Indian IT industry is riding high with rise global spending on technology products and related services. According to the International Data Corporation (IDC) estimates, the global spending on technology related services reached US$ 1.58 trillion (excluding R&D and engineering) in 2006 and is expected to grow at CAGR of 7.12% to reach US$ 2.1 trillion by 2010. Notably, IT services segment (excluding BPO) contributed around 29.8% of the total global spending on technology products and related services in 2006.

The success of the Global Delivery Model adopted by the global IT companies and the increase in offshore spending by the US and European countries would help countries like India to reap rich benefits. Noticeably, the global offshore IT services spending is expected to reach US$29.4 bn by 2010, would grow at a CAGR of 17.5% during 2006-2010. The trend underscores opportunities the for Indian IT companies to take significant strides towards global offshore IT services market.

Source: IDC

Technology adoption by companies across sectors and rapid evolution of technology and applications will significantly drive growth in the IT sector. Spending on IT is expected to increase across businesses with new sectors driving the new wave of IT growth. The increase in spending on IT sector will be backed by the growth in offshore spending, preference towards multi-vendor contracts and success of the Global Delivery Model.

According to NASSCOM, Indian IT-ITeS exports would reach US$ 60 bn by 2010. Some key factors supporting this optimism include the growing effect of technology-led innovation, leading the growing demand for global sourcing; favourable policy initiatives; and gradually evolving socio-political attitudes towards the acceptance of IT in professional and social activities. The global IT spending is likely to be sourced through the global delivery model, which has already opened up various avenues of outsourced services for India.

Rapid evolution of technology and Internet applications and invasive computing are expected to drive a rapid, quantum growth in technology adoption by businesses and individuals. The proliferation of client devices and end-user or end-use devices at the network end will result in the addition of billions of devices to the network age, which in turn will drive the need for more enterprise systems, to manage and correctly use them. The ‘Internet generation’ entering the working age population is expected to further accelerate technology usage and adoption.

Indian IT-ITeS sector to reach Rs 4,582.28 bn by 2011

According to the IDC, the Indian IT-ITeS industry is expected to grow at a CAGR of 15.6% to reach Rs 4,582.28 bn during 2008-2011. The sector is expected to witness robust growth, thanks to demand from the domestic market, which is growing steadily over the last couple of years — especially sectors like telecom, retail, logistics and transportation, BFSI, and manufacturing. The domestic ITeS market is expected to reach Rs 362.38 bn by 2011, at a CAGR of 264% during 2008–2011.

Source: IDC, D&B research

Potential growth segment

Considering the current growth rate of Indian IT industry coupled with favourable government policies, would thrive investor confidence. Therefore, India requires huge investment in developing the required infrastructure and on education. According to the Planning Commission of India, the Indian IT-ITeS sector would create another 2.5 mn direct employment opportunities. The sector requires direct investment of US$ 28–30 bn by the end of FY12. There are various potential-rich segments in Indian IT-ITeS sector as given below.

• Infrastructure management services (IMS) is expected to emerge as a key growth driver for the Indian IT industry. According to NASSCOM, the global IMS market is estimated to be worth US$ 86–150 bn, and currently, around 60% of the total IMS projects are delivered via ‘global delivery’ offshore-model. Therefore, there is an immense potential for remote information management (RIM), which is estimated to be worth US$ 51–90 bn, globally. Notably, in 2006, more than 2,000 clients have collectively awarded US$ 927 mn in IMS work to the top six Indian IT players.

• E-commerce in India is gradually picking up; over the next 2 years, the segment is expected to contribute significantly to the country’s IT-ITeS sector. As Indians increasingly become more tech–savvy, the growth in online shopping, online ticket-booking etc would tap the potential of the segment.

• Another important booming segment in Indian IT industry — the gaming sector — is expected to reach US$ 300 mn by 2009 from US$ 30 mn in 2005. Mobile gaming dominates the segment, currently accounting for more than 50% of the market; the segment’s share is expected to go up to 68% by 2009.

• Similarly, e-governance is another upcoming segment with several state government’s are increasingly focusing on e-governance services to be made available for its citizens. E-Government denotes a paradigm shift in the functioning style of the government and the interactions it has with its citizens, business and even within government itself. Over the last few years, it has been observed that a rise in the technical collaboration of the Governments with the MNCs and major domestic players for implementing e- governance activities.

• Engineering services are expected to become a key market for the Indian IT-ITeS sector. In 2004, India’s share of global off-shore engineering services was around 12%, which was relatively low as compared with the shares of the IT and BPO segments. As per a NASSCOM study in 2004, it was estimated that the engineering off-shore market would reach US$ 40 bn by 2020, enhancing India’s strategic positioning in the global market in key sectors like defence and aerospace.

• According to the Eleventh 5-year Plan recommendation, the domestic IT market should attempt to improve PC penetration from 11 per 1,000 PCs (in 2004) to 65 per 1,000 PCs by FY12. Importantly, the Plan expects domestic IT implementation to contribute 1.8% to country’s GDP growth. Emerging technology areas would be ubiquitous computing, RFID, high-performance computing, grid computing, high-performance networking, bio-informatics, software engineering, web technologies, etc

The Indian IT companies are entering into newer geographies to strengthen their business model, reduce dependency on single location and offer end-to-end solution to their clients. This expansion is likely to be fuelled through mergers and acquisitions. The industry is poised for a big leap over the next couple of years, focusing on to improve productivity and utilisation and move up the value chain. Considering increasing competition from emerging destinations, IT service companies have started to offer new service lines such as R&D engineering and remote network management, package software implementation, systems integration etc.