software and Service Companies 3

Back-office data Knowledge

Source: KPMG. 2003.

Off-shoring represents the third-wave of establishing global presence, with the

National Association of Software and Service Companies 5

Human resources Finance and Accounting

Technology Services n Finance accounting

Research / Design and

Off-shoring is no longer restricted to specific primary or secondary activities of a

Supply-side Access to trained, cost- Telecom connectivity Regulatory support and

Source: Press reports. Merrill Lynch. KPMG. 2003.

National Association of Software and Service Companies 7

Global IT services requirement projections by industry (does not include ITeS)

National Association of Software and Service Companies 9

Global IT services market Global IT-enabled Services (ITeS) market

IT education / training Administration 2,198

n Remote services delivery imply a greater emphasis on agent voice modulation /

the move towards SOHO / tele-working

n ‘Follow-the-sun’ service expectations imply need to support night shift

n In order to manage higher returns from resources, capacity utilization through

. . . creating pressures on the economic and social systems of various countries to

– Average age of employees could be much lower as the education – employment

National Association of Software and Service Companies 11

India is emerging as ‘the services-hub of the world’ with a 24 per

Global IT / IT-enabled services market (2002)

USD billion Domestic

0.02 0.04 2.1 0.4

India’s proposition in this area is based primarily on the

§ Highest base of employees currently § Increased customer satisfaction at a

Source: NASSCOM. KPMG. 2002-2003.

India’s proposition for off-shore ITeS / IT support is driven by:

National Association of Software and Service Companies 13

Indian IT export services market projections (2002–2012)

64 31.0 per Indian ITeS market projections (2002–2012)

Note: Market share estimates assume the Source: NASSCOM-McKinsey.

India’s share of global IT services market