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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.
@atimes.com
Aug 19, 2004
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The rise of India's IT paradise (Jul 31, '04)
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