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IT & ITeS Industry in India

May, 2014


The Indian Information Technology (IT) and Information Technology enabled Services (ITeS) sectors go hand-in-hand in every aspect. The industry has not only transformed India’s image on the global platform, but also fuelled economic growth by energising higher education sector (especially in engineering and computer science). The industry has employed almost 10 million Indians and hence, has contributed a lot to social transformation in the country.

Furthermore, 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.

Indian organisations are turning to IT to help them grow business in the current economic environment. IT is seen as a change enabler and a source of business value for organisations by 85 per cent of the respondents, according to a study by VMware.

Market Size

India's IT-business process outsourcing (BPO) industry revenue is expected to cross US$ 225 billion mark by 2020, according to a Confederation of Indian Industry (CII) report, titled 'The SMAC Code-Embracing New Technologies for Future Business'.

India is expected to become world's second-largest online community after China with 213 million internet users by December 2013 and 243 million by June 2014, according to a report by Internet and Mobile Association of India (IAMAI) and IMRB International.

Technology firms in India are expected to reap the benefits of Internet of Things (IoT) data, considered to be a US$ 18 billion opportunity, to help clients improve productivity and asset utilisation as well as to enhance end-customer experience, as per networking firm Cisco.

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. 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.

Moreover, India plans to spend around US$ 3.9 billion on cloud services during 2013-2017, of which US$ 1.7 billion will be spent on software-as-a-service (SaaS), according the latest outlook of IT research and advisory company, Gartner Inc.

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.

Mumbai with 12 million internet users has emerged as the top most city in the country with highest penetration of internet users, followed by Delhi (8.1 million) and Hyderabad (4.7 million), according to the data released by Internet & Mobile Association of India (IAMAI).


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

According to data released by the Department of Industrial Policy and Promotion (DIPP), the computer software and hardware sector has attracted foreign direct investment (FDI) worth Rs 54,347.88 crore (US$ 8.77 billion) between April 2000 and September 2013.

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

  • Wipro plans to acquire US-based mortgage due diligence and risk management service provider Opus Capital Markets Consultants (Opus CMC) for Rs 465 crore (US$ 75.07 million). Opus CMC provides comprehensive risk management solutions to the mortgage industry in the US.
  • Infosys has opened a new centre in Sydney, Australia. This is its fourth development centre in Australia and has a capacity to seat 140 employees. Further, the company plans to hire 85 people in the region.
  • Hitachi has acquired a foothold in India's payment space with the acquisition of Prizm Payment Services. The firm has entered into share transfer agreements with Prizm shareholders, including Winvest Holdings (India), Sequoia Capital and Axis Bank.
  • Dell has opened its India design centre for its storage technologies and has realigned its domestic research and development (R&D) unit. The facility will focus on developing software, integrating aspects involving back-up of emails and related storage.
  • Tata Consultancy Services (TCS) has launched a software development facility in Ahmedabad, Gujarat. The facility will serve global customers across industry segments.
  • Cognizant Technology Solutions has acquired ValueSource, a subsidiary of KBC Group, a Belgium-based multi-channel bank insurance group.
  • Schneider Electric has commissioned a services bureau in Bengaluru as a nerve centre and a support facility for data centres in India and the Asia-Pacific region.

Government Initiatives

IT spending by the Government of India is projected to reach US$ 6.4 billion in 2013, a growth of 7 per cent year-on-year, according to a report by Gartner.

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

  • After a successful first-ever international delegation to Dubai, Gujarat-based small and medium enterprises (SMEs) in the IT sector plan to send similar business delegations to European and South East Asian countries.
  • The Government of Karnataka plans to announce a new information technology (IT) policy to boost investments in state’s tier-II and tier-III cities. The policy would enable the sector to employ about two million people in the state directly by 2020.
  • 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).

Road Ahead

Globalisation has a profound impact in shaping the Indian IT industry over the years with India capturing a sizeable chunk of the global market for technology sourcing and business services. Over the years the growth drivers for this sector have been the verticals of manufacturing, telecommunication, insurance, banking, finance and of late the fledgling retail revolution. As the new scenario unfolds it is getting clear that the future growth of IT and ITeS will be fuelled by the verticals of climate change, mobile applications, healthcare, energy efficiency and sustainable energy. Traditional business strongholds would make way for new geographies, there would be new customers and more and more of SMEs will go for IT application and services.

Demand from emerging countries is expected to show strong growth going forward. Tax holidays are also extended to IT sector for software technology parks of India (STPI) and special economic zones (SEZs). Further, the country is providing procedural ease and single window clearance for setting up facilities. The country’s cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US continues to be its USP in the global sourcing market.

Exchange Rate Used: INR 1 = US$ 0.016 as on December 17, 2013

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