India's domestic IT market wakes
up By Indrajit Basu
KOLKATA - For India's money-spinning information-technology
(IT) industry, the fact that in 2003-04 the performance
of its software and IT-services sector surpassed
expectations yet again and emerged unscathed against a
globally challenging economic backdrop, static IT
budgets, and a "backlash" against offshoring, is
certainly reason to feel optimistic.
But an even more notable feature in the IT sector is
that for the first time in 10 years, ever since
Indian IT started creating a sensation globally for
its software-services exports, the country's domestic IT market made
gains in catching up. Revenues from the domestic IT
sector leapfrogged by 24% to reach US$7.25 billion from
a relatively modest growth rate of 9% in the previous
year (ending March 2003), which almost equaled the 25%
growth figure of its software-services exports.
Indeed, India's IT industry had always been apologetic about
the fact that despite being considered an IT superpower
in terms of software-services exports, its domestic market
- or internal use of IT - had never been worth talking
about. For that matter, barring the few smaller and less
economically developed countries (Pakistan, Nepal,
Bangladesh, Myanmar, etc), India's domestic IT use has
been among the lowest in Asia.
"But now,"
says Sunil Mehta, vice president and head of research
of industry lobby the National Association of
Software Services Companies, or NASSCOM, "demand for IT is
also growing within the domestic IT industry, which
until recently was dominated by software-services exports.
Consumption of IT has moved on to the higher growth
trajectory."
For the record, though, even
as global IT just managed to inch ahead (growing at
an estimated 4%) in 2003-04, India's IT industry as a
whole recorded a growth of 24% to cross $20 billion.
India's software, services and business process
outsourcing exports, the mainstay of the industry, grossed
$12.5 billion, up from $9.6 billion in 2002-03, indicating
a growth of 30.5% for the year, higher than the
26-28% projections and significantly more than the 25%
in 2002-03. "Incidentally, this was the highest growth
in the software and services sector since 2001,"
says Mehta. And according to Partha Iyengar, vice
president of research for Gartner India, "Indian IT emerged as
the world's fastest-growing IT sector."
Meanwhile, there were several contributors to the turnaround of
the domestic IT industry, and according to NASSCOM,
the increasing trend of Indian states toward e-governance
is an important one. Already 14 Indian states have
launched an aggressive e-governance plan. "If earlier
the software-services sector wanted the government to
hard-sell software exports, now it is counting on it to
spend more on e-governance projects and develop the
domestic IT market," says Kiran Karnik, president of
NASSCOM.
Another interesting trend in the Indian IT landscape
is that "Indian companies have definitely started adoption
of using IT as a competitive differentiator
for business", says Radha Basu, chief executive
officer of US-based SupportSoft. This is evident from the
growing trend of IT outsourcing by Indian companies.
In a somersault of sorts, Indian companies
have also started outsourcing to US multinationals and,
as reports suggest, while US companies outsource non-core
activities to India, India Inc's outsourcing includes
core area functions such as finance, supply-chain management and
even procurement. Over the past few months, a slew of
Indian companies including Bharti Telecom, Bank of India, Tata Steel,
ITC, HDFC Bank, Colgate Palmolive, HLL Ltd and the like
have awarded outsourcing contracts to IT multinationals
such as IBM, Accenture and HP. The value of these
contracts range between $2 million and $750 million over periods
extending up to 10 years.
But the biggest reason for
the increased adoption of IT domestically has been the
steep fall of hardware prices, along with an improving
IT infrastructure. "The decline in hardware prices,
which have fallen by 20% to 45% over the past 18 months,
has enabled IT to penetrate into small and middle level
enterprises," says Sunil Mehta. "Also the growth in
non-PC [personal computer] devices like handheld phones, cable Internet
etc has helped, along with improving infrastructure like
broadband connections."
A
burgeoning domestic market overall, say
experts, is also yielding some direct benefits for
the IT industry. "Because the consumption in the
domestic market has started to assume global scales, we
are finding significant interest from major multinational manufacturing
companies such as Elcotek, Flextronics, Solectron,
etc to set up manufacturing bases here,"
says Vinnie Mehta of the Manufacturers Association of
Information Technology. "India has become
important not only because the country consumes close to
2 million mobile phones every month, or that the
country is buying 3 million personal computers every year,
[a market] that is growing at 30%, but also because there
is the realization that its excellent geographical location
has never been harnessed. We are plum halfway
between Taiwan/China and the European markets; with
cost of insurance and freight having gone up post
[September 11, 2001], there is a significant interest from
Taiwan manufacturers to consider India as an alternate
base."
Basu notes
another interesting phenomenon. "The general matrix in India
was always about scaling its huge pool of human
resources people and directing them towards services, because
the service sector is people-oriented," she says. "However, India
is getting into the next phase of IT by directing its
focus on repeatable, scalable product software." Other
IT experts such as Iyengar of Gartner too feel that India has
entered this arena, which could be yet another direct
benefit of a growing domestic market. "One needs to test
products locally first and a growing domestic market
spurs development of products in the IT arena," Iyengar
says.
Nevertheless, according to Karnik, even as
domestic use of IT has started growing after years,
"Indian IT companies are not really global and the
Indian industry is still in the early stages of adoption
of IT." So, feels NASSCOM, the country has a pending
agenda of deregulating a few key sectors to encourage
adoption of IT in the domestic market.
But meanwhile, the country's IT industry can
derive satisfaction from the fact that a country considered
a major knowledge and IT success story is taking rapid
strides in developing its own market; even if it is a
decade behind the rest of Asia.
Indrajit
Basu is a Kolkata-based equity analyst turned
journalist with more than 12 years
of experience in business/finance and technology
journalism. Besides contributing to Asia Times Online,
he also writes for other US-based publications and IT
companies.
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