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IT & ITeS Industry in India

August, 2014


The information technology (IT) and information technology enabled services (ITeS) industry has been one of the key driving forces fuelling India's economic growth.

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). It 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. The 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.

The Indian IT-business process outsourcing (BPO) sector, including the domestic and exports segments, continue to grow from strength to strength, witnessing high levels of activity both onshore as well as offshore. The companies continue to move up the value-chain to offer higher end research and analytics services to their clients.

Market size

The growth in the Indian IT industry is expected to be around 30 per cent and the overall sales are projected to touch US$ 17 billion in FY 15, according to Manufacturers' Association of Information Technology (MAIT).

The Indian IT infrastructure market - comprising server, storage and networking equipment - is expected to grow by four per cent in 2014 to touch US$ 1.9 billion, according to Gartner.

The IT services market in India is expected to grow at the rate of 8.4 per cent in 2014 to Rs 476,356 million (US$ 7.88 billion), according to International Data Corporation (IDC).

Indian insurance companies plan to spend Rs 117 billion (US$ 1.93 billion) on IT products and services in 2014, a 5 per cent increase from 2013, as per Gartner.

Indian enterprises are enhancing their IT security operations capabilities across departments. The Indian market for security infrastructure and services is expected to grow from US$ 989 million this year to US$ 1.4 billion by 2017, as per Gartner.


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 60,503.21 crore (US$ 10.01 billion) between April 2000 and June 2014.

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

  • Tata Communications plans to invest more than US$ 200 million to double its data centre capacity in India to 1,000,000 square feet over three years.
  • Wipro has bagged a US$ 1.2 billion outsourcing deal from Canadian utilities major ATCO. As part of the deal, Wipro will take over the IT subsidiary of ATCO, ATCO I-Tek, in an all-cash deal worth US$ 195 million.
  • L&T Technology Services has bought 74 per cent equity stake in Thales Software India Pvt Ltd, to strengthen its avionics business. This collaboration will enhance L&T's expertise in high-end avionics software.
  • The Technopark-Technology Business Incubator plans to set up 'OpeniSpace', an open innovation space on its campus, for innovators and young student entrepreneurs. The 'OpeniSpace' start-up space will provide plug-and-play facilities with 4 to 12 seats along with Wi-Fi internet connectivity for young entrepreneurs.
  • Mphasis has announced the launch of an e-Surveillance and Power Efficiency Solution 'ProTecht', in partnership with Delta Power Solutions. The partnership will enable Mphasis Payment Managed Services (MPMS), to offer the most comprehensive single window solution for ATM security and power efficiency innovation across the ATM industry.
  • Apax Partners has bought a 1.5 per cent stake worth Rs 57.84 crore (US$ 9.56 million) in software products and services provider Persistent Systems in a public market transaction.

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 India plans to reduce the requirement of the built up area from 50,000 square metres to 20,000 square metres and capital conditions for FDI from US$ 10 million to US$ 5 million for development of smart cities. It has allocated a sum of Rs 7,060 crore (US$ 1.16 billion) in the current fiscal for the project of developing 'one hundred Smart Cities'. The Government of India also plans to launch a pan India programme 'Digital India' with an outlay of Rs 500 crore (US$ 82.71 million).
  • The government has pledged to support the growth of domestic information technology capabilities in both hardware and software focused on enabling the timely delivery of citizen services and creating new jobs opportunities, especially in rural areas.
  • India plans to set up industrial parks in the pharmaceutical and information technology (IT) sectors in China to strengthen India-China trade and investment ties.
  • The Government of India will develop new manufacturing clusters for electronic goods in eight cities as part of its agenda to boost manufacturing, according to Mr Ravi Shankar Prasad, Union Minister for Communications and Information Technology, Government of India.
  • 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$ 82.71 million).

Road Ahead

Globalisation has had a profound impact in shaping the Indian IT industry 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 will 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 today extended to the IT sector for STPI and SEZs. Further, the country is providing procedural ease and single window clearance for setting up facilities.

Exchange Rate Used: INR 1 = US$ 0.0165 as on August 26, 2014

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