IT & ITeS Industry

IT & ITeS Industry 1

 Index

Page No Table Of Content

03 Executive Summary
04 Investments & Developments
06 Evolution of IT Sector in India
07 Advantage India
08 Market Overview
14 Recent Trends and Strategies
16 Top IT Companies in India 2020
18 Growth Drivers and Opportunities
24 COVID-19 Impact: Is the IT/ITeS Industry
26 Key Industry Organisations
27 Indian IT Industry Road Ahead

IT & ITeS Industry 2

 Executive Summary

India’s IT industry contributed around 7.7% to the country’s GDP and is

Large contribution expected to contribute 10% to India’s GDP by 2025. As of FY20, the IT
to the Indian industry employed 4.3 million people.
economy IT industry is fueling the growth of start-ups in India with presence of around
5,300 tech start-ups in India.
IT & BPM industry revenue was estimated at around US$ 191 billion in FY20
at 7.7% growth y-o-y and it is estimated that the size of the industry will grow
Strong growth
to US$ 350 billion by 2025.
opportunities
As the increasing focus on technology has been seen across all the industries,
IT industry will create the maximum jobs in India in coming years.
India is the leading sourcing destination across the world, accounting for
Leading sourcing approximately 55% market share of the US$ 185–190 billion global services
destination sourcing business in FY18.
India acquired a share of around 38% in the overall BPM sourcing market.

The computer software and hardware sector in India attracted cumulative

Most lucrative
foreign direct investment (FDI) inflow worth US$ 44.91 billion between April
sector for
2000 and March 2020. It ranked second in FDI inflow as per the data released
investments
by Department for Promotion of Industry and Internal Trade (DPIIT).

Total export revenue of the industry is estimated to grow 8.1% y-o-y to US$
Export and 147 billion in FY20. IT & BPM sector accounted for the largest share in the
employment Indian services export at 45%.
growth Total number of employees grew to 1.02 million cumulatively for four Indian
IT majors as on December 31, 2019.

The global sourcing market in India continues to grow at a higher pace compared to the IT-BPM
industry. India is the leading sourcing destination across the world, accounting for approximately 55%
market share of the US$ 200–250 billion global services sourcing business in 2019–20. Indian IT & BPM
companies have set up over 1,000 global delivery centres in about 80 countries across the world. India
has become the digital capabilities hub of the world with around 75% of global digital talent present in
the country.

Market Size
IT-BPM industry’s revenue was estimated at around US$ 191 billion in FY20, growing at 7.7% y-o-y. It is
estimated to reach US$ 350 billion by 2025. Moreover, revenue from the digital segment is expected to
form 38% of the total industry revenue by 2025. Digital economy is estimated to reach Rs 69, 89,000
crore (US$ 1 trillion) by 2025. The domestic revenue of the IT industry was estimated at US$ 44 billion
and export revenue was estimated at US$ 147 billion in FY20.

Total number of employees grew to 1.02 million cumulatively for four Indian IT majors (including TCS,
Infosys, Wipro, HCL Tech) as on December 31, 2019. Indian IT industry employed 205,000 new hires and
had 884,000 digitally skilled talents in 2019.

IT & ITeS Industry 3

 Investments & Developments

Indian IT's core competencies and strengths have attracted significant investment from major countries.
The computer software and hardware sector in India attracted cumulative Foreign Direct Investment
(FDI) inflow worth US$ 44.91 billion between April 2000 and March 2020. The sector ranked second in
FDI inflow as per the data released by Department for Promotion of Industry and Internal Trade (DPIIT).

Leading Indian IT firms like Infosys, Wipro, TCS and Tech Mahindra are diversifying their offerings and
showcasing leading ideas in blockchain and artificial intelligence to clients using innovation hubs and
research and development centres to create differentiated offerings.

Some of the major developments in the Indian IT and ITeS sector are as follows:

 In July 2020, Infosys won a multiyear deal worth US$ 1.5 billion from investment management
company, Vanguard
 In July 2020, HCL Technologies signed a five-year deal worth US$ 600 million with telecom
equipment maker Ericsson
 In May 2020, Sirion Labs, a software-as-a-service (SaaS) provider, raised US$ 44 million as part of
its Series C round led by Tiger Global and Avatar Growth Capital.
 PE (private equity) investment in the sector stood at US$ 11.8 billion across 493 deals in 2019.
 In January 2020, Nippon Telegraph and Telephone, a Japanese tech announced its plans to invest
a significant part of its US$ 7 billion global commitments for data centres business in India over
the next four years.
 As of February 2020, there were 417 approved SEZs across the country with 274 from IT & ITeS
and 143 as exporting SEZs.
 In February 2020, Tata Consultancy Services bagged a contract worth Rs 10,650 crore (US$ 1.5
billion) from pharma company Walgreens Boots Alliance.
 UK-based tech consultancy firm, Contino, was acquired by Cognizant.
 In May 2019, Infosys acquired 75% stake in ABN AMRO Bank's subsidiary Stater for US$ 143.08
million
 In June 2019, Mindtree was acquired by L&T.
 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.

