Information technology research firm Gartner has said that IT spending in India will rise by 9.1 per cent in 2011, but IT companies have been complaining that the domestic market is currently a big slow sloth that refuses to move.

“It is very frustrating. Projects are delayed. There is no decision making whether in the government or private sector. Orders are not issued,” said an official with Tata Consultancy Services.

As a consequence of this, domestic business was a drag on the company's topline growth during the second quarter of the current fiscal. On a sequential basis, revenues from India operations were down 4.3 per cent.

“There is just too much delay in everything,” said the official. “With our overseas projects, the decision making process is so clear-cut.”

Gartner bullish

“2012 will be a little tough,” said Mr Arup Roy, Principal Research Analyst at Gartner India, speaking of the IT services (not including hardware sales) market in the country. “With the kind of global pressure that is present, Indian companies too psychologically feel they should exercise caution, although they may have reasonably good growth.”

However, he says, Gartner is still bullish about the environment: “We still see a 15.7–15.8 per cent compounded aggregate growth rate for the next five years.”

There will be a moderation in growth in FY13 as well, says Ms Srishti Anand, research analyst at Angel Broking. “There is significant delay in project awarding.”

She says apart from TCS, a few other IT companies do not have any large India exposure.

With TCS too, “it is more a function of government spends in India; the private corporate sector is not really contributing.” The nine per cent increase in IT spending for 2011 predicted by Gartner could be inclusive of hardware sales, she said.

DOMESTIC REVENUE

In the second quarter of fiscal 2012, domestic revenues accounted for 8.3 per cent of total revenues for TCS. This is down from 9.3 per cent in the immediate previous quarter, and from 9.9 per cent in the year-ago quarter.

At Infosys, domestic business hardly makes a difference either way as it constitutes only 2.36 per cent of total revenues (Q2 2012). At Wipro, India and the West Asia contributed 9.3 per cent of revenues during the quarter, very marginally up from the immediate previous and year-ago quarters.

In India, the market is still only just opening up; on the government side, there are the UID and postal department projects and in the corporate sector it is mostly banks that are looking at core banking solutions, said Mr Naushil Shah, analyst at Karvy Stock Broking.

TCS, IBM and Wipro are the most active in the domestic market, but for IT companies, India revenues are very lumpy, he says.

With government projects, debtor days go up by a lot for IT companies, he says. If it is usually 40-60 days for overseas projects, it goes to over 100 days in the case of Indian government projects.

India accounts for less than 5 per cent of income for the IT software sector, and its impact on the sector is very little, he said.

Profit margins from Indian projects are also less especially in the initial phase with returns following a J-shaped curve.

e-governance projects

About e-governance projects, a Nasscom newsletter had this to say: The reality today is that several projects and their execution are facing challenges. Some projects have failed or been shelved because of flaws at different stages…their conceptualisation, scope definition vendor selection and poor execution due to shortcomings on both the government and the implementing vendor's side. Issues related to public procurement of IT projects are a cause for concern for both buyers (i.e. government departments) and potential bidders.”

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