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Indian IT&ITeS Industry: an overview

August, 2013

Introduction

The IT&ITeS industry in India has today become a growth engine for the economy, contributing substantially to increases in the GDP, urban employment and exports, to achieve the vision of a powerful and resilient India.

Indian firms, across all other sectors, largely depend on the IT & ITeS service providers to make their business processes efficient and streamlined. Indian manufacturing sector has the highest IT spending followed by automotive, chemicals and consumer products industries.

Nasscom expects the IT services sector in India to grow by 13-14 per cent in 2013-14 and to touch US$ 225 billion by 2020.

Market Size

India’s total IT industry’s (including hardware) share in the global market stands at 7 per cent; in the IT segment the share is 4 per cent while in the ITeS space the share is 2 per cent. The industry is dominated by large integrated players consisting of both Indian and international service providers. During the year, the share of Indian providers went up to 65 per cent-70 per cent due to the emerging trend of monetisation of captives.

India's IT and BPO sector exports are expected to grow by 12-14 per cent in FY14 to touch US$ 84 billion - US$ 87 billion, according to Nasscom.

IT spending in India is projected to reach US$ 71.5 billion in 2013, an increase of 7.7 per cent as compared to US$ 66.4 billion projected for 2012, as per a report by Gartner.

The enterprise software market in India is expected to reach US$ 3.92 billion in 2013, registering a growth of 13.9 per cent over 2012 revenue of US$ 3.45 billion, according to Gartner.

Investments

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

Between April 2000 and June 2013, the computer software and hardware sector attracted cumulative foreign direct investment (FDI) of Rs 53,757.60 crore (US$ 7.97 billion), according to data released by 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.

Some of the major investments in Indian IT and ITeS sector:

  • Baring Private Equity Partners Asia plans to buy IT services firm Hexaware Technologies in a deal estimated at about US$ 400 million
  • Cognizant has been selected by the Saudi Electricity Company (SEC) to develop a comprehensive billing and revenue management solution based on SAP utilities enterprise software to meet the functional, technical, and operational requirements of SEC's rapid growth
  • Prisma Global has acquired majority stake in German technology venture Prisma Gmbh for about Rs 27 crore (US$ 4.00 million). The company will now own the Intellectual Property (IP) of technologies developed by the German firm
  • Wipro Ltd have secured a large IT outsourcing contract worth US$ 500 million from the US-based financial services company Citigroup. Wipro will be responsible for application development and maintenance, as well as providing infrastructure management services, for Citi's global operations
  • Tech Mahindra has signed a five-year agreement with UBS Fund Services (Luxembourg) (UBS FSL) for its new platform, Tech Mahindra Managed Data Services (MDS), designed to support asset managers, wealth managers, investment banks, custodians and administrators. The company’s Brazilian subsidiary Complex IT has also signed two deals to deliver enterprise solutions for oil and gas, and banking sector

Government Initiatives

As a part of the National Electronics Policy, the Government of India is planning to set-up 15 new laboratories under public-private-partnership (PPP) model for hardware and software testing. The labs will facilitate registration and testing of IT products before they are launched in the market.

FDI upto 100 per cent under the automatic route is allowed in Data processing, software development and computer consultancy services; software supply services; business and management consultancy services, market research services, technical testing & analysis services.

In the 12th Five Year Plan (2012-17), the Department of Information Technology proposes to strengthen and extend the existing core infrastructure projects to provide more horizontal connectivity, build redundancy connectivity, undertake energy audits of State Data Centers (SDCs) etc. The core infrastructure including fibre optic based connectivity will be leveraged and additional 150,000 Common Service Centres (CSCs) will be setup to create the right Governance and service delivery ecosystem at the Panchayats.

Some of the major initiatives taken by the Government to promote IT and ITeS sector in India are:

  • The Government of India has fast tracked the process of setting up of centres of National Institute of Electronics and Information Technology (NIELIT) in Northeast India
  • The Government of Brazil has liberalised the issue of short term work visas, a move which will make it easier for Indian IT professionals to take up assignments in Brazil
  • India and Vietnam have signed two memorandums of understanding (MoU) for partnership in the field of information, communications and technology (ICT)
  • The Cabinet has recently approved the National Policy on Information Technology 2012. The policy aims to increase revenues of IT and ITES industry from US$ 100 billion to US$ 300 billion by 2020 and expand exports from US$ 69 billion to US$ 200 billion by 2020
  • The Government of India plans to set up 15 new laboratories for testing hardware and software products under public-private partnership (PPP) model

Road Ahead

As IT is increasingly gaining traction in small and medium business activities, the sector offers impressive growth opportunities and is estimated at approximately US$ 230 billion–US$ 250 billion by 2020. In a bid to reduce cost, governments across the world are exploring outsourcing and global sourcing options.

Technologies, such as telemedicine, mHealth, remote monitoring solutions and clinical information systems, would continue to boost demand for IT service across the globe. IT sophistication in the utilities segment and the need for standardisation of the process are expected to drive demand.

Digitisation of content and increased connectivity is leading to a rise in IT adoption by media. Emerging technologies present an entire new gamut of opportunities for IT firms in India. Social, mobility, analytics and cloud (SMAC) provide US$ 1 trillion opportunity. Cloud represents the largest opportunity under SMAC, increasing at a CAGR of approximately 30 per cent to around US$ 650 billion–US$ 700 billion by 2020. Social media is the second most lucrative segment for IT firms, offering a US$ 250 billion market opportunity by 2020.

Exchange Rate Used: INR 1 = US$ 0.0148 as on August 29, 2013

References: Media Reports, Press Releases, Department of Industrial Policy and Promotion (DIPP) statistics, Department of Information and Technology