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Government Initiatives
Some of the major initiatives taken by the Government to promote IT and ITeS sector in India are as
follows:

 On May 2019, the Ministry of Electronics and Information Technology (MeitY) launched the
MeitY Startup Hub (MSH) portal.
 In February 2019, Government released the National Policy on Software Products 2019 to
develop India as a software product nation
 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 part of Union Budget 2018–19, NITI Aayog was to set up a national level programme to enable
efforts in AI^ and leverage AI^ technology for developing the country.
 In the Interim Budget 2019–20, the Government announced plans to launch a national
programme on AI and setting up of a National AI portal.
 National Policy on Software Products-2019 was passed by the Union Cabinet to develop India as
a software product nation.

Achievements
Following are the achievements of the Government during 2019–20:

 About 200 Indian IT firms are present in around 80 countries.

 Total export revenue of the industry is expected to grow 8.1% y-o-y to US$ 147 billion in FY20. IT-
BPM sector accounted for the largest share in the Indian services export at 45%.
 Total number of employees grew to 1.02 million cumulatively for four Indian IT majors (including
TCS, Infosys, Wipro, and HCL Tech) as on December 31, 2019.

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 Evolution of IT Sector in India
The evolution of the IT sector can be studied in 4 states as follows.

Stage 1 Prior to 1980: In the first stage of evolution, Indian IT sector was basically started with Hardware
products and software industry did literally not exist in India until 1960. Government protected the
hardware sector through high tariff barriers and licensing. In the west, there was a greater demand for
software development because the inbuilt software with the systems was insufficient to perform all the
operations accurately. So, to earn more foreign exchange, the Indian Government found out the
potential of software sector. In 1972, the government formulated a new software export scheme, in
which it was decided to import hardware and export software. TCS Ltd. became the first company to
accept such scheme. In 1974, the software export was started in India.

Stage 2 1980 to 1990: During this stage, in spite of government initiatives, the software exports could
not be reached at the expected level because of two reasons. First, the export of software was
dependent on the imports of hardware and the procedural aspects ware too cumbersome. Second,
there were no proper infrastructural facilities for software development. In order to encourage more
participants in this sector, it was mandatory to reduce import duty and to simplify import and export
procedure. To overcome the above problem, a new software policy was formulated. According to this
policy, the import procedure was simplified and the import duty for import on hardware for software
developers was reduced. In 1986, the government took some healthy corrective steps to develop IT
sector. As a result, Indian Government software policy and liberalized the IT sector. According to this
policy, the imports of hardware were de-licensed and were also made duty free for exporters. This
policy has reduced a number of entry barriers making the growth in this sector inevitable.

Stage 3 1990 to 2000: This period has witnessed intensified competition in the IT sector. During this
stage, there were some significant changes in Indian economy, including trade liberalization, relaxation
in the entry barriers, opening up of Indian economy for foreign investments and devaluation of rupee.
Due to the liberalization, a flow of foreign investments was come in India and MNCs in India were
introduced. “Offshore Model”, “Onsite Model” and “Global Delivery Model (GDM) were also introduced
as part of their distinguished services.

Stage 4 Post 2000: The global problems like Y2K, the dotcom crash and the recession in the US economy
has forced many US firms to utilize the services of the Indian firms. This has resulted in placing the
Indian IT industry on the global map. Post 2002-2003, the industry had registered a robust growth rate.
During this stage, there was in increase in the Indian client base, large sized contracted and a strong
global delivery model.

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 Advantage India
Growing Demand
Strong growth in demand for export from new verticals

Rapidly growing urban infrastructure has fostered several IT centres in the country.

Expanding economy to propel growth in local demand

India‘s IT sector market is projected to reach US$ 100 billion by 2025

Global Footprints
Indian IT firms have delivery centres across the world

IT & BPM industry is well diversified across verticals such as BFSI, telecom and retail

Increasing strategic alliance between domestic and international players to deliver solutions across the
globe

Competitive Advantage
India has a low-cost advantage by being 5-6 times inexpensive than the US.

A preferred destination for IT & BPM in the world, it continues to be a leader in the global sourcing
industry with 55% market share.

On May 2019, the Ministry of Electronics and Information Technology (MeitY) launched the MeitY
Startup Hub (MSH) portal.

