Indian IT-ITes Industry

Indian IT-ITes Industry

Updated :: 26 Feb 2009

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Current Scenario

FY07-08 performance reflects sustained growth of 32%

Clocking revenues of USD 52 billion in FY07-08 up from USD 39.6 billion in FY06-07

Projected USD 60 billion in exports by FY09-10

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IT/ITeS industry: On a steady growth track

The Indian IT-ITes industry grew at a rate of 32 per cent in FY2008

Potential size of India’s offshore IT/BPO industry in 2015 is estimated at US$ 120 to 180 billion(10 to 12 per cent of GDP)

Direct employment for four million and indirect employment for 10 to 12 million by 2015

Expected to earn revenues of US$ 64 billion in FY2009, recording a CAGR of 31 per cent over the last five years

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Share of GDP

0

1

2

3

4

5

6

FY98 FY00 FY02 FY04 FY06 FY08

% of GDP

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Forex Earnings

IT/ITES industry grew by impressive 32.6% in FY07

Expected to reach 40 bn USD in FY08

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Employment Generation

CAGR of 26% in last decade

Direct employment of around 2 million by end 2008

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IT Services : Anchor Segment

Hardware accounted for about 49 per cent of the total domestic IT-BPO spend in FY2007

Software exports expected to reach US$ 40.8 billion, while the domestic market is expected to touch US$ 23.2 billion by FY2008

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IT Service : Anchor Segment

Banking, Financial Services and Insurance (BFSI) vertical continues to account for the largest share of exports at 31 per cent

Telecom vertical accounts for second-largest share of the pie at 19 per cent

Other verticals such as Manufacturing, retail, media and healthcare are rapidly gaining pace

Revenue by Vertical

413

20

8

384

13

BFSIHiTech/TelecomManufacturingRetailMedia,Publishing and EntertainmentUtilitiesOthers

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ITes –BPO

Services exports account for nearly two-third of the total IT/ITeS sector exports.

Indian IT-BPO sector grew at an estimated 28 per cent in 2007

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ITes -BPO

Industry has graduated to providing a high proportion of voice-based services and a wide range of back-office processing activities

Scope of services has expanded in the last (three to four) years, to include increasingly complex processes involving rule-based decision making and research services requiring informed individual judgment

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Indian IT/ITeS industry structure

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IT/ITeS sector: Value chain

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DotCom-Bubble

DotCom boom : 1995 – 2001

Many new internet based companies called dotcoms emerged

BSE Sensex climbed from 4000 to 6,000

Many new IT firms emerged during this period

Existing IT firms like Infosys, Wipro, TCS , Satyam registered huge profits.

Indian IT engineers made their presence felt in Silicon Valley

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DotCom-Bubble Burst

In Sep 2001, Sensex again dropped to 3,000 level.

Many dotcom companies that originated during the dotcom boom, were closed.

Other IT companies suffered heavy losses.

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Current Economic slowdown – Impact on IT/ITeS

Indian IT sector is going through a phase of uncertainty.

Many IT engineers are losing their jobs

No further recruitments is taking place

Profits declined for companies like Infosys, TCS

Salaries at all levels are being cut to minimize the losses

No new development is taking place

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India : Value Proposition

Breadth of service offering

• Service offerings have evolved from low-end application development to high-end integrated IT solutions

• Range of services offered by leading players spans a wide spectrum cutting across multiple verticals

Quality/maturity of processes

• Host to more than 55 per cent of global SEI CMM Level 5 firms

• Expected to host the highest number of ISO certified companies

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India : Value Proposition

Cost Advantage

• Cost of an engineer is about 20 – 40 per cent of comparable cost in European Union (EU)

• Selling, general and administrative costs approximately 80 per cent of comparable cost in EU

• Average offshore billing rate of US$ 20 to 35 per hour; about 50 to 70 per cent lower than EU

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India : Value Proposition

Ease of Scalability

• 6,75,000 technical graduates per annum, of which 4,00,000 are engineers

• Over 50,000 MBAs graduating per annum

• Leading firms add more than 10,000 new employees per annum

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India: Strong offshoring credentials

