INFORMATION TECHNOLOGY IN INDIA

LAST UPDATED FEB 2011

The Indian information technology (IT) industry has played a key role in putting India on the global map and is now envisioned to become a US$ 225 billion industry by 2020.      Over the past decade, the Indian IT-BPO sector has become the country’s premier growth engine, crossing significant milestones in terms of revenue growth, employment generation and value creation, in addition to becoming the global brand ambassador for India.      According to a research report published by National Association of Software and Service Companies (NASSCOM), ‘IT-BPO Sector in India: Strategic Review 2011,’ the sector is estimated to aggregate revenues of US$ 88.1 billion in FY2011, with the IT software and services sector (excluding hardware) accounting for US$ 76.1 billion of revenues.      The report estimates export revenues to gross US$ 59 billion in FY2011 and contribute 26 per cent as its share in total Indian exports (merchandise plus services), employing around 2 million employees.      Within exports, IT Services segment was the fastest growing segment, growing by 22.7 per cent over FY2010, and aggregating export revenues of US$ 33.5 billion, accounting for 57 per cent of total exports.      NASSCOM said that the domestic IT-BPO revenues excluding hardware are expected to grow at almost 16 per cent to reach US$ 17.35 billion in FY2011. Strong economic growth, rapid advancement in technology infrastructure, increasingly competitive Indian organisations, enhanced focus by the government and emergence of business models that help provide IT to new customer segments are the key drivers for increased technology adoption in India.      The data centre services market in the country is forecast to grow at a compound annual growth rate (CAGR) of 22.7 per cent between 2009 and 2011, to touch close to US$ 2.2 billion by the end of 2011, according to research firm IDC India's report published in March 2010. The IDC India report stated that the overall India data centre services market in 2009 was estimated at US$ 1.39 billion.      India will see its number of internet users triple to 237 million by 2015, from 81 million registered in September 2010, according to a report titled 'Internet's New bn', by the Boston Consulting Group (BCG). BCG said Internet penetration rate in India is expected to reach 19 per cent by 2015, up from the current seven per cent.      TRAI said on December 7, 2010 that it was targeting a 10-fold increase in broadband subscribers to 100 million by 2014. The country has 10.29 million subscribers now. "We will have 100 million broadband subscribers by 2014," J.S. Sarma, Chairman, Telecom Regulatory Authority of India (TRAI) said at the fifth India Digital Summit 2010 organised by the Internet and Mobile Association of India.      India's personal computer market grew 30 per cent in 2010 — the highest since 2007, research firm IDC revealed. Hewlett Packard emerged the top company in India, leading in both notebook and desktop categories. HP regained market leadership after two quarters with a 17.3 per cent market share, taking the pole position from Dell Inc that got 14.2 per cent of the market. Nearly 25 lakh personal computers were shipped to Indian consumers, pushing up the overall sales by 26 per cent. Around 14.5 lakh desktop PC units were sold in the fourth quarter last calender year, a 14 per cent increase over 2009. OUTSOURCING      India is a preferred destination for companies looking to offshore their IT and back-office functions. It also retains its low-cost advantage and is a financially attractive location when viewed in combination with the business environment it offers and the availability of skilled people. Some big deals in the outsourcing space include:      Four Soft Ltd, which offers software solutions for the logistics and transportation industry, has signed a large contract with Jacobson Companies, for implementing its multimodal transport management system and business intelligent tool across Jacobson locations globally.      Information technology (IT) services and solutions provider Patni Computer Systems has signed a five-year contract worth over US$ 32.09 million with UK-based IT services provider 2e2. Patni will provide a range of support services to 2e2's end-user clients and in-house support services.      Firstsource Solutions, a Mumbai-based business process outsourcing (BPO) provider, has announced a five-year outsourcing partnership with Barclaycard, the UK-based credit card and consumer lending business of Barclays PLC. Vertex, a global customer management outsourcing (CMO) and business process outsourcing (BPO) company, has announced a joint venture with Shell Transource to address the domestic BPO market. Vertex will own over 70 per cent in the joint venture, with Shell Transource holding the rest. Patni Computer Systems has secured outsourcing engagements from the Scandinavian insurance company Codan Group and the UK-based Serco Learning.      Tata Consultancy Services Ltd (TCS) has announced the launch of its first BPO centre in the Philippines. This is also the firm's first BPO centre in the South-East Asian region. DOMESTIC MARKETS      Domestic BPO segment is expected to grow by 16.9 per cent in FY2011, to reach US$ 2.8 billion, driven by demand from voice based services, in addition to adoption from emerging verticals, new customer segments, and value based transformational outsourcing platforms. Indian software product segment is estimated to grow by 14 per cent to reach US$ 3.46 billion, fueled by replacement of in-house software applications to standardised products from large organizations and innovative start-ups. Investments      Between April 2000 and December 2010, the computer software and hardware sector received cumulative foreign direct investment (FDI) of US$ 10,601 million, according to the Department of Industrial Policy and Promotion. The total investments of EMC Corporation, a leading global player of information infrastructure solutions in India, will touch US$ 2 billion (over US$ 2.01 billion) by 2014.      Syntel, an IT company, plans to invest around US$ 50 million in its global development centre in Chennai. Russian IT security software provider, Kaspersky Lab, will be investing US$ 2 million in its India operations at Hyderabad during 2011.        On the back of 40 per cent revenue growth, Cognizant will invest more than US$ 500 million till 2014 to expand its campuses to add over 8 million square feet to house over 55,000 employees. It will create additional software development and training facilities in regions designated as special economic zones in Chennai, Pune, Coimbatore and Kolkata. GOVERNMENT INITIATIVES      Government sector is a key catalyst for increased IT adoption- through sectors reforms that encourage IT acceptance, National eGovernance Programmes (NeGP) , and the Unique Identifi cation Development Authority of India (UIDAI) programme that creates large scale IT infrastructure and promotes corporate participation.      The government has constituted the Technical Advisory Group for Unique Projects (TAGUP) under the chairmanship of Nandan Nilekani. The Group would develop IT infrastructure in five key areas, which includes the New Pension System (NPS) and the Goods and Services Tax (GST) 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. Setting up of Software Technology Parks of India (STPIs) in 1991 for the promotion of software exports from the country, there are currently 51 STPI centres where apart from exemption from customs duty available for capital goods there are also exemptions from service tax, excise duty, and rebate for payment of Central Sales Tax. But the most important incentive available is 100 per cent exemption from Income Tax of export profits, which has been extended till 31st March 2011.      Government is also setting up Information Technology Investment Regions (ITIRs). These regions would be endowed with excellent infrastructure and would reap the benefits of co-siting, networking and greater efficiency through use of common infrastructure and support services. Moreover, according to NASSCOM government, IT spend was US$ 3.2 billion in 2009 and is expected to reach US$ 5.4 billion by 2011. Further, according to NASSCOM, there is US$ 9 billion business opportunity in e-governance in India. Road Ahead      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 called 'Perspective 2020: Transform Business, Transform India' released in May 2009, 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, China and Japan opt for greater outsourcing.