Policy Support
Tax exemption of three years in a block of seven years to start-ups under ‘Startup India’

More liberal system for raising global capital, funding for seed capital and growth and ease of doing
business, etc. have been addressed.

The Government of India announced plans to launch a national programme on AI and setting up of a
National AI portal.

In February 2019, the Government India released the National Policy on Software Products 2019 to
develop India as a software product nation

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 Market Overview
Evolution of the Indian IT Sector

With increased investment in

R&D, India became a product
development destination

By early 90s, US-based companies Firms in India grew in terms of

began to outsource work on low- their size and scope of services
cost and skilled talent pool in India offered as more and more
western companies' setup their
bases in the country

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Evolution of the Indian IT Sector

Firms in India became multinational

companies with delivery centres across
the globe

India’s IT sector is at an inflection

point, moving from enterprise servicing
to enterprise solutions

The US$ 167 billion Indian IT industry employs nearly four million people.

India ranks third among global start-up ecosystems with more than 5,300
tech start-ups

Indian IT & BPM industry is expected to grow to US$ 350 billion by 2025

India jumped four places to rank at 48th position at the 2020 edition of the
Global Innovation Index (GII).

Segments of India’s IT Sector

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India’s IT Market Size Growing

IT & BPM industry revenue was

estimated at around US$ 191 billion in
FY20 at 7.7% growth y-o-y.

The domestic revenue^ of the IT

industry is estimated at US$ 44 billion
and export revenue is estimated at
US$ 147 billion in FY20.

The market size of India’s IT & BPM

sector 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.

Spending on information technology

in India is expected to reach US$ 144
billion in 2023.

Outsourcing of large technology

contracts by clients is expected to
accelerate the growth of the industry
in FY20.

The cloud market in India is expected to grow three-fold to US$ 7.1 billion by 2022 with the help of
growing adoption of Big Data, analytics, artificial intelligence and Internet of Things (IoT) according to
Cloud Next Wave of Growth in India report.

India’s digital economy is estimated to reach US$ 1 trillion by 2025.

Artificial Intelligence (AI) is expected to boost India's annual growth rate by 1.3% by 2035: NITI Aayog.

A substantial increase in AI by Indian firms can result in a 2.5% increase in India’s Gross Domestic
Product (GDP) in the immediate term.

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Strong Growth in IT & Bpm Exports

The export sector crossed US$ 147 billion in revenue in FY20, growing at 8.1%.

Exports rose at a CAGR of 8.05% during FY16–FY19.

Export of IT services has been the major contributor, accounting for 54% of total IT export (including
hardware) during FY19.

BPM and Engineering and R&D (ER&D) and software products export accounted for 23% each to total IT
exports during FY19. ER&D market is expected to grow to US$ 42 billion by 2022 from US$ 28 billion
currently.

IT & ITeS Industry 11

BFSI - A Key Business Vertical for IT & BPM Industry
BFSI is a key business vertical for the IT &
BPM industry. A major share of revenue of
IT majors comes from the BFSI business
vertical.

Adoption of new technologies is expected

to accelerate growth of the BFSI vertical.
The need for undertaking investment in IT
will also be required for gaining
competitive advantage instead of solely
reducing operational costs.

In May 2019, Infosys acquired 75% stake in

ABN AMRO Bank's subsidiary, Stater, for
US$ 143.08 million

In June 2019, Mindtree was acquired by

L&T.

 In January 2020, Nippon Telegraph and Telephone, a Japanese tech company, announced its
plans to invest a significant part of its US$ 7 billion global commitment for data centres business
in India over the next four years.
 In February 2020, TCS bagged a contract worth Rs 10,650 crore (US$ 1.5 billion) from pharma
company, Walgreens Boots Alliance.
 In July 2020, Infosys won a multiyear deal worth US$ 1.5 billion from investment management
company—Vanguard
 In July 2020, HCL Technologies signed a five-year deal worth US$ 600 million with telecom
equipment maker—Ericsson
 In September 2020, Wipro agreed to provide engineering services support for commercialising
solutions on Intel's Open NESS toolkit

With Over 62% Share, US Is Major

Importer of IT Services
US has traditionally been the biggest
importer of Indian IT exports as it absorbed
over 62% of Indian IT & BPM export during
FY19.

Non-US-UK countries accounted for just

21% of the total Indian IT & BPM export
during FY19.

As of FY19, US and UK were the leading

customer markets with a combined share
of nearly 80%. However, there is a growing

IT & ITeS Industry 12

demand from APAC, Latin America and Middle East Asia regions.

Being the low-cost exporter of IT services, India is going to attract more markets in other regions in the
same manner it tapped the US market.

