- 1 Definition / Scope
- 2 Market Overview
- 3 Key Metrics
- 4 Market Risks
- 5 Top Market Opportunities
- 6 Market Drivers
- 7 Market Restraints
- 8 Industry Challenges
- 9 Technology Trends
- 10 Pricing Trends
- 11 Regulatory Trends
- 12 Other Key Market Trends
- 13 Market Size and Forecast
- 14 Market Outlook
- 15 Technology Roadmap
- 16 Distribution Chain Analysis
- 17 Competitive Landscape
- 18 Competitive Factors
- 19 Key Market Players
- 20 Strategic Conclusion
- 21 References
- 22 Further Reading
- 23 Appendix
Definition / Scope
Information technology is the study, design, development, implementation, support or management of computer-based information systems—particularly software applications and computer hardware.
This industry has not only transformed India's image on the global platform but also has become one of the significant sector that contributes in boosting up the Indian economy through telecommunication, software development, design, mobile commerce, e-commerce, BPO and knowledge process outsourcing (KPO).
Recently, the government has identified Information Technology as one of the 12 champion service sectors for which an action plan is being developed.
The top IT companies in India that offer job opportunities to the young tech graduates are Tata Consultancy Services (TCS), Wipro Technologies, Cognizant, Yahoo!, Google, Tech Mahindra, Infosys Technologies, HP ,Capgemini, iGATE Patni, Accenture, L&T, EY, Convergys, MphasiS, Genpact, HCL Technologies and Godrej InfoTech.
Some of the popular IT hubs of the country are: Bengaluru, Delhi, Noida, Gurgaon, Hyderabad, Chennai, Bombay and Cochin.
The Indian IT and ITeS industry is divided into four major segments – IT services, Business Process Management (BPM), software products and engineering services, and hardware.
• Market Size: US$ 86 billion during FY 18.
• Over 81 per cent of revenue comes from the export market.
• BFSI continues to be the major vertical of the IT sector.
• IT services had around 51.7 per cent share in total Indian IT sector revenues in FY 18.
Business Process Management
• Market size: US$ 32 billion during FY 18.
• Around 87 per cent of revenue comes from the export market.
• Market size of BPM industry to reach US$ 54 billion by FY 25.
• BPM segment had around 19.2 per cent share in Indian IT sector revenues in FY 18.
Software products and engineering services
• Market size: US$ 33 billion during FY 18.
• Over 83.9 per cent of revenue comes from exports.
• The software products and engineering services segment grew 10.5 per cent in FY 17.
• It had around 19.8 per cent share in Indian IT sector revenues in FY 18.
• Market size: US$ 15.4 billion in FY 18.
• The domestic market accounts for a significant share.
• The segment had around 9.3 per cent share in Indian IT sector revenues in FY 18.
• Hardware exports from India are expected to grow at 7-8 per cent in FY 19.
The IT industry is the sector which is not confined to software development alone. Technology can be applied in libraries, hospitals, banks, shops, hotels, airports, train stations and many other places through database management systems.
- Revenue of India’s IT industry reached US$ 181 billion and exports stood at US$ 137 billion in 2018-19.
- India’s IT-BPM sector is expected to expand to US$ 350 billion by 2025 and BPM is expected to account for US$ 50-55 billion out of the total revenue.
- India’s IT industry contributed around 7.7 percent to the country’s GDP and is expected to contribute 10 per cent of India’s GDP by 2025.
- Moreover, revenue from the digital segment is expected to form 38 percent of the total industry revenue by 2025.
- IT industry employs nearly 3.97 million people in India of which 105,000 were added in FY18.
- The computer software and hardware sector in India attracted cumulative Foreign Direct Investment (FDI) inflows worth US$ 35.82 billion between April 2000 and December 2018 and stands at second position in inflow of FDI, according to data released by the Department of Industrial Policy and Promotion (DIPP).
|Base Year||2018||Researched through internet|
According to the latest survey conducted in order to figure out the most significant threats for IT/ITES businesses across India in 2018, around 21.87 percent of respondents in the IT/ITES industry rated natural hazards as most risky and crime being least risky. The overall results were as below:
- Natural Hazards – 8.46%
Flood and heavy monsoon rain in India in 2015 negatively influenced the rapidly growing tech hubs of Kolkata and Delhi.
