IT & ITeS Industry in India

Introduction

The global sourcing market in India continues to grow at a higher pace compared to the IT-BPM industry. The global IT & ITeS market (excluding hardware) reached US$ 1.2 trillion in 2016-17, while the global sourcing market increased by 1.7 times to reach US$ 173-178 billion. India remained the world’s top sourcing destination in 2016-17 with a share of 55 per cent. Indian IT & ITeS companies have set up over 1,000 global delivery centres in over 200 cities around the world.

More importantly, the industry has led the economic transformation of the country and altered the perception of India in the global economy. India's cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US, continues to be the mainstay of its Unique Selling Proposition (USP) in the global sourcing market. However, India is also gaining prominence in terms of intellectual capital with several global IT firms setting up their innovation centres in India.

The IT industry has also created significant demand in the Indian education sector, especially for engineering and computer science. The Indian IT and ITeS industry is divided into four major segments – IT services, Business Process Management (BPM), software products and engineering services, and hardware.

India has come out on top with the highest proportion of digital talent in the country at 76 per cent compared to the global average of 56 per cent!.

Market Size

The internet industry in India is likely to double to reach US$ 250 billion by 2020, growing to 7.5 per cent of gross domestic product (GDP). The number of internet users in India is expected to reach 730 million by 2020, supported by fast adoption of digital technology, according to a report by National Association of Software and Services Companies (NASSCOM).

Indian IT exports are projected to grow at 7-8 per cent in 2017-18 to US$ 126 billion, in addition to adding 130,000-150,000 new jobs during the same period.

Indian IT and BPM industry is expected to grow to US$ 350 billion by 2025 and BPM is expected to account for US$ 50-55 billion out of the total revenue.

E commerce market in India is set to grow at 30 per cent annually to hit US$ 200 billion gross merchandise value by 2026@@.

Indian technology companies expect India's digital economy to have the potential to reach US$ 4 trillion by 2022, as against the Government of India's estimate of US$ 1 trillion.

Rise in mobile-phone penetration and decline in data costs will add 500 million new internet users in India over the next five years creating opportunities for new businesses, as per private equity and venture capital firm Omidyar Network.

Digital payment in India is expected to grow from 32 per cent in 2013-14 to 62 percent in 2017-18 in terms of volume of transactions.

Employees from 12 Indian start-ups, such as Flipkart, Snapdeal, Makemytrip, Naukri, Ola, and others, have gone on to form 700 start-ups on their own, thus expanding the Indian start-up ecosystem.! India ranks third among global start-up ecosystems with more than 4,200 start-ups##.

Total spending on IT by banking and security firms in India is expected to grow 8.6 per cent year-on-year to US$ 7.8 billion by 2017!!.

India’s Personal Computer (PC) shipment advanced 11.4 per cent year-on-year to 9.56 million units in 2017 on the back of rise in the quantum of large projects.

The public cloud services market in India is slated to grow 35.9 per cent to reach US$ 1.3 billion according to IT consultancy, Gartner. Increased penetration of internet (including in rural areas) and rapid emergence of e-commerce are the main drivers for continued growth of data centre co-location and hosting market in India. The Indian Healthcare Information Technology (IT) market is valued at US$ 1 billion currently and is expected to grow 1.5 times by 2020^^. India's business to business (B2B) e-commerce market is expected to reach US$ 700 billion by 2020 whereas the business to consumer (B2C) e-commerce market is expected to reach US$ 102 billion by 2020^^^.

Cross-border online shopping by Indians is expected to increase 85 per cent in 2017, and total online spending is projected to rise 31 per cent to Rs 8.75 lakh crore (US$ 128 billion) by 2018!!!.

Investments/ Developments

Indian IT's core competencies and strengths have attracted significant investments from major countries. The computer software and hardware sector in India attracted cumulative Foreign Direct Investment (FDI) inflows US$ 29.825 billion from April 2000 to December 2017, according to data released by the Department of Industrial Policy and Promotion (DIPP).