IT & BPM Sector Dominated By Large Players

2019
Number
Percentage of total Percentage of
Category of Work Focus
export revenue total employees
players
 Fully integrated players offering
complete range of services
Large 11 47-50% 35–38%  Large scale operations and
infrastructure
 Presence in over 60 countries
 Mid-tier Indian and MNC firms
offering services in multiple
verticals
Medium 120 150 32–35% 28–30%  Dedicated captive centres
 Near shore and offshore
presence in more than 30–35
countries
 Players offering niche IT & BPM
services
1,000–  Dedicated captives offering
Emerging 9–10% 15–20%
1,200 niche services
 Expanding focus towards sub
Fortune 500/1,000 firms
 Small players focussing on
specific niches in either services
Small 15,000 9–10% 15–18% or verticals
 Includes Indian providers and
small niche captives

IT & ITeS Industry 13

 Recent Trends and Strategies
Notable Trends

Indian software product industry is expected to reach US$ 100 billion by

Global delivery
2025. Indian companies have set up over 1,000 global delivery centres in
model
about 80 countries over the world.

India is a prominent sourcing destination across the world, accounting for

Leading sourcing approximately 55% market share in the global services sourcing business as
destination of FY19.
In 2019, India had a 38% market share of the overall BPM sourcing market.

Fall in automation costs and rise of digitalization has led to higher on-shoring
by industries.
Rise of on-shoring
Onshore revenue of Indian IT industry has grown from around 48% in 2011–
12 to 55.2% for the quarter ended June 2019^.

Disruptive technologies such as cloud computing, social media and data

analytics are offering new avenues of growth across verticals for IT
New technologies companies.
The SMAC (social, mobility, analytics, cloud) market is expected to reach US$
225 billion by 2020.

India’s IT sector is gradually moving from linear models (rising headcount to

Growth in non- increase revenue) to non-linear ones.
linear models In line with this, IT companies in India are focusing on new models such as
platform-based BPM services and creation of intellectual property.

Large players with a wide range of capabilities are gaining ground as they
move from being simple maintenance providers to full-service players,
Large players
offering infrastructure, system integration and consulting services.
gaining advantage
Of the total revenue, about 80% is contributed by 200 large and medium
players.

Notable Trends

SMAC
technologies, an SMAC, a paradigm shift in the IT & BPM approach experienced until now, is
inflection point leading digitisation of the entire business model.
for Indian IT
National Association of Software and Services Companies (NASSCOM), India’s
IT industry body, has partnered with GE Healthcare to bring digital healthcare
Collaborations solutions to the market. In July 2020, Amara Raja Group entered in
partnership with Blaze Automation to set up a joint venture (JV) to develop
and manufacture IoT devices for global markets.

IT & ITeS Industry 14

 The computer software and hardware sector in India attracted cumulative
Most lucrative
FDI inflow worth US$ 44.91 billion between April 2000 and March 2020
sector for
according to the data released by Department for Promotion of Industry and
investments
Internal Trade (DPIIT).
Tier II and tier III cities are increasingly gaining traction among IT companies,
aiming to establish business in India.
Emergence of Cheap labour, affordable real estate, favourable Government regulations, tax
tier II cities breaks and SEZ schemes is facilitating the emergence of new IT destinations.
Giving rise to the domestic hub and spoke model, tier I cities are acting as
hubs and tier II, III and IV are working as network of spokes.
India’s IT market is experiencing a significant shift from few large-size deals to
multiple small-size ones.
Changing The number of technology start-ups is expected to reach 50,000, adding to
business around 2% to GDP.
dynamics Delivery models are being altered as the business is moving to capital
expenditure (Capex) based models from operational expenditure (Opex)
models from a vendor’s frame of reference.

Strategies Adopted

Movement to SMAC is taking significant leaps.

SMAC and digital Companies are getting into this field by offering big data services, which
space provides clients with better insights for future cases.

Fast-growing
Knowledge services, data analytics, legal services, business process as a
sectors within the
service (BPaaS), cloud-based services.
BPM domain

Companies are investing a lot in R&D and training employees to create an

efficient workforce, enhancing productivity and quality.
Promotion of R&D R&D forms a significant portion of companies’ expenses, which is critical
when margins are in pressure, to promote innovations in the changing
landscape.

Expanding in tier Companies are expanding their business to tier II and tier III cities to have low
II and tier III cities cost advantage.
as well as Companies are expanding their business towards emerging economies from
international Eastern Europe and Latin America.

Most of the IT companies have been offering similar products and services to
their clients.
Product and The companies are working towards product differentiation through various
pricing other services by branding themselves, for example, Building Tomorrow's
differentiation Enterprise by Infosys.
Indian IT firms have started to adopt pricing strategies to compete with
Global firms like IBM and Accenture.

