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Information Technology
India has emerged as the fastest growing IT hub in the world, its growth dominated by IT software and services such as Custom Application Development and Maintenance (CADM), System Integration, IT Consulting, Application Management, Infrastructure Management Services, Software testing, Service-oriented architecture and Web services.

In 2006-07, software and services exports grew by 33 per cent to register a revenue of US$ 31.4 billion, whereas the domestic segment grew by 23 per cent to US$ 8.2 billion. Within exports, IT services touched US$ 18 billion, a growth of 35.5 per cent. TCS, Infosys and Wipro maintained their position as the Top 3 exporters in the Nasscom Top 20 IT software and services exporters rankings. The value of Infosys brand went up by 38 per cent to be worth US$ 7.68 billion in 2006-07.

The Nasscom-Crisil report titled 'The Rising Tide - Output and Employment Linkages of IT-ITeS' says: Every rupee spent by the IT-ITeS sector (on domestically-sourced goods and services) translates into a total output of Rs 2 in the economy. And for every job that is created in this sector, four jobs are created in the rest of the economy.

According to Economic Survey 2006-07 : The IT industry's contribution to GDP rose from 1.2 per cent in 1999-2000 to an estimated 4.8 per cent in 2005-06. A majority of the companies in India have already aligned their internal processes and practices to international standards such as ISO, CMM, and Six Sigma. This has helped establish India as a credible sourcing destination. As of December, 2006, over 400 Indian companies have acquired quality certifications with 82 companies certified at SEI CMM Level 5 - higher than any other country in the world.

When it comes to IT services, the world is coming to India. According to Nasscom, the Indian IT-ITeS industry recorded US$ 39.6 billion in revenues in 2006-07, up 30.7 per cent against a projected growth of 27 per cent. The industry body has projected a revenue of US$ 49-50 billion in 2007-08 at a growth rate of 24-27 per cent. Incidentally, the Indian IT industry is growing well ahead of the global industry, which is growing at about 10 per cent a year.

Expected to generate exports worth US$ 60-75 billion in 2010, the IT-ITeS sectors will contribute US$ 115 billion to the economy from allied sectors as well. In terms of employment generation, the industry is expected to create about 11 million jobs (directly and indirectly) over the next three years. The information technology industry has grown its revenues ten-fold in the past decade from US$ 4.8 billion in 1997-98 to US$ 47.8 billion in 2006-07, the report noted.

Indian IT: Going From Strength To Strength

  • The country’s IT software and services exports from the top-10 firms crossed US$ 15 billion mark in 2006-07. The top three – TCS, Infosys and Wipro – earned about US$ 8.7 billon, according to an industry survey and analysis by Dataquest (DQ).
  • Small and medium enterprises (SMEs) (companies with up to 999 employees) in India are set to spend over US$ 8 billion in 2007-08 to beef up their IT infrastructure, which is 24 per cent higher compared with the previous year's US$ 6.5 billion, according to a study by Access Markets International (AMI) Partners.
  • Top Indian companies spent US$ 1.58 billion on IT systems in 2006-07, a growth of 27 per cent over the previous year, with public sector units (PSUs) forming a major part of the top 50 spenders, according to a survey.
  • The global IT services business exceeds US$ 600 billion a year, while the Indian industry turnover is about US$ 31 billion.
  • The Indian IT industry continues to be amongst the largest employers, directly employing more than 1.6 million and indirectly creating employment opportunities for an additional 6 million people in related industries.
  • The industry contribution accounts for 5.2 per cent of the national GDP.
  • Indian companies continue to spread their presence in foreign locations. Zensar Technologies, a leading global IT and business process outsourcing services provider, announced the opening of its Polish operations, based in the city of Gdan’sk - the first of its kind centre in Poland to be opened by an Indian outsourcing company.

Growth Drivers
According to Nasscom, the growth in India's services exports has been led by many factors, including:

  • A strong demand and increased traction for traditional services like ADM.
  • New services like EAI and package implementation.
  • New areas like engineering services.
  • Indian companies are enhancing their global service delivery capabilities through a combination of green-field initiatives, cross-border M&A, partnerships and alliances with local players.
  • Global software product giants such as Microsoft, Oracle and SAP have established their captive development centres in India.
  • Leading MNC IT companies have operations in India, accounting for 16 percent of their delivery capabilities in offshore locations, with India accounting for 70 percent of the total offshore employee base.
  • The growth in domestic IT/ITeS spend has been primarily driven by investments by enterprises in IT infrastructure, line of business applications, security products and services, IT outsourcing and managed services and by consumers in mobile and digital products (digicams, notebooks, smart handheld devices etc.).

