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


IT-ITeS Overview

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 7% of the global IT industry. The sector revenue as a proportion of national GDP increased from 1.2% in FY98 to approximately 8% in FY13. Large integrated players, including Indian and global IT service providers that have established their presence in India, dominate the industry. During FY13, IT-BPM industry is estimated to aggregate revenues of USD 108 bn of which the IT software and services sector (excluding hardware) is estimated to account for USD 95 bn.

The domestic IT-BPM segment (excluding hardware) is expected to generate revenues of ` 1,047 bn in FY13, noting a YoY growth of 14.1%. Within this, the domestic IT services sector is estimated to generate revenues of ` 674 bn growing at 14.4% YoY. Similarly, the domestic BPM segment is estimated to aggregate revenues of ` 167 bn, growing at 12.4% YoY. In addition, domestic software products grew at 13.8% YoY during FY13.

During FY13, export revenues (excluding hardware) is estimated to gross USD 75.8 bn, increasing by 10.2% YoY and contributing around 80% to the total IT-BPM revenues (excluding hardware). The chart below highlights the segment-wise share in export revenues during FY13:-

During FY13, the IT services segment generated export revenues of USD 43.9 bn, contributing around 58% to the total exports of the IT-BPM industry, registering a YoY growth of 9.9%. Similarly, the BPM segment, generated export revenues of USD 17.8 bn and ER&D, OSPD and software products segment, is estimated to aggregate revenues of USD 14.1 bn, increasing at 9% YoY during the same period.

Hardware segment

The IT hardware industry of India is estimated to see double-digit growth of 15% in FY13 compared with FY12 by crossing the mark of 12 million Personal Computer (PC) sales for the first time (estimated to be 12.4 mn). Desktop PCs, which are expected to grow at around 15% p.a. compared with 11% last year, would contribute towards the growth in PC sales. The Notebook PC segment is estimated to post growth of about 16% YoY.

With a contribution of around 56% of the total PC sales market, the Household (HH) Segment drove growth of the PC market, with Socio Economic Classification (SEC ‘C’) projected to emerge as a growth driver. The contribution of SEC C Desktop PCs is all set to grow from 36% to 42% and sales of Notebook PCs are expected to increase from 18% to 20%. Over the years, the increasing income levels coupled with consumers’ awareness of PCs as an educational device have had a say on the overall PC sales, more so, in the SEC C segment, which has seen the younger population pushing assertively for adoption of PCs. The PC prices are expected to fall, despite YoY increase in volume. The estimated fall in average prices of Desktops and Notebooks is 4% and 6% respectively. The PC makers may emphasize on volume sales, with growing number of brands and changing configurations.

The derived value of production for this segment for FY13 is around ` 243 bn compared with ` 165 bn in FY12, marking 47% growth.

The way forward

Indian IT services sector has transformed from application development and maintenance services to provide a gamut of other offerings such as testing services, infrastructure services, consulting, and system integration. A concerted effort to bring forth a mix of re-engineering skills, new technology, and service delivery methods have all added to the growth trajectory. Catering to a diverse employee profile, this industry calls for a need to draw in all stakeholders.

According to the industry body NASSCOM, the landscape for IT companies is changing rapidly and it is imperative for existing companies and start-ups to be equipped with the skills and vision to address the changing global dynamics. Further, according to NASSCOM, the Indian IT and ITeS sectors face challenges of employability, infrastructure, favourable policies, and competition from low-cost countries. Moreover, infrastructure development is largely constrained to about nine cities that contribute more than 95% of the country’s exports. Development of tier 2 and 3 cities has not taken off in a planned manner. The lack of a supportive fiscal environment with a long- term policy framework is also leading to competition from other low-cost countries including China, Philippines and from Eastern Europe with potential erosion of India’s opportunity.

The government should 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.