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Information Technology Industry in India (IT & ITeS)

November, 2012

Introduction

The information technology (IT) and information technology enabled services (ITeS) industry has been one of the key driving forces fuelling India's economic growth. IT and ITeS sector's contribution to the national GDP has increased from 1.2 per cent in 1997-98 to an estimated 7.5 per cent in 2011-12.

IT has evolved as a major contributor to India's GDP and plays a vital role in driving growth of the economy in terms of employment, export promotion, and revenue generation.

The IT-BPO sector is responsible for creating significant employment opportunities in the economy. Direct employment within the IT-BPO sector is expected to grow by over 9 per cent to reach 2.77 million, with over 230,000 jobs being added in 2011-12. IT services exports (including Engineering Research and Design (ER&D) and software products) continue to be the largest employer within the industry with nearly 47 per cent share of total direct employment, BPO exports generate about 32 per cent of the total industry employment, and the remaining 22 per cent is accounted for by the domestic IT-BPO sector.

The sector is responsible for enabling employment to an additional 8.9 million people in various associated sectors - catering, security, transportation, housekeeping, etc.

Market Size

As per NASSCOM estimates, IT and ITeS sector (excluding hardware) revenues are estimated at US$ 87.6 billion in FY 2011-12. The industry is expected to grow by 19 per cent during FY 2012-13.

Additionally, the market size of the industry is expected to rise to US$ 225 billion by 2020 considering India's competitive position, growing demand for exports, Government policy support, and increasing global footprint.

According to a study by management advisory firm Zinnov, adoption of IT services in the Indian SME segment is growing at 15 per cent and is expected to reach US$ 15 billion by 2015.

The public cloud services market in India is projected to grow to US$ 326.2 million, registering 32.4 per cent growth in 2012, according to a report by Gartner.

The Indian software and services exports including BPO exports is estimated at US$ 68.7 billion in 2011-12, as compared to US$ 59 billion in 2010-11, an increase of 16.4 per cent. The IT services exports is estimated to be US$ 39.8 billion in 2011-12 as compared to US$ 33.5 billion in 2010-11, showing a growth of 18.8 per cent. BPO exports is estimated to grow from US $ 14.2 billion in 2010-11 to US$ 15.9 billion in 2011-12, a year-on-year (Y-o-Y) growth of about 12 per cent. IT services contributed 58 per cent of total IT-BPO exports in 2011-12, followed by BPO at 23 per cent and software products / engineering at 19 per cent.

Investment

Indian IT's core competencies and strengths have placed it on the international canvas, attracting investments from major countries.

Between April 2000 and May 2012, the computer software and hardware sector attracted cumulative foreign direct investment (FDI) of US$ 11,262 million, according to the Department of Industrial Policy and Promotion (DIPP).

More recently, online retailing, cloud computing and e-commerce are the major driving forces behind the rapidly increasing growth in the IT industry. Online shopping has increased with the emergence of internet retailing and e-commerce.

India's IT-BPO revenues are also driven by a rapid increase in rural BPO units, which accounted for more than US$ 10 million in the total sector revenues.

Some of the major initiatives in Indian IT and ITeS sector are:

  • Intel Capital, Intel Corporation's global investment and M&A organisation, plans to invest up to US$ 40 million in ten innovative Indian technology companies
  • Kakinada Special Economic Zone (SEZ), being developed by GMR Group, has entered into a partnership agreement with Bengaluru-based RuralShores Business Services Pvt Ltd for setting up a BPO centre
  • Tata Consultancy Services (TCS) plans to set up operations in Madhya Pradesh (MP) by building a new integrated campus in Indore, with an initial investment of Rs 550 crore (US$ 99.09 million) in the first phase
  • MindTree Ltd has opened its first delivery centre outside India in Gainesville, Florida. The company plans to invest US$ 2.93 million and create 400 new jobs over the next five years
  • BPO firm ExlService Holdings has announced the acquisition of US-based Landacorp Inc. The acquisition will provide Exl with an end-to-end solution for the healthcare industry