HOW OFFSHORING HELPED INDIA BECOME THE 5TH LARGEST ECONOMY
One of the most well-liked and economically significant sectors of the Indian economy has been offshoring since Dr. Manmohan Singh, the former finance minister of India, introduced globalization to the nation through the Economic Liberalization Plan. Due to the country's enormous labor pool, government support, and low costs, India's offshoring sector has seen tremendous growth in the 20 years since then.
According to the latest figures released by the International Monetary Fund, the Indian economy has blazed past the UK to become the 5th largest economy in the world. Additionally, this year, the Indian economy is anticipated to expand by more than 7%. Indian stocks have recently had a global-beating recovery, moving their weighting into second place in the MSCI Emerging Markets Index, only behind China's. The computations were performed on the Bloomberg terminal using historical exchange rates and the IMF database. The magnitude of India’s growth can be felt when one realizes that just a decade ago, India was the eleventh-largest economy, while the UK was the fifth-largest.
India’s offshoring industry
Offshoring, also known as the migration of production processes abroad, is a long-standing phenomena, but in recent years it has taken on a new dynamic as a result of the decline in the cost of communication and transportation as well as the rapid advancements in information technology. This has made it easier to move "conventional" manufacturing phases (also known as "material offshore") and made it possible to move immaterial processes, also known as service offshoring.
Businesses from a wide range of economic sectors as well as new economic entities have been a part of these transitions. Offshoring, both tangible and intangible, has grown in emerging nations during the past ten years. Companies can benefit from the generally inexpensive labor costs in developing nations like India as a result of their involvement in global production chains.
How the service sector helps India’s economic growth
A country's economic development is solely determined by its business climate. The business environment in the nation must be very supportive of development in order to achieve higher levels of economic development. India's services sector, which in FY21–22 provided 53% of India's Gross Value Added at current prices, remained the country's largest source of economic growth (as per advance estimates). From Rs. 68.81 trillion (US$ 1,005.30 billion) in FY16 to Rs. 101.47 trillion (US$ 1,439.48 billion) in FY20, India's services sector GVA expanded at a CAGR of 11.43%. Trade, hotels, transportation, communication, and services connected to broadcasting increased at a CAGR of 10.98% between FY16 and FY20, while financial, real estate, and professional services increased at a CAGR of 11.68% (in Rs. terms) (in Rs. terms). By 2025, it is anticipated that India's market for IT and business services will be worth US$19.93 billion.
Offshore Accounting in India
Today, there is a huge demand for knowledge-intensive services since there is a shortage of skilled labor in industrialized nations. Geographical barriers have disappeared as a result of globalization, making it simpler for nations to access talent and resources from all over the world. Additionally, universal standardization has occurred in the areas of finance and accounting. India has the benefit of having many experts in the accounting field, including chartered accountants and taxes specialists. India is in a good position as a result of all these considerations. Already, several Fortune 500 businesses outsource their activities to India.
CPAs in other nations, including the US, are overburdened with laborious, monotonous tasks like payroll accounting, bill processing, and bookkeeping. The CPAs can concentrate their efforts on other lucrative endeavors like investment, asset management, and tax preparation by offshoring these basic accounting tasks. These CPA firms now send all of their low-skilled, high-volume work to India, a country renowned for its trained labor and effective business practices.
Due to India's various benefits, more and more nations are offshoring their accounting and bookkeeping needs to India each year. As a result, India's offshore accounting industry has and will continue to grow in the upcoming years. It is anticipated that the nation's share of the worldwide KPO industry will double.
How offshoring’s growth has aided the Indian economy
IT services provided the first impetus. With one of the largest IT workforces in the world, India offers a wide range of services to offshore clients with locations in the US, the UK, and other countries. Offshoring procedures in accounting and finance are not new, though. The accounting offshore companies in India benefited greatly from the opportunities when the world experienced a financial slump in the years 2007–2008. There is a sizable pool of accounting experts in India with over 350,000 being registered as chartered accountants.
In addition, the nation is home to hundreds of thousands of MBA (Finance) experts. Additionally, the nation has the greatest workforce of governance experts in the world with over 62,000 company secretaries, or governance professionals. The accounting sector is one of the largest in the world, with a total market value of close to $576 billion. In the US, the trends are mainly positive, with some of the largest audit firms, hedge fund administrators, insurance companies, banks, and financial service providers outsourcing financial and management accounting projects to offshore employment firms with offices in India. Another potential for Indian offshore workers may come from UK-based businesses, which are now rapidly taking advantage of accounting offshoring, much like their US-based counterparts.
What’s in store?
The Big Four audit firms and other major accounting and finance organizations with branch offices throughout the nation include hedge fund businesses. Numerous financial businesses with offices in India include; Credit Suisse, Merrill Lynch, Fidelity, Morgan Stanley, Deloitte, KPMG, PwC, and E&Y. However, prospects in the future would depend on small and medium-sized businesses that were prepared to hire Indian professionals to handle their accounting needs.
The industry's overall future is bright, especially with the advancement of information technology, faster internet, a conducive ecosystem, abundant IT professionals, ecology, and cloud technology. The offshore industry is growing quickly, and the future is promising. With the best-in-class labor and infrastructure already in place, accounting outsourcing trends for Indian professionals will see a considerable increase in the coming years. In fact, the IMF projects that India will become a $5-trillion economy by 2026-27.
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