The IT sector has proved many naysayers wrong by adapting to technological change. After a prolonged period of single-digit growth in industry revenue at 7-9 per cent, Nasscom has projected over 15 per cent growth in FY 2022 at $227 billion, the highest since 2011 and $30 billion up from FY21. This is a remarkable achievement given that the industry was beset with headwinds due to changing business models and slowing global markets. In its Strategic Review 2022 report, Nasscom has projected an annual growth rate of 11-14 per cent up to FY26. This growth of IT revenues (over 70 per cent export-led) has been accompanied by a shift up the value chain into digital streams, aided in no small measure by the growth of digital infrastructure. This shift could lead to synergies with sunrise sectors such as semi-conductors.
This transition in business models could not have been anticipated some years ago. Competition from global IT giants such as Accenture and IBM, and a workforce dominated by legacy engineers trained in old technology platforms was hitherto holding back Indian IT services firms. To counter these challenges, top IT players have had to make major shifts in their business models. Over the past two years, IT companies have reskilled over a million employees to make them ready to take up jobs that require very different capabilities compared to implementing enterprise resource planning software. As a result, IT firms have been able to show that they no longer rely on shipping low-cost skilled labour to countries such as the US to drive higher margins. The industry has been able to quickly move up the value chain in terms of switching over to robotics, AI and automation. IT companies are also increasingly hiring talent outside India to not only reduce dependency on H1B visas but also to be closer to the clients. Digital streams contribute around 30-32 per cent of the estimated revenue for FY 2022. Over 66 per cent of the deals for the IT sector were largely digital this fiscal year.
While IT services exports (about $150 billion) continue to be the mainstay with a 17.88 per cent growth y-o-y, the domestic front is looking up. The Budget has taken a digital-first stance with the adoption of emerging technologies like blockchain and AI in e-passports, geospatial systems and RBI-backed digital rupee. These projects will provide massive benefits to the IT companies. The pandemic has also increased the pace of technology adoption across the globe. Digital transformation and migration to the cloud have become the need of the hour. IT services companies from India have outpaced their competitors from the US in brand value growth over the past two years of digital transformation globally (a process that was accelerated by the Covid-19 pandemic), according to Brand Finance 2022 Global 500 IT Services Ranking report. However, Indian IT needs to make the real transformation: from being a provider of services to a vendor of products and platforms. This would require the next leap in capabilities and mindsets. Bu