- Information and Cyber Insecurity – 11.65%
A leading business chamber on 23 June,2017 ranked Information and Cyber-Insecurity as the most significant threat to business perception and operations in the country. As the nation is shifting towards digitisation of various assets and services, hackers are being more active on such platforms. The WannaCry malware incident in 2017 was the worst incident in which several systems were attacked, both of the public and the private sectors.
- Corruption, Bribery and Corporate Frauds – 9.18%
It is the third most grievous risk to business operations in India. Though the regulations such as GST, demonetisation, Make in India, the Digital India Program have been implemented in order to lower corruption, however, the nature of corruption is such that it refuses to be completely removed.
- Terrorism and Insurgency – 9.2%
The persistent risk posed by Terrorism and Insurgencies, creates a risk perception in the minds of investors with interest in the Indian market. Global Terrorism Index ranks India 8th on the list of countries most impacted by terrorism. Despite of investing heavily in security capability, still foreign investors are not comfortable to invest in Indian Industries due to perception of this risk.
- Intellectual Property Theft - 8.21%
Prevailing of counterfeit and piracy of films, music, software and other illegal activities is another subject of concern for IT Industry. It is estimated that India loses $2.5 billion to online movie piracy every year and if it continues it will be a major source of revenue leakage.
Top Market Opportunities
- One of the potential opportunity is that India accounts for about 67 percent of the global outsourcing market. Along with that, India is now evolving into a value-added destination making cost-efficient technology for global clients and opening new industry verticals in the fields of system integration, consulting services, and technology-enabled business services, popularly known as SMAC.
- Indian MNCs have a presence in over 60 countries, and account for about 70 percent of India’s total IT export revenue. So, these MNCs can offer a wide range of services in multiple verticals including infrastructure management and business support services in the countries where they operate.
- It has also been projected that IT exports from India will exceed the US$330 billion by 2019-20. This accounts for nearly 14 percent of the projected world-wide spend if India maintains its current share of the global offshore IT market.
- This industry has been blessed with Federal support and Digital Infrastructure. There are fiscal benefits such as 100 per cent tax holiday on export profits and exemption from excise duties and customs each for Software Technology Parks of India(STPI) and Special Economic Zones(SEZ).
- In order to promote IT sector, the Government of India is going to explore new opportunities in various sectors such as providing BPO service from home, digital healthcare and agriculture to achieve the target of making India a US$ 1 trillion digital economy. Hence, IT experts can find a new way out on how to handover their software related to such areas to the government.
- The Government of India is planning to set Wi-Fi facility for around 5.5 lakh villages by March 2019 with an estimated investment of Rs. 3,700 crore (US$ 555 million) and the government expects to start broadband services with about 1,000 megabit per second (1 gbps) by the end of this year. This is another profitable reason for IT business establishment and expansion.
- Besides that, India is also gaining prominence in terms of intellectual capital with several global IT firms setting up their innovation centers in India. By this, many IT graduates will be getting employments and It industry will be on peak.
- India has retained its position as the third-largest start up base in the world with over 4,750 technology start-ups, with about 1,500 start ups in 2018 alone, which shows there will be huge return if investment is done in this sector at the present time.
- In addition, Nasscom has launched an online platform which is aimed at up-skilling over 2 million technology professionals and skilling another 2 million potential employees and students.
- Focus is highly on IT-enabled Services and ignoring IT and Software products.
Investors are emphasizing much on digitization of services through applications and IT products are not taken into consideration.
- Companies neglecting Engineering and R&D services.
Investors are focusing too much on low-end IT services without proper survey. This is a big restraint for long term and to cope up with this, need based services should be delivered.
The H1-B visa is a program that allows companies based in the US to temporarily employ highly skilled professions from other countries. According to the USCIS (US Citizenship and Immigration Services), nearly 75% of H1-B visa holders are Indian citizens but due to Trump new policy regarding this Visa, it is difficult for companies to prove that the H1-B worker comes with specific and non-speculative qualifying assignments in a certain occupation. Due to change in this policy, Indian IT sector is highly effected.