Leading Indian IT firms like Infosys, Wipro, TCS and Tech Mahindra, are diversifying their offerings and showcasing leading ideas in blockchain, artificial intelligence to clients using innovation hubs, research and development centres, in order to create differentiated offerings.

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

• India ranked ninth out of the 14 countries in the latest report of the Korn Ferry Digital Sustainability Index (DSI), outperforming countries such as China, Russia and Brazil.
• The flexi staffing market in the information technology (IT) sector in India stood at US$ 3.04 billion in FY 2016-17 and is estimated to grow at a Compound Annual Growth Rate (CAGR) of 14-16 per cent to reach US$ 5.3 billion by 2021@.
• Private Equity (PE)/Venture Capital (VC) investments in India's IT & ITeS sector reached US$ 7.6 billion during April-December 2017.
• Exports of software services from India increased 10.3 per cent year-on-year to reach US$ 97.1 billion in FY 2016-17, according to the Reserve Bank of India's (RBI) 'Survey on Computer Software & Information Technology Enabled Services Exports: 2016-17'.
• Spending on artificial intelligence (AI) by Indian companies is expected to increase by 8-11 per cent over the coming 18 months backed by rising influence of AI-based solutions across verticals, as per a report by Intel.
• India plans to create wireless Technology 5G by the end of the year 2020 which will help India in realising its most important goals of “Increasing the GDP rate”, “Creating Employment” and “Digitizing the Economy”.
• The mobile wallet industry is expected to maintain its current pace of expansion and the value of its transaction is expected to reach Rs 32 trillion (US$ 480 billion) by 2022, growing at a rate of 126 per cent.

Government Initiatives

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

• The Government of India is going to explore new opportunities in various sectors such as providing BPO service from home, digital healthcare and agriculture to achieve the target of making India a US$ 1 trillion digital economy.
• The Government of Andhra Pradesh is targeting to attract investments worth US$ 2 billion and create 100,000 jobs in the information technology (IT) sector in the state, stated Mr N Chandrababu Naidu, Chief Minister, Andhra Pradesh.
• The Government of Telangana is targeting to provide broadband connection to every household in the state by 2018, which is expected to lead to revolutionary changes in the education and health sectors.
• Mr Manoj Sinha, Minister of Communications, Government of India, launched project DARPAN - digital advancement of rural post office for a new India, for improving the quality and adding value to services and achieving financial inclusion for the unbanked rural population.
• Mr Ram Nath Kovind, President of India, has dedicated four projects, such as Andhra Pradesh Fibregrid, Andhra Pradesh Surveillance Project, Drone Project and Free Space Optical Communication (FSOC) to the people of Andhra Pradesh.
• The Government of India is planning to set wifi facility for around 5.5 lakh villages by March 2019 with an estimated investment of Rs 3,700 crore (US$ 555 million) and the government expects to start broadband services with about 1,000 megabit per second (1 gbps) across 1 lakh gram panchayats by the end of this year.

Road Ahead

India is the topmost offshoring destination for IT companies across the world. Having proven its capabilities in delivering both on-shore and off-shore services to global clients, emerging technologies now offer an entire new gamut of opportunities for top IT firms in India. US$ 150 billion Indian IT industry’s export revenue to grow at 7-8% and domestic market revenue is projected to grow at 10-11 per cent in 2017-18.

Exchange Rate Used: INR 1 = US$ 0.015 as on March 01, 2018

References: Media Reports, Press Information Bureau (PIB), Department of Industrial Policy and Promotion (DIPP) statistics, Department of Information and Technology, Union Budget 2017-18

Notes: ! - as per a survey by Capgemini and LinkedIn, @- as per a report by Indian Staffing Federation (ISF), $ - according to the MoneyTree India Report by PricewaterhouseCoopers, @@ - according to investment bank Morgan Stanley, ^^ - As per IT industry body National Association of Software and Services Companies (NASSCOM), ^^^ - as per a report by the Confederation of Indian Industry and Deloitte Touche Tohmatsu India LLP, ## - as per a report by NASSCOM and Zinnov Management Consulting Pvt Ltd titled "Start-up India - Momentous Rise of the Indian Start-up Ecosystem"

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.