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Current Trends and Challenges for Indian IT Industry and Government initiatives for the Future Growth

The information and communication technology (ICT) sector has played an important role in India’s economic growth and the emergence of an informed citizenry.

 

Indian IT industry s critical pillar in India’s economic growth contributing around 8% to India’s GDP. As per NASSCOM, the Indian IT/ITES industry is expected to maintain a growth of 7%-9% in FY18, generated estimated revenue of around USD 168 billion, including export of USD 126 billion on an annual basis. It has also envisaged the Indian IT/ITES industry to achieve a revenue target of USD 350 billion by 2025.  The industry has been driving growth force for enabling \india to develop capabilities for harnessing new technologies across all the sectors namely, agriculture, health, eduction, manufacturing etc.

 

India is the world’s largest sourcing destination for the information technology (IT) industry, accounting for approximately 67 percent of the US market. As the global sourcing industry continues to grow at high single digit rates. Indian IT companies continue to increase market share; the long-term industry outlook remains robust.

 

From very humble beginnings, the Indian IT Industry has grown at an exponential rate over the past 10 years of export, fetching for India valuable foreign exchange, and employing about 10 million workforce. Right from 1991 to 2000, Indian companies grew at a mind-boggling rate of 200- 500%, attracting lucrative projects from companies all over the world, especially the US. More importantly, the industry has led the economic transformation of the country and altered the perception of India in the global economy.

 

India became a global player in the IT revolution because of two main factors-opening up of the markets and India’s cheap and vast manpower with knowledge of English.   Since the entry level wages remain 8x-10x lower than in developed nations, Indian  cost competitiveness in providing IT services is continuing  to be its Unique Selling Proposition (USP) in the global sourcing market .

 

ICT sector both thrives from innovation as well as enables innovation. India plans to become a global innovation and technology development hub. Global studies show that ICT and intellectual property

 

(IP) are two key pillars of an Innovation Economy. This requires many initiatives that include setting up of a task force to identify the short-term and long-term strategies and to lay down a roadmap, strengthening data protection regulations, initiating measures on how to ensure IP protection for the ICT sector, how to link different government initiatives and policies and how to work closely with innovators, start-ups and other stakeholders.

 

The Indian software sector’s value proposition is unmatched in the world.The number of global delivery centers (GDC) have increased to more than 670 in FY17 in more than 78 countries.

 

The digital skilled talent base is growing rapidly. India has the third largest group of scientists and technicians in the world and is predicted to be the world’s largest supplier of university graduates by 2020

 

IT sector growth

Indian IT industry is predominantly a service led industry. India’s IT industry can be divided into six main components, viz. Software Products, IT services, Engineering and R&D services, ITES/BPO (IT-enabled services/Business Process Outsourcing), Hardware, and e-commerce.

 

Export revenues from IT services (US$ 66 billion) continues to drive growth. More than three fourth of the export revenue of Indian IT companies come from IT services and related support, and business process outsourcing. BPM accounted for 22.2% (about US$ 26 billion) of total IT exports of US$ 117 billion. Software products and engineering services contributes US$ 25 billion.

Export revenue of the industry is expected to grow 7-9 per cent year-on-year to US$ 135-137 billion in FY19. The industry is expected to grow to US$ 350 billion by 2025 and BPM is expected to account for US$ 50-55 billion out of the total revenue.

 

Indian IT’s core competencies and strengths have attracted significant investments from major countries. The computer software and hardware sector in India attracted cumulative Foreign Direct Investment (FDI) inflows worth US$ 32.23 billion between April 2000 to June 2018, according to data released by the Department of Industrial Policy and Promotion (DIPP)

 

IT challenges

The innovation culture is nurtured through a solid Intellectual Property (IP) regime that allows for monetization of IP. The country’s ranking in the Global Innovation Index of the World Intellectual Property Organization (WIPO) among 130 countries improved from 81 in 2015 to 60 in 2017. According to the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, there has been an increase in patent filings in the last three years.

 

Increasing competition, pressure on billing rates of traditional services and increasing commoditization of lower-end services are among the key reasons forcing the Indian software industry to make a fast move up in the software value chain. The new digital technologies like social media, mobility, analytics, and cloud computing (SMAC) has permanently changed the way Indian IT firms do business.

 

The US accounts for more than 60 percent of India’s exports, while western European countries including Britain, France and Germany account for another 25 percent or so. However, Indian IT companies have continued to face hardships on account of protectionist measures by these countries.

Due to US restrictions on visas as well as rising visa costs, most Indian IT companies have subcontracted onsite jobs to local employees in the US and have begun hiring locals. This has adversely affected margins of Indian IT companies.

