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IT & ITeS Industry in India

June, 2014


Information Technology (IT) has made possible information access at gigabit speeds. It has created a level playing field among nations and created has a positive impact on the lives of millions.

Today, a country’s IT potential is paramount for its march towards global competitiveness, healthy gross domestic product (GDP) and meeting up the energy and environmental challenges.

The Indian 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 the higher education sector (especially in engineering and computer science). The industry has employed almost 10 million Indians and, hence, has contributed significantly to social transformation in the country.

India is one of the fastest-growing IT services markets in the world. It is also the world’s largest sourcing destination, accounting for approximately 52 per cent of the US$ 124–130 billion market. The country’s cost competitiveness in providing IT services continues to be its USP in the global sourcing market.

India has the potential to build a US$ 100 billion software product industry by 2025, according to Indian Software Product Industry Roundtable (iSPIRT). The software products market in India, which includes accounting software and cloud computing-based telephony services, is expected to grow at 14 per cent in 2014.

The Department of Electronics and Information Technology is coordinating strategic activities, promoting skill development programmes, enhancing infrastructure capabilities and supporting research and development (R&D) for India’s leadership position in IT and ITeS.

Market Size

Indian IT and ITeS industry is divided into four major segments – IT services, business process management (BPM), software products and engineering services, and hardware. The IT services sector accounted for the largest share of the IT and ITeS industry, with a total market size of US$ 56.3 billion during FY13, followed by BPM sector (US$ 20.9 billion), and software products and engineering services (US$ 17.9 billion); the market size for hardware was US$ 13.3 billion during FY12.

The Indian IT-BPM industry is expected to add revenues of US$ 13–14 billion to the existing revenues by FY15, according to National Association of Software and Services Companies (NASSCOM).

The industry grew at a compound annual growth rate (CAGR) of 13.1 per cent during FY08–13.Total exports from the IT-BPM sector (excluding hardware) were estimated at US$ 76 billion during FY13, Export of IT services has been the major contributor, accounting for 57.9 per cent of total IT exports (excluding hardware) in FY13. BPM accounted for 23.5 per cent of total IT exports during the same fiscal. The IT outsourcing sector is expected to see exports growing by 13–15 per cent during FY15.

The technology industry of India will have a US$ 37 billion of CMO opportunity by 2020, according to a report titled 'Marketing, Disrupted: Opportunities for the Indian technology industry' by NASSCOM and SapientNitro.


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 attracted foreign direct investment (FDI) worth Rs 59,381.64 crore (US$ 9.89 billion) between April 2000 and February 2014.

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

  • Tata Consultancy Services (TCS) plans to merge its two units in Japan with Mitsubishi Corp’s IT subsidiary to create a joint venture (JV) company with a revenue base of US$ 600 million in the world’s second-largest market for software services.
  • Private equity (PE) firm TPG Growth and India's Smile Group will jointly invest US$ 100 million to help internet and e-commerce companies build and scale their businesses across the Asia–Pacific region and West Asia.
  • Synechron plans to invest US$ 30–35 million on the expansion of its Hyderabad and Bengaluru facilities. “We have decided to expand our presence in India by setting up facilities in Hyderabad and Bangalore. The idea is to get closer to the bigger talent pool and clients,” said Mr Faisal Husain, Founder and Global CEO, Synechron.
  • Bharti Airtel, India's largest telecom operator, has renewed its technology outsourcing contract with software major IBM for a period of five years.
  • Infosys has partnered with telecom company Orange to provide Internet TV to its customers. Infosys will deliver a portfolio of interactive TV apps on the Orange Livebox Play. The TV apps will be powered by Infosys DigitizeEdge, a digital asset and experience platform for TV operators, media companies, advertisers and content publishers.

Government Initiatives

The Government of India played a key role with public funding of a large, well trained pool of engineers and management personnel who could forge the Indian IT industry.

The Central Government and the respective State Governments are expected to collectively spend US$ 6.4 billion on IT products and services in 2014, an increase of 4.3 per cent over 2013, according to a study by Gartner.

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

  • The Government of Bihar has unveiled 20 km free Wi-Fi zone in Patna, the longest across the planet, making a strong impression on the world's infotech map.
  • The Government of India has given an in-principle approval for setting up of the first electronic system design and manufacturing (ESDM) cluster development in Electronics City, Bengaluru. The ESDM project will come up on a 1.16 acre of land at an investment of approximately Rs 85 crore (US$ 14.16 million).
  • More than 20 small and medium enterprises (SMEs) in the IT sector have recently received land allotment letters from the Government of Punjab to set up their units with an investment of Rs 500 crore (US$ 83.24 million).
  • The Government of India is planning to announce a national policy on cloud computing, as per Mr Kapil Sibal, Minister of Communications and Information Technology.
  • The Governments of Maharashtra and Tamil Nadu are in talks with NASSCOM to set up ‘start-up warehouses’ for incubation of start-ups. The centres are expected to come up in Mumbai and Chennai and are likely to be operational by December 2014.

Road Ahead

India is the most preferred location for engineering offshoring, according to a customer poll conducted by Booz and Co. Companies are now offshoring complete product responsibility. Increased focus on R&D by IT firms in India has resulted in rising number of patents filed by them.

India’s IT sector is gradually moving from linear models (rising headcount to increase revenue) to non-linear ones.

In line with this, IT companies in the country are focusing on new models such as platform-based BPM services and creation of intellectual property.

Tier II and III cities are increasingly gaining traction among IT companies aiming to establish business in India.

Cheap labour, affordable real estate, favourable government regulations, tax breaks and special economic zone (SEZ) schemes are facilitating their emergence as new IT destinations.

Indian insurance companies also plan to spend Rs 12,100 crore (US$ 2.01 billion) on IT products and services in 2014, a 12 per cent rise over 2013, according to Gartner. This forecast includes spending by insurers on internal IT (including personnel), software, hardware, external IT services and telecommunications.

Exchange Rate Used: INR 1 = US$ 0.016 as on May 7, 2014

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