Day 56 – Q 2. What do you understand by Business Process Outsourcing (BPO)? What were those factors that made India a hotspot for BPOs? What is the future of BPOs in India? Examine. 

  • IASbaba
  • August 13, 2020
  • 0
GS 1, Indian Geography, TLP-UPSC Mains Answer Writing
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2. What do you understand by Business Process Outsourcing (BPO)? What were those factors that made India a hotspot for BPOs? What is the future of BPOs in India? Examine.  

बिजनेस प्रोसेस आउटसोर्सिंग (बीपीओ) से आप क्या समझते हैं? वे कौन से कारक थे जिन्होंने भारत को बीपीओ के लिए आकर्षण का केंद्र बनाया? भारत में BPO का भविष्य क्या है? जाँच करें।

Demand of the question:

It expects candidates to write about what they understood by the term Business Process Outsourcing ( BPO ). It also expects to write about characteristics of India due to which hotspot for BPOs was created and the future of BPOs in India.


Business process outsourcing (BPO) is a method of subcontracting various business-related operations to third-party vendors. Although BPO originally applied solely to manufacturing entities, such as soft drink manufacturers that outsourced large segments of their supply chains, BPO now applies to the outsourcing of services, as well.


Many businesses, from small startups to large companies, opt to outsource processes, as new and innovative services are increasingly available in today’s ever-changing, highly competitive business climate. The Business Process Outsourcing industry in India caters mostly to Western operations of multinational corporations. Annual revenues from BPOs are around $11 billion, around 1% of GDP.

Factors that made India a hotspot for BPOs:

  • Availability of Cheap labour:  Initially, India was chosen as an apt alternative to in-house processing considering many favourable factors including large English-speaking workforce and availability of tech-savvy manpower.
  • Cost advantage: it is the operational cost reduction by outsourcing the business process services to India that makes the country a suitable destination. Companies are enjoying as much as 50-60 percent of cost reduction by outsourcing to India.
  • Competent Talent Pool: Despite the stiff competition from The Philippines, Vietnam and other Asian countries, the Indian BPO industry still remains an attractive destination because of the availability of vast skilled labor and their proficiency in understanding progressive technology.
  • Leveraging Cost-advantage From Tier II Cities: The existence of a large number of tier II cities in the country is the biggest advantage for the Indian business process outsourcing companies which find working in such cities to be cost-effective. Besides, the mounting cost of living in these cities has forced the companies to begin operations in the rural regions as it seemed to be promising to significantly reduce the overhead costs in the long run.
  • Human Resource Advantage: Though some of the Asian countries are rising to be at par with India in providing cost-effective BPO services, these countries lack sufficient human resources to cater to the global market. India, on the other hand, with its large competent professionals is driving the BPO industry, thereby proving it to be an ideal destination for outsourcing services.

Future of BPO’s in India:

  • The rapidly growing industry requires growth in infrastructure as well. However, this is an area where India lacks, and this issue need to be addressed to keep up with the competition.
  • Even though India has been established itself as a world leader in the business of outsourcing, in the near future, there are chances of facing tougher challenges. South-Asian countries like Malaysia, Indonesia, Singapore, Vietnam, Philippines, Thailand and others are trying to improve their position so as to become alternative offshore locations.
  • Companies are branching out to Tier II cities where they would be able to take advantage of low labour costs.
  • Other South-Asian countries have been able to challenge the competitiveness of India by offering cheaper labour in business processing skills. India, on the other hand is experiencing a rise in the labour costs along with high attrition which is of course of concern and thereby need to be addressed as soon as possible.

Despite these challenges following Interesting facts about the Indian BPO industry make the industry more attractive destination for investment:

  • The BPO sector in India is estimated to have reached a 54 per cent growth in revenue.
  • The demand for Indian BPO services has been growing at an annual growth rate of 50%.
  • The BPO industry in India has provided jobs for over 74,400 Indians. This number is continuing to grow on a yearly basis. The Indian BPO sector is soon to employ over 1.1 million Indians
  • Indian BPOs handle 56% of the world’s business process outsourcing. 
  • Also Ministry of Electronics and IT has started India BPO promotion scheme and North East BPO Promotion Scheme, which aims to aims to incentivize establishment of BPO firms and their extension to Tier II and Tier III cities (as per census 2011) to provide employment, distributed across various states in proportion to population of state with financial support in form of Viability Gap Funding (VGF).


BPO as its a footloose industry can be set up anywhere, and it has a tremendous potential for growth and development in the Indian market and hence, if the respective policies and schemes  implemented in right manner then India can surely emerge as a global leader in the BPO sector. 

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