Sector structure/Market size
The Indian information technology (IT) industry has played a key role in putting India on the global map. Thanks to the success of the IT industry, India is now a power to reckon with. According to the National Association of Software and Service Companies (NASSCOM), the apex body for software services in India, the revenue of the information technology sector has risen from 1.2 per cent of the gross domestic product (GDP) in FY 1997-98 to an estimated 5.8 per cent in FY 2008-09.
Further, the industry body expects the sector to grow between 4 per cent and 7 per cent during 2009-10 and return to over 10 per cent growth next year.
India’s IT growth in the world is primarily dominated by IT software and services such as Custom Application Development and Maintenance (CADM), System Integration, IT Consulting, Application Management, Software testing, and Web services.
As per NASSCOM’s latest findings:
* Indian IT-BPO sector grew by 12 per cent in FY 2009 to reach US$ 71.7 billion in aggregate revenue (including hardware). Of this, the software and services segment accounted for US$ 59.6 billion.
* IT-BPO exports (including hardware exports) grew by 16 per cent from US$ 40.9 billion in FY 2007-08 to US$ 47.3 billion in FY 2008-09.
Moreover, according to a study by Springboard Research, the Indian IT services market is estimated to remain the fastest growing in the Asia-Pacific region with a compound annual growth rate (CAGR) of 18.6 per cent.
At present, there are 60 million Internet users in the country. According to the Manufacturer’s Association of IT (MAIT), the number of active Internet entities rose to 8.6 million by March 2009 from 7.2 million units in March 2008.
MAIT has outlined ‘Goal 511′, an ambitious target that talks about 500 million Internet users, 100 million broadband connections and 100 million connected devices by 2012.
A study by MAIT estimated that the total PC sale in India is likely to grow by 7 per cent in 2009-10, with total sales expected to cross 7.3 million units.
Moreover, software companies continued to constitute the fastest growing firms in the Deloitte Technology Fast 50 India 2009 programme. In 2009, the composition of software companies amounted to as much as 80 per cent. Despite the slowdown and challenges for growth, the report stated that the average growth rate of the top ten winners increased significantly to 1,003 per cent, compared with 845 per cent in the previous year.
According to NASSCOM, software and services exports (including exports of IT services, business process outsourcing (BPO), engineering services and research and development (R&D) and software products) reached US$ 47 billion in FY 2008-09, contributing nearly 78 per cent to the total software and services revenue of US$ 59.6 billion.
India continues to be the most preferred destination for companies looking to offshore their IT and back-office functions. It also retains its low-cost advantage and is among the most financially attractive locations when viewed in combination with the business environment it offers and the availability of skilled people, according to global management consultancy, AT Kearney.
Global IT giant, IBM, plans to scale up its business process outsourcing (BPO) operations in the country and looks to recruit 5,000 people to support the expansion.
Some big deals in the outsourcing space include:
* HCL Technologies has entered into a five-year deal with media conglomerate News Corp for managing its data centres and IT across British newspapers. The deal is pegged to be in the range of US$ 200-US$ 250 million, according to industry experts.
* HCL Technologies has also received a contract worth US$ 50 million from UK-based defence equipment maker Meggitt for providing engineering services.
* Walmart has selected three IT vendors in India — Infosys Technologies, Cognizant Technology Solutions and UST Global — for multi-year contracts worth over US$ 600 million.
India’s domestic market has also become a force to reckon with, as the existing IT infrastructure evolves both in terms of technology and depth of penetration.
According to NASSCOM, domestic IT market (including hardware) reached US$ 24.3 billion in FY 2008-09 as against US$ 23.1 billion in FY 2007-08, a growth of 5.3 per cent.
India Inc’s demand for IT services and products has bolstered growth in the domestic sector with deal sizes going up remarkably and contracts worth US$ 50 million-US$ 100 million up for grabs.
The market for enterprise networking equipment in India is estimated to grow from US$ 1 billion in 2008 to US$ 1.7 billion by 2012, recording a compounded annual growth rate (CAGR) of 15 per cent during this period, according to a study by Springboard Research.
HCL Infosystems has bagged an order worth US$ 23.69 million from the Gujarat government to supply and implement biometric attendance and computer aided learning systems in over 7,000 schools across the state.
* The Andhra Pradesh Government expects the IT-related SEZs and Software Technology Parks of India (STPI) in the State to receive about US$ 3.27 billion investments in the next five years.
* Mahindra Satyam has tied up with defence and security company Saab to develop its operations in India for the global defence and homeland security market. The estimated deal value is US$ 400 million.
* San Francisco-based Virtualisation solutions provider VMware Inc plans to invest US$ 100 million in India by end 2010.
* The total investments of EMC Corporation, a leading global player of information infrastructure solutions, in India will touch US$ 2 billion by 2014.
According to a report of the Internet and Mobile Association of India (IAMAI), rural India has 3.3 million active internet users as on March 2008. (Since rural India was mapped for the first time, the year-on-year growth of internet users in rural India could not be estimated.) The research also notes there are 5.5 million people who claim to have used Internet at some point in time.
* The government set up the National Taskforce on Information Technology and Software Development with the objective of framing a long term National IT Policy for the country.
* Enactment of the Information Technology Act, which provides a legal framework to facilitate electronic commerce and electronic transactions.
The government-led National e-Governance Programme, has played an important role in increasing internet penetration in rural India.
The Indian information technology sector continues to be one of the sunshine sectors of the Indian economy showing rapid growth and promise.
According to a report prepared by McKinsey for NASSCOM, the exports component of the Indian industry is expected to reach US$ 175 billion in revenue by 2020. The domestic component will contribute US$ 50 billion in revenue by 2020. Together, the export and domestic markets are likely to bring in US$ 225 billion in revenue, as new opportunities emerge in areas such as public sector and healthcare and as geographies including Brazil, Russia, India, China (BRIC) and Japan opt for greater outsourcing.