India’s Thriving IT Sector Drives Economic Growth and Innovation
India’s IT and BPM sector has emerged as a major driver of economic growth, making substantial contributions to the country’s GDP and public welfare. In the fiscal year 2022, the IT industry accounted for 7.4% of India’s GDP, and its impact is projected to increase to 10% by 2025.
With the rapid advancement of digital technologies across various sectors, India is poised for the next phase of its IT revolution. The country is globally recognized for its large user base and affordable internet rates, providing access to 760 million people.
The focus now lies on generating significant economic value and empowering citizens through robust digital infrastructure and enhanced digital access facilitated by the Digital India Programme. India stands out as one of the fastest adopters of digital technologies, a feat achieved through a combination of government initiatives, commercial innovations, investments, and the proliferation of digital applications that are transforming diverse activities and forms of work, ultimately improving the everyday lives of its citizens.
In recognition of its progress, India climbed six spots to secure the 40th position in the 2022 edition of the Global Innovation Index (GII). This improved ranking reflects the country’s commitment to fostering innovation and harnessing the power of technology for growth and development.
The Indian IT industry witnessed significant growth in FY22, with revenues reaching US$227 billion, marking a YoY growth of 15.5%, according to the National Association of Software and Service Companies (Nasscom).
In line with this upward trajectory, the Indian software product industry is projected to achieve a milestone of US$100 billion by 2025. To expand their global presence and bolster their global delivery centers, Indian companies are actively investing in international markets.
The data annotation market in India, valued at US$250 million in FY20, is expected to experience substantial growth due to the rising demand for artificial intelligence (AI) within the country. With an accelerated domestic demand for AI, the market is predicted to reach US$7 billion by 2030.
In terms of exports, the Indian IT industry recorded US$149 billion in FY21, with IT services accounting for more than 51% of the total exports (including hardware). Additionally, both the BPM and engineering and R&D (ER&D) sectors, along with software products, contributed around 20.78% each to the total IT exports during FY21. The ER&D market itself is forecasted to expand to US$42 billion by 2022.
Furthermore, the IT industry played a vital role in employment generation, hiring approximately 445,000 new employees in FY22, bringing the total employment in the sector to 5 million employees. This signifies the industry’s capacity to contribute to job creation and provide opportunities for skilled professionals.
Some of the major players in the Indian IT services market include Tata Consultancy Services (TCS), Infosys, Wipro, HCL Technologies, Cognizant, Tech Mahindra, Capgemini, IBM and Accenture.
The Indian IT services market in FY22-23 experienced significant growth, with companies like TCS and Infosys reporting strong revenue figures. TCS, for instance, recorded a remarkable 16.2% increase in revenue, reaching a total of US$ 26.7 billion. Similarly, Infosys witnessed a robust revenue growth of 19.7%, amounting to US$ 23.3 billion.
During this period, several major deals were struck within the Indian IT services market, showcasing the industry’s prominence and global reach. TCS secured a substantial contract worth US$ 1.2 billion from the US Department of Defense, highlighting their ability to deliver high-quality services on a large scale. Infosys secured a significant contract worth US$ 1 billion from the UK government, further establishing their expertise in providing technology solutions to governments worldwide. Additionally, Wipro secured a notable contract worth US$ 750 million from the European Commission, underscoring their global presence and reputation. The company reported a revenue of approximately $9.2 billion for FY22-23, showcasing its consistent growth and commitment to delivering value-driven solutions.
Key Deals in the Previous Financial Year:
TCS: TCS secured a multi-year deal with Prudential Financial, a leading global financial services company, to provide IT services and help drive its digital transformation efforts.
Infosys: Infosys entered into a strategic partnership with Rolls-Royce, a renowned engineering company, to deliver engineering and R&D services, further strengthening their long-standing collaboration.
Wipro: Wipro signed a significant deal with Metro AG, a leading international wholesale company, to provide IT infrastructure and cloud services, supporting Metro’s digital transformation journey.
HCL Technologies: HCL Technologies announced a partnership with Google Cloud to accelerate the adoption of cloud technologies and provide advanced digital solutions to clients across various industries.
Tech Mahindra: Tech Mahindra secured a deal with AT&T, a global telecommunications company, to help modernize its network cloud and accelerate its 5G deployment.
These major deals serve as a testament to the increasing demand for IT services from both businesses and governments worldwide. As organizations and governments continue to embrace digital transformation, the Indian IT services market remains well-positioned for sustained growth. With its robust talent pool, technical expertise, and favorable business environment, India continues to be a preferred destination for organizations seeking reliable and innovative IT services. As we look to the future, the Indian IT services market is poised to thrive, driving technological advancements and delivering value to clients across the globe.
India an opportunity to become “office of the world” for corporations
The Indian IT sector is well-positioned to weather a recession, but it is not immune to the effects of a global economic downturn. The sector is highly competitive and has a strong track record of delivering high-quality services to global clients.
India’s strong services exports have grown by 14% over the last two decades and stood at US$254.5b in 2021-22. A large part of services exports is from the Information Technology (IT) Services and Business Process Outsourcing (BPO) services with US$157b in 2021-22. This growth has been driven by both Indian headquartered and global IT companies.
Besides, other global corporations are leveraging Indian talent through their capability centers in India, which employ over 5 million people. highest quality and efficiency. All of these have converged to give India an opportunity to become a hub for technology and innovation, as corporations look to adopt technology at a global scale. As per the report of EY.
As one of the largest exporters of IT and BPO services globally, India stood at US$157b in the fiscal year 2021-22 comprising US$106b of IT services and US$51b of BPO services. Direct employment in the IT and BPO segment is estimated at 5.1m in FY 2021-2022 and indirect job creation is estimated at over 12m.