India is fast emerging as a research and development hub for some of the largest IT companies in the world. The country is drawing 25 per cent of fresh global investments in R&D centres. In many cases, such as Oracle, Intel, Adobe, STMicroelectronics (STM), SAP and others, the India R&D centre is their largest facility outside the US or Europe.

Others, including IBM, Texas Instruments, Delphi, HP, Microsoft, Google and Cisco have been tapping Indian talent for conducting cutting-edge research. According to Daniel Dias, director, IBM India Research Lab, "India has a rich talent base. As a result, a lot is going on in the Indian context which forms the basis for R&D work."

Meanwhile, the companies that are already here are betting big on India. For instance:

  • SAP Labs India is SAP's largest development facility outside Germany.
  • US-based Synopsys Inc, a US$ 1.1-billion semiconductor design software firm, plans to invest US$ 50 million in its India operations. The proposed investment will be used to expand R&D facilities in the cities of Bangalore and Hyderabad over the next three years.
  • India has emerged as the largest R&D centre for Cambridge Silicon Radio (CSR), a provider of personal wireless technology, including Bluetooth and FM receivers, outside the UK.
  • Adobe Systems has 900 people in its India R&D operations -- the highest number outside the US.
  • Chipmaker Intel has 3,000 staff in India, the majority in its R&D unit. Some of Intel India R&D's recent contributions include complete design of the Centrino mobile chip called Napa.
  • Companies are lining up to invest in India, and a big chunk of their spending is directed towards setting up R&D facilities. As per the data compiled by the Ministry of Communications and IT, against 28 companies that outlined their investment plans, 17 have already infused capital. Six of these companies have committed over US$ 1 billion each towards their India operations. This includes Cisco's commitment of US$ 1.1 billion, SemIndia's US$ 3 billion proposed investment, Intel's US$ 1.25 billion, Microsoft's US$ 1.7 billion, IBM's US$ 6 billion, and SAP Lab's US$ 1 billion investment.
  • Being on a powerful wicket, the IT/ITeS sector has become extremely popular with private equity players. During April-June 2007, the sectors accounted for over 25 deals worth over US$ 550 million, according to a study conducted by Venture Intelligence, a Chennai-based PE research service. 

Government Initiatives

  • The Information Technology Amendment Bill, introduced in the Parliament on December 15, 2006, proposes to put in place technology applications, security practices and procedures relating to such applications. Furthermore, it addresses the issue of technological neutrality in IT laws as recommended by UNCITRAL Model Law on Electronic Signature.
  • A proposal for Electronics & IT Hardware Manufacturing Policy is also under consideration which aims to
  • Rationalise tariff structure on capital goods and inputs.
  • Unify manufacturing for domestic market and exports.
  • Facilitate registration of international patents.
  • Transfer state-of-the-art technology (TOT).
  • Enhance Research and Development.
  • In order to ensure that the benefits of IT reach the common man, the Government has initiated a move to make available tools and fonts in various Indian languages freely to the general public. Tamil, Hindi and Telugu software tools and fonts have already been released. All Indian languages are expected to be covered in the next one year.
  • To ensure penetration of the IT and ITES in the rural areas, the Government has formulated a proposal to establish 1,00,000 Common Service Centres (CSCs) in rural areas, which will serve not only as the front end for most Government services but also as a means to connect the citizens of rural India to the World Wide Web. The scheme will be implemented through Public Private Partnership (PPP).

The Road Ahead
India is up to meet the global IT challenge. According to Nasscom's projections, overall software and services will grow by 25-28 per cent, clocking revenues of US$ 50 billion in FY08. This will include IT software and services exports’ contribution of US$ 28-29 billion. The domestic market is expected to reach US$ 10 billion, at a growth rate of 20-22 per cent. The Dataquest-IDC MegaSpenders 2007 survey said the growth rate of IT spend by top enterprises is expected to be 26 per cent in 2007-08, taking the combined spend to US$ 2.2 billion.

Nasscom President Kiran Karnik believes that India has a potential addressable market of over US$ 300 billion, driven by growth of existing business and new service line opportunities. The IT sector would require nearly 500,000 professionals in the next five years to cater to the growing needs of this booming industry. By 2011, IT-ITeS is predicted to become a US$ 100 billion plus industry, growing at a compound annual growth rate (CAGR) of 18 per cent, states an IDC report.

Gartner Inc. forecasts that the worldwide market for testing services will grow to US$ 13 billion by 2010, with 45-50 per cent (around US$ 6 billion) getting outsourced. Indian IT-BPO players generated export revenues of about US$ 280 million from testing services in 2006. Industry observers believe that a significant potential therefore exists for Indian IT-BPO companies providing solutions in this space.

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