 

Most companies have decided to tide over the problem of reduced profits by resorting to layoffs and cutting down heavily on fresh recruitment. Companies are looking at new sectors like banking and the governance.

 

Fly by night operators wanting to make quick bucks from the high ratings software companies, coupled with the poor quality of support they provide, is destroying the credibility of the industry. Challenge that Indian companies are facing is that most global corporations prefer to keep the most lucrative projects for their employees and leave the crumbs for the Indians to brush up.

 

Lack of domain expertise in talent is major issue that the industry is currently contending with, along with the withdrawal of tax benefits. Given the tough competition prevalent in the industry, there is immense pressure amongst companies to offer competitive pricing, in the recent past. Besides, Brexithas impacted the second largest market for Indian export (Britain). However, the future looks promising if we tread the path cautiously.

 

As per NASSCOM strategic review 2017 , the global software product Industry is estimated to be USD 413 billion. However, the contribution of software products in Indian IT-ITES revenue is just USD 7.1 biliion, out of which USD 2.3 billion are exports and import of software products is nearly USD 10 billion. Hence India is net importer of software products. Software product industry will boost

 

Future Opportunities

Spending on Information Technology in India is expected to grow over 9 per cent to reach US$ 87.1 billion in 2018.*

Social, Mobility, Analytics and Cloud (SMAC) are collectively expected to offer greater opportunities. Cloud represents the largest opportunity under SMAC, increasing at a CAGR of approximately 30 percent by 2020. The social media is the second most lucrative segment for IT firms. The Indian e-commerce segment is witnessing strong growth, thereby offering another attractive avenue for IT companies to develop products and services, to cater to the high growth consumer segment. The IT industry has also created significant demand in the Indian education sector, especially for engineering and computer science.

 

Changing Model

Indian IT’s core competencies and strengths have attracted significant investments from major countries. Leading Indian IT firms are diversifying their offerings and showcasing leading ideas in blockchain, artificial intelligence to clients using innovation hubs, research and development centers, in order to create differentiated offerings.

 

The software product think-tank, Indian Software Products Industry Roundtable (iSpirt), has said that India has the potential to build a US$ 100 billion software product industry by 2025 as against its current worth of around US$ 2 billion.

 

 

With the recession, most companies have drastically revised their organizational and marketing strategies. Even the high-flying companies are doing the low-grade maintenance work for their clients to create good relationships in the hope of getting a big project from them sometime in the future.

The share of onsite work has come down as most foreign companies prefer to sustain as much of their own employees rather than outsiders.

Most software companies have shifted emphasis to off-shore projects since the on-site software development has virtually come to a standstill. Companies in India have now shifted gears doing off-shore development. They have started looking at the European and Japanese markets, which have not yet been affected by the slowdown. Other markets which they are tentatively eyeing are the Australian, South American and Middle East markets.

 

Indian IT companies have adopted the global delivery model. They are setting up development centers in Latin America, South East Asia and Eastern European countries to take advantage of low cost and also cater to the local market. In the US, such centers will help mitigate the risks of the new immigration bill and increase the probability of winning projects in highly regulated sectors such as healthcare, government services, utilities etc.

 

Indian Government Initiatives

The Indian IT sector will benefit significantly from the government’s schemes like Digital India, Atal Innovation Mission, Make in India, Skill India, and Startup India. This aim is to ensure that the Indian IT industry delivers world class services at competitive rates and quality. This is ensuring digital access, digital infrastructure, digital empowerment and bridging of digital divide and leading to digital inclusion.

 

The Indian government is emphasizing on better technology enabled delivery mechanisms for a multitude of government projects. Further, with the new digital India and start up Indian initiatives being launched, the domestic market for software services has a bright future ahead.

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. The government has identified Information Technology as one of 12 champion service sectors for which an action plan is being developed. Also, the government has set up a Rs 5,000 crore (US$ 745.82 million) fund for realising the potential of these champion service sectors.

 

As a part of Union Budget 2018-19, NITI Aayog is going to set up a national level programme that will enable efforts in AI* and will help in leveraging AI* technology for development works in the country.

 

The Indian government has entered into collaborations and Memoranda of Understanding (MoUs) with a number of countries including many European countries and European Union (EU) Member States to strengthen research and development (R&D), innovation and startup ecosystems. Foreign investment up to 100 per cent is allowed in the information and communications technology (ICT) sector and in R&D to attract foreign companies

 

 

References and resources also include:

http://www.enterpriseitworld.com/index.php/indian-ict-industry-current-trends-challenges-and-the-future/

http://www.enterpriseitworld.com/index.php/indian-ict-industry-current-trends-challenges-and-the-future/

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