Data protection and privacy rules
The European Union’s GDPR (General Data Protection Regulation) law became effective in May 2018 and any company that deals with the personal data of European customers need to comply with GDPR rules. But not all the IT companies in India can comply with GDPR and other data protection rules, many had to stop serving EU customers.
Because of lack of skilled employees, conventional infrastructure, as well as restrictive regulations, Indian organizations are slow in adopting new technologies such as cloud computing, artificial intelligence (AI) and block chain. Also, IT companies are not finding the right talent that can go along their digital transformation journey.
Negative reputation around the world
TCS and Infosys are the pillars of the IT industry in India. But TCS was slammed by a penalty of $420 million by the US court in April 2016. It had been accused for stealing trade secrets, confidential information and data that belonged to Epic. And Infosys paid a penalty of $1 million for violating the visa and immigration rules in the US. The company was accused of employing foreign workers in New York without paying taxes and wages. Such types of incidents negatively impact the image of the Indian IT industry in the global market.
To further improve customer experience, improve operational efficiency and reduce operating costs, few trends in IT sector that will gain momentum are:
Artificial Intelligence (AI)
AI-based digital assistance like Alexa, Siri, or Google Assistant have increasing their reach and real-time self-service options are being prioritized. AutoML (Automated Machine Learning) algorithms will help software developers to solve complex problems without the need of creating complex models and workflow.
Increase in Cloud Adoption and Cloud Computing
In 2019, key trends that can be foreseen are rapid enterprise cloud adoption, reduced concerns over cloud providers’ security, increasing the complexity of cloud deployments, and the increase in as-a-service deployment thinking. The Hybrid Cloud model will offer a transition solution to the enterprises that combines the infrastructure with public cloud and private cloud services. As a result, companies can transition to the cloud at their own pace while being flexible and efficient.
This will be forever ongoing trend because as long as there are hackers, industry will have cyber security as an emerging technology because it will constantly evolve to defend against those hackers. Organizations will have to migrate their important data/workflows on cloud-based services and utilize the benefits of AI programs to help identify and protect the servers.
As of early 2018, software development costs in India range from $13-$50 per hour based on input from the Quora community. It has been noted that those companies who are highly experienced are priced higher than those who are not.
Hiring a software developer costs between US$50 to US$150 an hour on average in the US, while they can be hired for as low as US$15 to US$45 an hour in India. So, India can help companies generate cost savings between 40 and 60 percent, depending on the type of services offered when compared to leading software markets like the US.
- The government’s Digital India campaign is injecting US$20 billion in investments to improve internet infrastructure in the country, and facilitate online payments systems and e-governance, among other things.
- IT firms in India can take advantage of fiscal incentives offered by the government to Export Oriented Units (EOUs), STPIs, and SEZs. Further, the government provides a reduction in the tax rate on royalty and fees from technical services from 25 percent to 10 percent.
- The Government of Andhra Pradesh is targeting to attract investments worth USD 2 billion and create 100,000 jobs in the information technology (IT) sector in the state, stated Mr N Chandra babu Naidu, Chief Minister, Andhra Pradesh.
Other Key Market Trends
- Organizations are now spending up to 45 percent of their IT budgets on optimizing traditional IT infrastructure, developing high-skilled talent, and innovating digital processes to make their business adaptive.
- The country’s IT ecosystem that includes the associated education and training sectors, will continue to develop and that will be providing foreign entrants the upper edge they need in the global market.
Market Size and Forecast
- India’s IT & ITeS industry grew to US$ 181 billion in 2018-19. Exports from the industry increased to US$ 137 billion in FY19 while domestic revenues (including hardware) advanced to US$ 44 billion.
- Spending on Information Technology in India is expected to grow over 9 per cent to reach US$ 87.1 billion in 2018.
- Revenue from digital segment is expected to comprise 38 percent of the forecasted US$ 350 billion industry revenue by 2025.
- Leading Indian IT firms are diversifying their traditional offerings and showcasing innovating ideas in block chain, artificial intelligence to clients using innovation hubs, research and development centres, in order to create differentiated offerings.