Key offshoring destination

India’s share in the global market has increased by 3 per cent in the IT segment and by 6 percent in ITeS from 2000-01 to 2005-06

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Government initiatives and progressive policy reforms

Establishment of a nodal agency (STPI)

• Fiscal benefits like tax holidays to attract investment into the industry

• Basic Infrastructure

• Single-window clearances for setting up Export Oriented Units (EOUs)

Telecom sector deregulation

• Sector deregulated in the mid and late 1990s to allow private sector and MNC participation

• Regulatory reform to allow adoption of new technologies

• Enable benefits of free market competition, improved service quality and declining tariffs

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Government initiatives and progressive policy reforms (contd…)

Progressive policy reform (fiscal/trade/other)

• No FDI restrictions

• Fiscal reform (international taxation,overseas investment, etc.) to facilitate ease of international transactions

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Recent/current initiatives

Area limit exemptions for the IT-BPO sector in the SEZ policy

Special emphasis on talent and infrastructure development

Infrastructure development; provisions designed to complement the STPI scheme

Highest level of commitment to addressing core issues faced by the industry

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Semiconductor Policy, 2006

Encourages FDI investment in hardware production segment and provides lucid policy structure for attracting capital through focus policies

Government to bear 20 per cent of the capital expenditure for manufacturing units located inside SEZs and 25 per cent for those outside SEZs

Emphasis on wafer fabrication and ancillary manufacturing plants

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National GDP share

Forex earningEmployment

generation

Spurring growth of first

generation entrepreneurs

Driving growth ofother sectors

Indirect employment generation

Boosting India’s image in global

markets

Front runner in good corporate governance

Contribution to Workforce development

Overall talent development in

the country

Employment Diversity:

Persons with diverse qualifications

Differently-abled

Women Persons

from small cities

Youth Out of

mainstream candidates

Education

Health

Livelihood

Contribution to Community and Environment

Direct economic impact Improving

product/ service quality

Indirect impact on Economic Scenario

Skill enhancement within organisation

Employee friendly work environment

Environment

Rural Development

Women & Children

Differently abled

Sports and Arts

Balanced Regional Growth

Fuelling growth of PE/VC funding activity

Impact on Economy and Society

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Indirect Economic Impact

Driving Growth of

Other Sectors

• Every Re 1 spent by IT/ITES sector results in Rs. 2 total output in the economy

• In FY06, 15.85 bn USD spent by the sector in domestic economy generated total output of 31.35 bn USD

• Multiplier effect more significant in sectors like housing/construction, transport services, communications, consumer durables, food items and clothing

Indirect EmploymentGeneration

• Every one new job in the sector, creates four additional jobs in the economy

• Estimated indirect employment generated around 6.5 mn in FY07

• Indirect employment opportunities created for low skilled/less educated workers- 75% of indirect workforce are SSC/HSC or less educated

Balanced Regional Growth

• Sector contributing to small city growth by hiring employees from these areas

• Several IT/ITES Companies shifting to smaller cities, beyond traditional Tier I locations - Emerging pan India presence of the sector

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Socially Relevant Community Initiatives

Education

• 68% of Companies undertaking socially relevant initiatives are involved in this sector• Top areas of contribution are infrastructure, primary education, scholarships, IT training and

higher education• Initiatives by top 6 Companies impacted 17.5 lakh people in 2006-07• Eg, WIPRO, Microsoft

Health• 56% of Companies contribute to this sector• Initiatives are aimed at improving quality and availability of infrastructure, initiating and

supporting tele-medicine projects and creating awareness about risk factors• Eg TCS-WebMedicine, Cummins, Satyam-EMRI

Environment

• 42% of Companies undertaking socially relevant initiatives are involved in this sector

• Initiatives are aimed at conservation of resources and environmentally friendly practices in supply chain, awareness creation, tree plantation etc.

• Eg, HP is collaborating with WWF to establish a climate witness project in Sunderbans

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Challenges for Indian IT/ITes Industry

Dependency on the US

Indian IT firms outsourced and Off-shored !

Rupee Appreciation and FII

IT SEZ’s

DTA (domestic Tariff Areas)

Diversification In Verticals

Telecom and 3G

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