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Dun & Bradstreet - Oriental Bank of Commerce SME Cluster Series 2014 : Pune

 

IT-ITeS

IT and IT enabled Services Sector

The Indian Information Technology (IT) and IT enabled services (ITeS) sectors have emerged as the growth engines of the Indian economy over the past decade. The sectors contribute substantially to India’s exports and GDP growth and generate massive urban employment. The Indian IT industry (including hardware) accounts for about 7% of the global IT industry. The sector revenue as a proportion of national GDP increased from 1.2% in FY98 to approximately 8.1% in FY14. Large integrated players, including Indian and global IT service providers that have established their presence in India, dominate the industry. According to NASSCOM estimates, the Indian IT-BPM (Business Process Management) industry is estimated to aggregate revenues of US$ 118 billion during FY14, representing a growth of 8.8% over FY13. The industry is estimated to provide direct employment to more than 3.1 million people and indirectly employs over 10 million. Moreover, India’s market share in the global sourcing market increased from 52% in 2012 to 55% in 2013 and represented over 90% of the incremental growth in the global sourcing market, which is expected to have grown between US$ 11-12 billion.

The domestic IT-BPM segment is expected to generate revenues of ` 1,910 billion in FY14, a y-o-y growth of 9.7%. Within this, the domestic IT services sector is estimated to grow at 9.7%, while the domestic BPM and software products segments are estimated to grow by 11.9% and 9.5%, respectively during FY14.

The IT hardware revenues are estimated to reach US$ 13 billion in FY14. Within this, the revenues of the domestic hardware industry are expected to grow by 9.2%, backed by demand for storage and mobile computing devices.

Export Scenario

Improving business prospects in the US and Europe as a result of gradual revival in consumer confidence, economic recovery and return of discretionary spending, is expected to enhance exports. For FY14, export revenues of the IT-BPM industry is estimated to cross US$ 86 billion, increasing by 13% (y-o-y) and contributing around 73% to the total IT-BPM revenues. The US is the largest export market for India, as it accounts for about 62% of the total IT-BPM industry exports. In terms of industry verticals, BFSI is the largest segment that represents over 41% of the total IT-BPM industry exports.

The IT services segment is estimated to generate export revenues of US$ 52 billion during FY14, which represents a y-o-y growth of 18.5% and about 60.5% of the total exports of the IT-BPM industry. With rising prominence of business process as a service (BPaaS)/cloud-based services and analytics, the BPM segment is estimated to generate export revenues of US$ 20 billion. Furthermore, exports of software products are expected to grow at 8.8% to US$ 1.7 billion in FY14.

Outlook

Slowdown in economic growth, rupee volatility, inflationary pressures and political instability marked the end of the year 2013, during which delayed investment decisions from customers in view of the uncertain environment affected IT spending. However, optimism in the markets for 2014 is expected to improve global tech spending. With commodity prices, rupee and inflation stabilising, decisive national elections is expected to boost the IT investment cycle in the country.

According to NASSCOM estimates, the IT-BPM industry exports are projected to increase in the range of 13-15% and domestic IT-BPM revenues to grow between 9-12% during FY15. Emerging technology trends in the industry, such as SMAC (Social media, Mobility, Analytics, and Cloud), Internet of things, artificial intelligence, software defined networking and storage, hybrid and personal clouds, smart grids and 3D printing, on service offerings around application development and system integration are expected to fuel growth and create new avenues of growth. Besides growing service offerings around application development and system integration, the IT industry growth is also expected to get a shot in the arm as SMEs are rapidly bridging the technology adoption gap with an aim to boost their operational capability and increase competitiveness. Furthermore, the country’s tech-savvy generation and their spirit of entrepreneurship is also enhancing India’s image as a hub for technology start-ups, which are creating new markets and driving innovation.

The attractiveness of the Indian IT-ITeS industry is mirrored in the FDI inflows. As per the Department of Industrial Policy & Promotion, between April 2000 and December 2013, the computer software and hardware industry received FDI equity inflows to the tune of US$ 12.2 billion, accounting for 5.8% of the total FDI inflows during the period. This makes it the fourth largest recipient of FDI inflows behind services, construction development and telecommunications sectors. However, to exploit the full potential of the sector, there is an urgent need for the government and all concerned stakeholders to come together and create a more conducive environment for development of infrastructure in tier-2 and tier-3 cities to leverage their potential and allow the IT and ITeS industry to emerge more cost competent and sustain its vibrant growth.