India's IT headway may well have put the country on course to a dominant position in the sector but the journey through the next five years is not without its share of challenges.

Key among them are increasing the country's employable talent pool, sustaining growth momentum in an uncertain tax holiday structure, harnessing the promise held out by the domestic market, leveraging innovation as the next drawing point and ensuring better growth for small and medium-sized firms.

Managing supply

Ensuring sustained availability of employable talent calls for a closer collaboration between the academia, government and privately-run finishing schools.

Nasscom has initiated the concept of finishing schools, an ecosystem that takes graduates from academic institutions and readies them for the industry, as a short-term measure.

Some of the long-term steps to consider are innovative education reforms such as a voucher system for primary education, bring in corporate or private involvement in the education system, give autonomy to more educational institutions and better compensation and research grants for teachers/researchers.

Sustaining momentum

A key factor behind the robust growth of the IT industry is the STPI concessions that the industry enjoys. The IT industry has consistently ploughed back its earnings into the business for widening the talent pool, creating quality infrastructure and revving up the sales and marketing engine, instead of paying out the earnings as dividends.

If the STPI benefits are withdrawn, lower post-tax earnings may bring down investments, hinder job creation and have a cascading impact on the overall economy.

Domestic focus

With numerous opportunities opening up in defence, railways, power, auto components, steel and many others, a renewed focus on the domestic scenario appears inevitable.

However, the domestic market will take off only if companies here start investing in technology. As of now, this is limited to well-established companies.

Beyond arbitrage

While this puts a premium on innovation, the industry will have to deliver at similar price points by using operating levers such as utilisation, pricing, broadening employee base and leveraging offshore to mitigate margin pressures.

The IT industry needs to proactively invest in creation of exclusive parks or clusters based on the strengths of individual states/cities such as Navi Mumbai and Pune for BFSI and automotive, or Bangalore for semiconductors, and Chennai for healthcare.

Focus on mid and small-cap companies

With the global top-10 service providers accounting for 25 per cent market share, the top-10 Indian service providers account for under 3 per cent, the bulk of the growth is generated by the small and medium-sized companies.

Since these firms are also spearheading innovation and taking the industry to tier II cities, they deserve preferential treatment.