IT & ITeS Industry 15

 Top IT Companies in India 2020
Tata Consultancy service: Largest IT Company in India
Tata Consultancy service is the Largest IT Company in India in terms of Revenue. TCS is an IT services,
consulting and business solutions provider that has been partnering with the world’s largest businesses
in their transformation journeys for the last fifty years. TCS offers a consulting-led, cognitive powered,
integrated portfolio of business, technology and engineering services and solutions. TCS is the largest
company in India in terms of Market Capitalization. It is the largest in the list of top 10 IT companies in
India 2020.

Revenue: Rs 152,497 Cr

Market Cap: Rs 845,337 Cr.

Employees: 420,000

ROE: 35.98 %

Sales Growth (3Yrs): 10.47 %

Promoter holding: 72.05 %

A part of the Tata group, India’s largest multinational business group, TCS has over 420,000 of the
world’s best-trained consultants in 50 countries. The company generated consolidated revenues of US
$20 billion for the year ended March 31, 2019, and is listed on the BSE (formerly Bombay Stock
Exchange) and the NSE (National Stock Exchange) in India. The company has a market capitalization of
Rs 8, 10,000 Crores.

Infosys
Established in 1981, Infosys is an NYSE listed global consulting and IT services company with more than
228,000 employees. It is the second largest in the list of top 10 IT companies in India 2020. From a
capital of US$ 250 to become a US$ 11.8 billion (FY19 revenues) company with a market capitalization of
approximately US$ 47.7 billion. It is one of the best IT Company in India

Revenue: Rs 87,371 Cr

Market Cap: Rs 282,028 Cr.

Employees: 228,000

ROE: 23.50 %

Sales Growth (3Yrs): 9.81 %

Promoter holding: 13.15 %

Over 37 years, The Company has catalysed some of the major changes that have led to India’s
emergence as the global destination for software services talent. The first IT Company from India to be
listed on NASDAQ.

IT & ITeS Industry 16

HCL Technologies
HCL Technologies is one of the best IT companies in India. The Company is a leading global IT services
company that helps global enterprises re-imagine and transform their businesses through Digital
technology transformation. The Company focuses on providing an integrated portfolio of services
underlined by its Mode 1–2–3 growth strategy. It is the third-largest Indian top it companies.

Revenue: Rs 65,643 Cr

Market Cap: Rs 153,370 Cr.

ROE: 25.76 %

Sales Growth (3Yrs): 24.74 %

Promoter holding: 60.00 %

The Company leverages its global network of integrated co-innovation labs and global delivery
capabilities to provide holistic multi-service delivery in key industry verticals including Financial Services,
Manufacturing, Telecommunications, Media, Publishing, Entertainment, Retail & CPG, Life Sciences &
Healthcare, Oil & Gas, Energy & Utilities, Travel, Transportation & Logistics and Government.

Wipro Limited
Wipro Limited (NYSE: WIT, BSE: 507685, NSE: WIPRO) is a leading global information technology [Indian
IT companies] consulting and business process services company. It is on the list of top 5 IT companies in
India.

The Company harness the power of cognitive computing, hyper-automation, robotics, cloud, analytics
and emerging technologies to help our clients adapt to the digital world and make them successful. It is
the fourth largest Indian top it companies.

Revenue: Rs 60,137 Cr

Market Cap: Rs 153,043 Cr.

Employees: 160,000

ROE: 17.26 %

Sales Growth (3Yrs): 4.82 %

Promoter holding: 74.04 %

It is one of the Indian IT companies recognized globally for its comprehensive portfolio of services, a
strong commitment to sustainability and good corporate citizenship, The Company has over 160,000
dedicated employees serving clients across six continents. Together, one of the best Indian IT companies
to discover ideas and connect the dots to build a better and a bold new future.

IT & ITeS Industry 17

 Growth Drivers and Opportunities
IT Sector To Be Driven By Strong Demand and Indian Expertise

 NASSCOM has launched an online

 Global BPM spending estimated to
rise and reach US$ 233 billion by
2020.
platform aimed at up-skilling over 2
million technology professionals and
skilling another 2 million potential
employees and students.
 Strong mix of young and experienced
professionals
 IT service giant, DXC Technology, has
decided to set up its first global analytics
unit in Bengaluru to leverage the skill set
that India offers.

