How the IT sector has emerged as a pillar of modern India

For a sector that was ‘born’ much after Indian Independence, the IT-ITeS sector has come a long way to become one of the pillars of modern India.

Even up until 10 years ago, it contributed less than 5 per cent to the country’s GDP; today, it contributes nearly twice as much. On a comparative basis, the automobile sector contributes about 8 per cent of the country’s GDP.

The IT industry’s revenues are at an estimated $190 billion, growing at 7.7 per cent on a year-on-year basis and by 2025, they are expected to reach $350 billion.

The sector has also generated 4 million jobs and provided indirect employment to 10 million. TCS, the biggest IT services company in India, alone has generated over 4 lakh jobs, while Infosys has over 2 lakh employees.

The computer software and hardware sector in India attracted cumulative Foreign Direct Investment (FDI) inflow worth $44.91 billion between April 2000 and March 2020. The sector ranked second in FDI inflow as per data released by the Department for Promotion of Industry and Internal Trade (DPIIT).

The Indian government has been quite active in rolling out incentives for the IT and ITeS sector. In February 2019, it released a national policy on software products to develop India as a software production destination. It has identified information technology as one of the 12 champion service sectors for which an action plan is in the works. It has also set up a ₹5,000-crore fund for realising the potential of these champion service sectors, according to India Brand Equity Foundation.

Besides, the government has announced a plan to launch a national programme on artificial intelligence and set up a national AI portal.

Key overseas markets

While these are impressive figures, the Indian IT sector is heavily influenced by the rapidly dynamic situation in Europe and the US, which are two of its biggest markets and together contribute nearly 85 per cent of revenues.

Indian IT services appear to be a skewed landscape right now, featuring six mega companies with revenues in the $5 billion-$20 billion range and a plethora of mid-cap companies in the $500 million-$1 billion range, according to Philip Capital.

Historically, IT services companies have taken, on an average, four years to more than double their revenues from $2 billion to $5 billion, at a CAGR of 26 per cent, according to analysts, Vibhor Singhal and Karan Uppal of Philip Capital.

According to analyst firm KR Choksey, most IT services companies are likely to recover to some extent by the second quarter of FY21 as major countries emerge from lockdown and restart their economies. “The criticality of technology to most firms’ operations across verticals, along with a further rise in digital and cloud spend post the pandemic, is likely to drive growth recovery from 2Q onward. However, the situation remains fluid and the pandemic is far from over; thus, recovery needs to be viewed with a hint of caution,” the analyst firm has said.

The report said Infosys will on-board 20,000 freshers in FY21. “Strategic initiatives for cost-cutting include reskilling of employees instead of hiring more, to boost utilisation, short term and temporary cuts on discretionary spend, and travel expenses, branding and marketing expenses getting cut.”

The fact that most of the IT services are expected to recover sooner or later shows the resilience of the sector even though the pandemic has damaged the economy severely.

COMMENT NOW