In the past 12 months, India's IT industry faced tough challenges and very trying times. However, the country's information technology sector is getting ready for a big turnaround as more Western financial groups look to outsourcing some of their IT functions.

Specifically, banks in developed countries are trying to consolidate their recent acquisitions. These banks need to implement new IT platforms in order to make the consolidation process more efficient.

In the United States, impending changes in legislation on health care and the credit card industry can also result to more outsourcing projects. These legislations would force companies to cut costs which is favourable for outsourcing groups in India.

Financial Sector is the Main Driver

Consultants and observers believe that the financial sectors of developed countries will be the main driver for outsourcing. Specifically, banks are currently re-platforming their systems. The implementations of new platforms are buoyed by big takeovers.

During the height of the credit crunch, smaller financial companies were forced to fold while those that can not stay afloat merged with larger groups. There was a frenzy of fresh acquisitions this rendering the old systems of these banks obsolete.

Today, consolidating these acquisitions and mergers require new IT platforms and systems. And Western companies are looking to outsource these projects in order to minimize costs.

India's IT Sector Hit Hard

There is no denying that India’s information technology sector has been hit hard by the financial crisis. During the credit crunch, banks and other financial institutions froze their projects and put on hold outsourcing deals.

As a result, top Indian outsourcing companies were forced to cut their workforce and rationalize their operations. Growth rates among outsourcing companies slowed down considerably.

Industry Turnaround

This year, the outlook for the Indian IT industry is brighter. IT companies are predicting that the cost cutting measures of companies will directly benefit outsourcing groups.

Reduced spending for post recession scenario can only mean that companies will look for low cost alternatives. In such scenarios, the low cost services of India’s outsourcing companies can get plenty of clients and new projects.

The drive of US President Barack Obama to curb credit card company practices and the looming passage of health care reform could lead to more outsourcing projects for India’s IT companies. This means more jobs for IT professionals and increasing growth of the Indian outsourcing sector.

Sentiments in the market are also promising. Stocks of India’s IT companies are rising this year. The performance of Indian IT stocks shows that the sector is bound to recover sooner.

Indian outsourcing companies can get potential windfalls from US-Based credit card companies and from health care providers. The reforms in these US sectors will push companies to reduce costs and spending. Because Indian outsourcing groups are offering lower services, these companies will eventually outsource some of their functions to improve their bottom line.

However, some analysts are predicting that structural changes will take effect at least several quarters before the impact can be felt by Indian outsourcing groups.

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