 Tax holidays for STPI  Computer

and SEZs. penetration
 More liberal system for expected to increase
raising capital, seed  Increasing adoption
money and ease of of technology and
doing business telecom by
 Government of India consumers and
announced plans to focused
launch a national Government
programme on AI and initiatives leading to
setting up of a National increased ICT
AI portal. adoption.
 Government of India  United Nations
has identified Conference on
Information Technology Trade and
 Robust IT infrastructure across
as one of the 12 Development
various cities in India such as
champion service (UNCTAD) has
Bengaluru.
sectors for which an forecast 6% growth
 Technology mission for services in
action plan is being for Indian economy
villages and schools, training in IT
developed. Also, the in 2019.
skills and E-Kranti for Government
Government has set up
service delivery and governance
a Rs 5,000 crore (US$
scheme.
745.82 million) fund for
realising the potential
of these champion
service sector.

IT & ITeS Industry 18

Exports to Remain Robust As Global It Industry Maintains Growth
Export revenue from the industry grew at
a CAGR of 8.01% to US$ 147 billion in
FY20E from US$ 108 billion in FY16.

In FY20, IT & BPM industry export

revenue crossed US$ 147 billion at a
growth of 8.1%.

In FY19, export from IT and IT Enabled

Services (ITeS) registered a growth of
17% to reach Rs 1.09 lakh crore (US$
15.63 billion) in Telangana.

Digital Exports to Be a Major Growth Driver

Global digital spend is expected to increase
from US$ 180 billion in 2017 to US$ 310 billion
by 2020. India’s IT industry is increasingly
focusing on digital opportunities as digital is
poised to be a major segment in the next few
years. It is also currently the fastest growing
segment, growing over 30% annually.

In India, domestic market of computer services

is growing faster than their export, which is
fueled by the government’s Digital India
programme.

Export revenue from digital segment already

forms about 20% of the industry’s total export
revenue. The figure was estimated at US$ 33
billion in FY19. Revenue from digital segment is expected to comprise 38% of the forecast US$ 350
billion industry revenue by 2025.

India has become the digital capabilities hub of the world:

 Second-fastest digitising economy amongst 17 leading economies of the world

 More than 8,100 firms offer digital solutions
 Digitally skilled talent pool of 450,000–500,000
 75% of global digital talent in India

IT & ITeS Industry 19

Indian Talent Pool Ready to Take It Sector to the Next Level
Availability of skilled English-speaking
workforce has been a major reason
behind India’s emergence as a global
outsourcing hub.

India BPO promotion scheme was

approved under Digital India
programme. It aims to create
employment opportunities for the
youth and promote investments in the
IT& BPM industry. Under the scheme,
employment has already been created
for more than 10,000 individuals.

Indian IT industry had 884,000 digitally

skilled talents in 2019.

SEZ’S To Drive It Sector; Tier Ii Cities Emerge as New Centers

IT-SEZs have been initiated with an aim to create zones that lead to infrastructural development,
exports and employment

As of February 2020, there were 421 approved SEZs across the country, and of these, 276 are from IT &
ITeS and 145 are exporting SEZs.

Over 50 cities already have basic infrastructure and human resource to support the global sourcing and
business services industry. Some cities are expected to emerge as regional hubs supporting domestic
companies

Software Technology Parks of

India (STPI) has set up 57
centres across the country to
provide single window
clearance and infrastructure
facilities. STPI units can avail
Excise Duty exemptions on
procurement of indigenously
manufactured goods.

IT & ITeS Industry 20

Impressive Growth Prospects Sustain PE and VC Interest
IT & BPM is the leading sector in receipt of private equity (PE) investment in India. PE investment in the
sector stood at US$ 11.8 billion across 493 deals in 2019.

Venture Capital (VC) investment in IT & BPM sector stood at US$ 67.0 million during Q32019. Baring
Private Equity Asia (BPEA) is going to acquire a 30% stake in NIIT technologies Ltd for Rs 2,627 crore (US$
375.88 million).

TCS has made significant investments in building intellectual property in the digital assurance domain. In
May 2020, Sirion Labs, a software-as-a-service (SaaS) provider, raised US$ 44 million as part of its Series
C round led by Tiger Global and Avatar Growth Capital.

In June 2020, Postman, an application programme interface (API) development platform, raised US$ 150
million in a Series C investment round led by US-based venture capital fund Insight Partners. On July 14,
2020, Google announced its plans to invest US$ 10 billion in India over the next five to seven years to
help accelerate the adoption of digital technologies in the country.

