Sector structure/Market size

The Indian information technology (IT) industry has played a key role in putting India on the global map. Thanks to the success of the IT industry, India is now a power to reckon with. According to the National Association of Software and Service Companies (NASSCOM), the apex body for software services in India, the revenue of the information technology sector has risen from 1.2 per cent of the gross domestic product (GDP) in FY 1997-98 to an estimated 5.8 per cent in FY 2008-09.

Further, the industry body expects the sector to grow between 4 per cent and 7 per cent during 2009-10 and return to over 10 per cent growth next year.

India's IT growth in the world is primarily dominated by IT software and services such as Custom Application Development and Maintenance (CADM), System Integration, IT Consulting, Application Management, Software testing, and Web services.

As per NASSCOM's latest findings:

• Indian IT-BPO sector grew by 12 per cent in FY 2009 to reach US$ 71.7 billion in aggregate revenue (including hardware). Of this, the software and services segment accounted for US$ 59.6 billion.
• IT-BPO exports (including hardware exports) grew by 16 per cent from US$ 40.9 billion in FY 2007-08 to US$ 47.3 billion in FY 2008-09.

Moreover, according to a study by Springboard Research, the Indian IT services market is estimated to remain the fastest growing in the Asia-Pacific region with a compound annual growth rate (CAGR) of 18.6 per cent.

At present, there are 60 million Internet users in the country. According to the Manufacturer’s Association of IT (MAIT), the number of active Internet entities rose to 8.6 million by March 2009 from 7.2 million units in March 2008.

MAIT has outlined 'Goal 511', an ambitious target that talks about 500 million Internet users, 100 million broadband connections and 100 million connected devices by 2012.

A study by MAIT estimated that the total PC sale in India is likely to grow by 7 per cent in 2009-10, with total sales expected to cross 7.3 million units.

Moreover, software companies continued to constitute the fastest growing firms in the Deloitte Technology Fast 50 India 2009 programme. In 2009, the composition of software companies amounted to as much as 80 per cent. Despite the slowdown and challenges for growth, the report stated that the average growth rate of the top ten winners increased significantly to 1,003 per cent, compared with 845 per cent in the previous year.

Outsourcing

According to NASSCOM, software and services exports (including exports of IT services, business process outsourcing (BPO), engineering services and research and development (R&D) and software products) reached US$ 47 billion in FY 2008-09, contributing nearly 78 per cent to the total software and services revenue of US$ 59.6 billion.

India continues to be the most preferred destination for companies looking to offshore their IT and back-office functions. It also retains its low-cost advantage and is among the most financially attractive locations when viewed in combination with the business environment it offers and the availability of skilled people, according to global management consultancy, AT Kearney.

Global IT giant, IBM, plans to scale up its business process outsourcing (BPO) operations in the country and looks to recruit 5,000 people to support the expansion.

Some big deals in the outsourcing space include:

• HCL Technologies has entered into a five-year deal with media conglomerate News Corp for managing its data centres and IT across British newspapers. The deal is pegged to be in the range of US$ 200-US$ 250 million, according to industry experts.
• HCL Technologies has also received a contract worth US$ 50 million from UK-based defence equipment maker Meggitt for providing engineering services.
• Walmart has selected three IT vendors in India — Infosys Technologies, Cognizant Technology Solutions and UST Global — for multi-year contracts worth over US$ 600 million.