The Indian workforce is expected to solve the most complex problems and manage digital front-to-back-end functions of global corporations. It will help India transform from a technology back-office to a hybrid workforce powering the digital fabric of the world’s largest corporations. Structural tailwind around a large employable base will push India’s case further towards becoming the global hub for technology talent.
Potential to be the robotics and AI capital of the world with as many robots as engineers serving clients 24/7 in a hybrid workforce.
In addition to “run the business” services, Indian and global IT services players will leverage India for higher value “change the business” services such as consulting, experience design, full stack digital engineering, product development and incubate and industrialize new business process management use cases and processes often considered core to businesses today.
Opportunity to become a Platform and Product powerhouse - Indian IT services are being platformed and the Indian Business to Business (‘B2B”) Software as a Service (“SaaS”) ecosystem has created its unique playbook. The impact is already visible - the first billion-dollar product company from India has emerged and there are over 20 India B2B SaaS unicorns. All this is creating a potent ecosystem for Hyperscalers to emerge over the next two decades.
Opportunity to export services talent from India
India must look at services beyond IT and BPO to increase services exports from the country. One area is to cater to growing demand in more skill-based and increasingly digitized services such as healthcare, education, and medical tourism. As of 2022, about 68% of India’s population was in the working age group and about 24.3% of the incremental global workforce over the next decade will come from India.
Global uncertainties and geopolitical shifts have restructured supply chains and altered trade flows and relationships. All of these have led to lower visibility of future demand for products and services, thereby deterring investors to incur large expenses on futuristic projects.
The overall outlook for the Indian economy remains positive. We expect investments to see a turnaround and thrust the economy into sustainable growth. India will likely grow at a moderate pace of 6.0%–6.5% in FY 2023–24, as the global economy continues to struggle.
Indian IT sector employs about 50 lakh people, making it the largest avenue for white-collar jobs in India. The IT sector needs to strengthen its core in emerging and deep tech areas with increased investments in R&D, embed innovation and co-creation into the DNA of the entire ecosystem, and bring human centricity to the design of products and services.
The government’s focus on digital infrastructure to power public services and provide last-mile access to healthcare, education, financial and agri-services speaks to the massive opportunity for collaboration. The India Stack, with Aadhaar, UPI, Co-Win, and the National Health Stack, has set a high benchmark for using technology to drive impact at scale.
The Indian IT sector contributes nearly 10 per cent to the country’s GDP and is one of the largest exporters of services, making it an important revenue source for the government. These recent developments and investments underscore the thriving and dynamic nature of India’s IT industry, reinforcing its position as a global technology hub.
The Indian government has taken several notable initiatives to promote the growth and development of the IT and ITeS sector in the country. Let’s delve into some of these key measures:
In the Union Budget 2023-24, the government allocated Rs. 97,579.05 crore (US$ 11.77 billion) to the IT and telecom sector, underlining its commitment to fostering technological advancement.
In September 2022, the Ministry of Communications published the new Telecommunications Bill 2022 for public consultation. This bill aims to establish a fresh telecom framework in India, reflecting the government’s efforts to adapt to the evolving technological landscape.
In August 2022, the Indian Computer Emergency Response Team (CERT-In) collaborated with the Cyber Security Agency of Singapore (CSA) to organize the “Synergy” Cyber Security Exercise. This exercise involved 13 countries and aimed to enhance network resilience against ransomware attacks, demonstrating the government’s commitment to bolstering cybersecurity.
June 2022 witnessed an impressive growth in exports through Software Technology Parks of India (STPI) units. STPI Director General, Mr. Arvind Kumar, reported a significant increase from Rs. 17 crore (US$ 2.14 million) in FY92 to Rs. 5.69 lakh crore (US$ 71.65 billion) in FY22, highlighting the sector’s thriving export performance.
In May 2022, Indians gained the convenience of accessing their official documents through Digilocker services via Whatsapp, simplifying document retrieval and promoting digitization.
To strengthen cybersecurity in the country, CERT-In issued Directions in April 2022, underscoring the government’s proactive approach towards safeguarding digital infrastructure.
The Union Budget 2022-23 allocated Rs. 88,567.57 crore (US$ 11.58 billion) to the IT and telecom sector, further emphasizing the government’s commitment to technological advancement.
The government introduced the Software Technology Park (STP) Scheme, a 100% export-oriented initiative aimed at promoting the development and export of computer software and professional services, including communication links and physical media.
India has firmly established itself as the leading destination for IT companies worldwide, excelling in both on-shore and off-shore service delivery. With the advent of emerging technologies, a whole new realm of opportunities has opened up for top IT firms in the country. The Indian IT & business services industry is poised for substantial growth, projected to reach a staggering US$ 19.93 billion by 2025. Furthermore, there is a significant uptick anticipated in information technology spending in India, expected to reach US$ 144 billion in 2023. This substantial investment is a testament to the country’s commitment to technological advancement.
The widespread utilization of cloud technology holds immense potential, not just in terms of economic growth but also in terms of job creation. By 2026, it is estimated that cloud adoption can provide employment opportunities for approximately 14 million people and contribute an impressive US$ 380 billion to India’s GDP.
A survey conducted by Amazon Web Services in 2021 reveals that India is expected to witness a nine-fold increase in the number of digitally skilled workers by 2025. This surge in digital expertise further reinforces India’s position as a powerhouse in the IT domain. Given this promising trajectory, IT spending in India is projected to surge to US$ 110.3 billion in 2023, a significant leap from the estimated US$ 81.89 billion in 2021. These figures underscore the growing significance of the IT sector in driving India’s technological growth and economic prosperity.
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