Indian IT Industry Road Ahead

Date:   Thursday , December 03, 2009

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.

With this vision achieved, the industry can contribute up to 9 percent of India’s GDP and generate 30 million employment opportunities (direct and indirect) in 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.

We must recognize what these trends, opportunities and challenges mean for India as a country. India’s economy has grown at the compounded annual rate of 7 percent a year over the past 10 years and continued growth at this rate implies a two-fold increase in personal consumption by 2020. To sustain this momentum, around 20-30 million people will need to be added to middle or high-income groups annually. To enable inclusive growth, India will need to address demand-supply gaps in the key areas of healthcare, financial services, education and public services. Traditional models have been ineffective, slow or expensive in increasing access to services in rural areas. For example, around 50 per cent of India’s population is beyond the range of primary healthcare centres and has little access to trained doctors. Information Communication Technology (ICT) solutions can enable new service models (e.g., telemedicine, mobile banking) that can overcome the limitations of traditional models in healthcare, financial services, education and public services in India.

In addition, India has the opportunity to emerge as one of the top three global IT Innovation hubs driven by opportunities arising in new areas of climate change, clinical research and mobile applications.

To realise its growth potential in the next 12 years, industry stakeholders including Government, companies and NASSCOM will need to act together in an unprecedented manner. Concerted action is required to capture the opportunities and mitigate the risks.

The author is President, NASSCOM