IT & ITeS Industry 21

Newer Geographies and Verticals Provide Huge Opportunities

BRIC nations, continental Europe,

Canada and Japan have IT spending of
approximately US$ 380–420 billion

Adoption of technology and outsourcing New

is expected to make Asia the second geographies
largest IT market by 2023

New customer
New verticals
segments

SMBs have IT spend of approximately

US$ 230–250 billion, but contribute just Non-linear growth due to
25% to India’s IT revenue platforms, products and
automation
The emergence of new service offerings
and business models would aid in Emerging verticals (retail,
tapping market profitably and efficiently healthcare, utilities) are driving
growth

Expansion of Focus Areas to Aid Future Growth

Technologies, such as telemedicine,
health, remote monitoring solutions and
clinical information systems, would
continue to boost demand for IT service
across the globe.

IT sophistication in the utilities segment

and the need for standardisation of the
process are expected to drive demand.

Digitisation of content and increased

connectivity is leading to a rise in IT
adoption by media.

RBI is executing a plan to reduce online

transaction costs to encourage digital
banking in India.

The rollout of fifth generation (5G)

wireless technology by telecommunication
companies is expected to bring at least
US$ 10 billion global business to Indian IT
firms by 2019–25.

IT & ITeS Industry 22

Expansion of Focus Areas to Aid Future Growth

 Emerging geographies would drive the next phase of growth for IT firms in India.
 BRIC would provide US$ 380–420 billion opportunity by 2020.
 Focus on building local credible presence, high degree of domain expertise at competitive costs
and attaining operational excellence hold key to success in new geographies.
 Emphasis on export of IT services to current importers of other products and services.


Countries offering growth potential to IT firms

India’s
Country IT spend Key segments
penetration
US$ 63
Canada ~1.5% Enterprise applications, cyber security, healthcare IT
billion

US$ 230
Europe <1.5% IT sourcing, BPM, IS outsourcing, CAD
billion

US$ 235
Japan <1% CRM, ERP, Salesforce automation, SI
billion

US$ 26
Spain <1.5% IT sourcing, SI
billion

US$ 29
Mexico ~4% IT sourcing, BPM
billion

Low level application management, artificial

US$ 47
Brazil ~2% intelligence, R D
billion

US$ 105 Software outsourcing, R&D

China <1%
billion

Procurement outsourcing, infrastructure software

US$ 48
Australia ~4% and CAD
billion

IT & ITeS Industry 23

 COVID-19 Impact: Is the IT/ITeS Industry

The global IT/ITeS sector is starring at negative growth of 5 to 10 percent in FY21, probably for the first
time, due to the impact of the COVID-19 outbreak. This will in turn hurt Indian IT/ITeS industry as well,
according to analysts.

"In All Probability, IT Industry May End Up With a Negative Growth For FY21.”

Everest Group: "Our base case estimates point to a negative growth of 5 percent for calendar year FY21
globally. These are unprecedented times and a crisis of the nature and magnitude of COVID-19 has
never been witnessed by the industry." Globally IT firms may see a 5 to 10 percent decline and it is
bound to impact Indian IT service providers. A NASSCOM, Indian IT/ITeS industry revenue would be $191
billion for FY20, growing at 7.7 percent.

How Will It Impact Indian IT Firms?

Some of the clients are filing for bankruptcy in the US due to the virus outbreak. This includes retail
firms, whose businesses were adversely impacted due to COVID-19. In addition, major economies such
as the US and UK are looking at negative growth. For Indian IT firms, these markets account majority of
the income. Take for instance the recent regulatory filings of two major IT firms. Both Infosys and Wipro
in their US Securities and Exchanges and Commission filings said that COVID-19 will impact its growth
and profitability as they see project terminations, deferrals, bankruptcy filings and pricing pressure from
clients.

In addition with their major markets bracing for a slowdown, it will also impact their margins, the
statements added. The US, UK and European Union account for more than 70 percent of Indian IT firms’
revenue. If the global market is seeing a growth decline of about 5-10 percent, Indian IT will see -5 to 0
percent growth. “While bigger firms might grow, smaller firms will be impacted.”

Silver Lining
But there is a silver lining, especially for big IT firms. For one, their portfolio is balanced unlike the
smaller firms. If banking, retail and energy verticals are down, other verticals such as telecom and
healthcare growing. Another reason as to why they could fare better is that they have zero debt and
cash reserves to tide over the crisis. For instance, cash reserves of top IT firms TCS, Infosys and Wipro
stand at $5.9 billion, $3.6 billion and $3.53 billion at the end of March 31, 2020, respectively. These
firms could afford to go for acquisitions and that could be the key growth factor during COVID-19.

Jain explained that with vendor consolidation, bigger firms could increase their market share as clients
are looking to have fewer partners.

IT & ITeS Industry 24

Impact on Employees
However, layoffs, analysts added, will be inevitable as it is evident in the recent terminations the
industry has witnessed. Small firms have started termination of employees as their growth came under
pressure. ITeS firm Fare portal laid off over 300 employees as most of its clients, primarily in travel and
aviation space, had suffered. Recently, French BPO firm Teleperformance terminated 3000 Indian
employees as many of its clients’ discontinued their services.

