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The Information Technology Industry Of India : An Overview

August 31, 2013


The Information Technology Industry of India dates back to 1967 when the Tata Group in collaboration with Burroughs set up the first software zone, SEEPZ in Mumbai.In 1973 SEEPZ became the first software export zone which saw 80% of the software export in the 1980s. Since then, the IT sector of India has grown by leaps and bounds and has acquired India a brand name in the IT and ITES (Information Technology Enabled Services) sector in the global scenario. The major hubs for the IT export sector are Bangalore, Chennai, Hyderabad, Delhi, Mumbai and Kolkata. Bangalore has earned the sobriquet, ‘The Silicon Valley of India’ owing to the maximum IT export (generating 77% of the net IT export revenue of India). The IT- ITES sector can be broadly classified into two categories (i) Business Process Outsourcing (BPO) and (ii) Domestic and IT export. The growth in the BPO sector under the supervision of the IT-ITES sector has been phenomenal. According to NASSCOM, “The IT-BPO sector in India aggregated revenue of US$ 100 billion in FY 2012, where export and domestic revenue stood at US$ 69.1 billion and US $31.7 billion respectively”.

The industry is also an employment intensive sector. The estimated employment generation in the FY 2012 was an expected 230,000 thus providing direct employment to 2.8 million and indirect employment 88.9 million people all over the country. According to a report prepared by Gartner, the top five outsourcing companies of India are TCS, Cognizant, Infosys, Wipro and HCL Technologies.

An overview of the top five IT companies of India
The top five IT companies of India had a golden time during 2012 when the collective revenue growth of these companies was 13.3% (6 times faster than the global market). However, not all the top five companies are on the same page as Cognizant overtook Infosys (2nd ranking supplier of the industry). Cognizant’s revenue growth of 20% as compared to Infosys’s 6% compelled the latter to break the retirement of Narayan Murthi (founder of Infosys and former CEO) to envisage some strategic moves to stay at par in the competition. According to Sid Pai, partner and president of outsourcing advisory, ISG’s Asia Pacific Division, “The Indian firms are going to need to mimic the global firms. And that of course means a margin dilution, so there is a rough patch ahead for these guys”. This in short means that these companies have to entirely revamp their existing model of service providing, change the old model of charging for services. Besides a fundamental change has come over the customers interested in buying IT services and a local proximity to the customers is essential.

The 2013 Scenario of the IT- ITES sector in India
The information technology in India is looking towards a bleak future in general in the current year. However, small sparks of encouragement are there. As per the statement of BVR Mohan Reddy, chairman and managing director, Infotech Enterprises Limited, a global technology solution provider, “Such periods of uncertainty in the past have provided a great platform for organizations to refine strategy and execute initiates that increase competitive advantage and accelerate growth.” The Indian IT sector will witness a predictable slump of growth from that of 16% last year to a discouraging 11% this year. However, growth in the allied sectors like health care and insurance is a small ray of hope. Andhra Pradesh, ranking as the fourth largest IT exporter of the country is being severely affected by power supply shortage which is naturally slowing down the development of the state’s IT sector. It is to be mentioned here that Andhra Pradesh accounts for 12% of the total IT export of India and the turnover for 2012 was RS53, 246 crore. Hyderabad is in a little better position as it has been proactive in changing its infrastructure to keep pace with the changing face of the global IT export scenario.

The Recession period, the free fall of rupees against dollar compounded with other factors has resulted in a severe decline in the hiring process of the IT sector. The employment generation capacity of this sector has shrunk considerably. IT professionals including ex- IT sector employees are now seeking employment in financial services, telecommunications and manufacturing industries which have recently witnessed a phenomenal growth.

Challenges faced by the IT sector in India
• The IT sector of India needs to discard its old model of service providing and operations. The old model popularly known as the ADM (Application, Development and Maintenance) is obsolete. It is imperative that the IT sector resorts to the new model of ‘outcome based billing’ and fixed contract based services
• The maturity of the offshore models has created a demand among the customers for a close proximity of the service providers which may even involve setting up of near shore stations for support.
• There is a stiff competition from China, Philippines and Eastern Europe which are also proving to be low cost and competitive countries. It is estimated that by 2020 they will be a 20% stakeholder in the global IT export scenario.
• A shrinking talent pool in our country is also largely affecting the IT sector. The number of employable graduates in the business sector is as low as 10% to 15% while that of qualified and employable engineers is 26% only.
• IT giants like IBM and Accenture have now opened up their own centers in India with the same target audience as that of the Indian IT Sector.
• The proposed development of the tier 2 and 3 cities has not gone as planned so the entire IT sector is stagnated in the 9 major cities.
• It is imperative that the IT sector of India should focus on the new emerging trends like Social media, Mobility, Analytics and Cloud (SMAC)
• There is a need for a total revamping of the infrastructure of the IT sector which unfortunately is pending due to fund unavailability. Fund shortage is also affecting the medium and small IT enterprises which need a basic financial injection for their start-up.

Though 2013 has left the US$ 108 billion IT and ITES sector of India standing at the crossroads, Software Services Industry Body NASSCOM is absolutely positive about the growth of India’s IT sector. According to NASSCOM, “‘newer geographies’ are set to double their contribution to India to 20% by 2020”. As per the estimation of NASSCOM purely domestic and export services of the Indian IT sector is expected to generate US$ 225 billion by 2020. The landscape of the global IT and ITES market is changing rapidly and it is totally up to the Indian IT sector now to adapt to this changing landscape. After all India is still a major brand name in the global IT and ITES sector.