- Venture Capital investments in the IT & ITeS sector stood at US$ 53.0 million during Q4 2018.
- E commerce market in India is set to grow at 30 percent annually to hit US$ 200 billion gross merchandise value by 2026.
- Employees of Flipkart, Snapdeal, Makemytrip, Naukri, Ola, and others, have planned to form 700 start-ups on their own, that will expand the Indian start-up ecosystem.
- Rise in mobile-phone penetration and decline in data costs will add 500 million new internet users in India in coming five years that will create opportunities for new businesses.
Distribution Chain Analysis
The IT product supply chain partners are similar to any other product supply chain but there is slight difference especially in name. For example, the distributor in a supply chain is broken up into ‘Channel Partner’ and a ‘Dealer’. There is a long term strategic agreement between the channel partner and the manufacturer and the latter is responsible for the distribution of products via a network of dealers who in turn deliver it to the retail stores and outlets.
The widespread incorporation of the global delivery model (GDM) has assumed paramount importance due to seamless execution of services with a combination of quality, cost arbitrage, and localization of services through distribution of services across various locations worldwide.
Indian IT players have been frontrunners as regards the adoption of various quality certifications. One side companies want their customers to convey a well-defined and documented process of software development. On the other hand, quality certifications enable firms to estimate the time and resources required to complete a project.
- High quality and maximum security
It is one of the competitive factor because through IT applications and e-commerce, people are dealing in huge transactions. So, safety is most required factor.
- Innovation Network
Customers keep on demanding new and easy applications than before for their simplification of complex work. If service is not innovated to meet the demand, company may be collapsed from market place.
- Brand name
Customers have high belief on brand value. They think branded products as guaranted products and remain loyal towards those products.
- Full services offerings
People generally prefer all things from one place. This is also one of the compentent factor in present time.
Key Market Players
Tata Consultancy Services (TCS)
TCS is an IT services, consulting and business solutions organisation that delivers real results to global businesses, ensuring a level of certainty no other firm can match. It has over 394,998 of the world's best-trained consultants in 46 countries. It offers a consulting-led, integrated portfolio of IT, BPO, infrastructure, engineering and assurance services. It is India's largest industrial conglomerate with US$ 100 billion market capitalisation mark.
Infosys Ltd is today one of the largest IT companies in India and the world. It operations in 45 countries with more than 200,000 employees. This company provides business information technology services comprising application development and maintenance, independent validation, infrastructure management, engineering services comprising product engineering and life cycle solutions and business process management. The Consolidated total income of US$ 8,740 million in 9M FY19.
It is a global leader in information technology, consulting and business process services. It has over 160,000 dedicated employees serving clients across six continents. It harnesses the power of cognitive computing, hyper-automation, robotics, cloud, analytics and emerging technologies to help its clients adapt to the digital world and make them successful. It has a consolidated gross revenues of Rs. 435,782 million (US$ 6.04 billion) in 9M FY19.
Other key players are as below:
India is the topmost offshoring destination for IT companies across the world. Due to the competitive advantage in cheap labour cost and wide talent pool, it has proved its capabilities in delivering both on-shore and off-shore services to global clients. Although, the sector is facing multiple headwinds, but the overall industry continues to grow in customer base and domestic needs.
- AI: Artificial intelligence
- BFSI: Banking, Financial Services and Insurance
- BPO: Business Process Outsourcing
- DIPP: Department of Industrial Policy and Promotion
- EOU: Export Oriented Units
- FDI: Foreign Direct Investment
- FY: Fiscal Year
- GDM: Global Delivery Model
- GDP: Gross Domestic Product
- GDPR: General Data Protection Regulation
- IT: Information Technology
- ITES: Information Technology Enabled Services
- KPO: Knowledge Process Outsourcing
- MNC: Multinational Company
- R&D: Research and Development
- SEZ: Special Economic Zone
- SMAC: Social, Mobile, Analytics and Cloud
- STPI: Software Technology Parks of India
- TCS: Tata Consultancy Services
- USCIS: US Citizenship and Immigration Services
- USD: United States Dollar