This trend is likely to continue as the pandemic continues to impact enterprises across the world.

Suspension of wage hikes and variable pay outs could be on cards and that would be a saving too.
Balakrishnan explained that variable pay accounts for about 30 percent of employee’s pay. Doing away
with them for all employees could save 4 percent of the overall revenue.

Source: https://www.moneycontrol.com/news/business/covid-19-impact-is-the-itites-industry-bracing-
for-negative-growth-in-fy21-5354971.html

IT & ITeS Industry 25

 Key Industry Organisations
Industry Organisations

Ministry of Electronics and Information Technology (MeitY)

Address: Electronics Niketan, 6, CGO Complex, Lodhi Road, New Delhi - 110 003

Phone: 91 11 2436 9191

Fax: 91 11 2436 2626

E-mail: mljoffice@gov.in

Website: www./meity.gov.in

National Association of Software and Services Companies (NASSCOM)

Address: International Youth Centre Teen Murti Marg, Chanakyapuri, New Delhi – 110 021

Phone: 91 11 2301 0199

Fax: 91 11 2301 5452

E-mail: info@nasscom.in

Website: www.nasscom.in

Electronics and Software Exports Promotion Council (ESC)

Address: 155, Okhla Phase III, Okhla Industrial Area, New Delhi, Delhi – 110 020

Phone: 91 11 4748 0000

E-mail: info@escindia.com

Website: www.escindia.in/

Software Technology Parks of India

Address: Ninth Floor, NDCC-II, Jai Singh Road (Opposite Jantar Mantar), New Delhi – 110 001

Phone: 91 11 2343 8188

Fax: 91 11 2343 8173

Website: www.stpi.in

IT & ITeS Industry 26

 Indian IT Industry Road Ahead
The past decade saw the Indian IT industry placing India on the world map. It helped create a new,
contemporary and topical peg of recall for India: Software Engineering and design applications. The
IT/ITES industry made very significant employment and revenue contributions to the country and as it
graduates and matures further, this will only multiply. The fact that the industry contributed towards 45
percent of incremental urban employment speaks volumes of its important role in the India growth
story.

Over the last two years, as it has acquired width (with expansion of the base) and depth (quality and
content of work) the industry has braved challenges as never seen before with issues of slowdown in
growth, pricing pressures, protectionism in key markets, among others. These have had a definite
impact; but in the short term. As a maturing industry, with a distinct and strong charter of growth, we all
have to look at the medium to long-term perspective and introduce innovative solutions to reach there.
It is important that we focus on the certainties of our industry and take advantage of them. Playing to
our strengths, while addressing weaknesses is the obvious method.

Long-term certainties influencing tectonic shifts in the ground realities include demographic, business,
social and environmental global megatrends. These are fostering new opportunities for the industry,
which will fructify by 2020. Megatrends such as irreversible decline in working age population in Europe
and Japan, Asian economies growing twice as fast as developed economies, increased technology
adoption and globalization will have far reaching implications on the industry. These megatrends are
already seeding new verticals such as public sector, healthcare, media and utilities; new customer
segments including small and medium businesses (SMBs) and new geographies such as greater
outsourcing in BRIC, GCC, Japan and Rest of the World (ROW). It is important to note that 80 percent of
the incremental revenue growth by 2020 will be driven by opportunities outside of the current core
markets, verticals and customer segments.

As in the past decade, going forward, the IT/ITES industry will impact the country by providing
technology and paving way for inclusive growth. The IT / ITES industry has the potential to further
transform India and play a major role in the development of the country’s key sectors: education,
healthcare, infrastructure, citizen services and financial inclusion. The technology-enabled provision of
basic services can take the benefits of IT to over 30 million citizens each year and put India on a path to
prosperity in the year 2020.

While the industry has the potential to generate revenues of US$ 225 billion in 2020, a portion of this
opportunity is at risk if continuing problems are not tackled soon. 40 percent of previous priority
initiatives, especially structural changes e.g. tertiary education reform, have not been implemented yet.
Low employability of existing talent with only 10-15 percent employable graduates in business services
and 26 percent of employable engineers in technology services continues to be a major bottleneck.
Infrastructure development is largely constrained to the nine cities, which contribute more than
95percent of India’s exports and development of tier 2/3 cities has not taken off in a planned manner.
The lack of a supportive fiscal environment with a long-term policy framework is also leading to
competition from other low-cost countries including China, Philippines and from Eastern Europe with
potential erosion of the India opportunity.

IT & ITeS Industry 27