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Executive Summary
Education today is considered as an investment rather than an expense. There is a continuous rise in the spending on education by the households. They spend close to 9% on education which is just next to the spending on food and groceries. Moreover, in the present scenario approximately 55% of the households save for the higher education of their children. This itself reflects the potential for growth in the education sector.
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IT industry is the continuous contributor in the Indian growth story. IT exports revenue are the major source of export earnings. Indian IT-BPO sector is attracting lots of investment through PE/VC route. IT industry is taking part in the growth of GDP in terms of exports earnings, direct & indirect employment generation. Indian IT industry contribution in GDP grew from 1.2 per cent in FY 98 to 5.2per cent in FY 2007.
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IT industry is the largest employer in the private sector & it is growing at a CAGR of 26 per cent. IT sector is not only the direct employer, it is indirect employer too. Every one job in IT sector creates four jobs for other sector. These four jobs goes to those people who are not enough educated.
IT industry is the support industry for many other sectors like travel & tourism, hospitality, security services, real estate etc. IT industry has had a multiplier effect on other sectors of economy with an output multiplier of almost 2 through its non wage operating expenses, capital expenditure and consumption spending by professional.
India is enjoying its leading position in IT software & services worldwide. IT software & services export earnings grew by 35 per cent to USD 18 billion in 2007 from USD 13.3 billion in 2006. Indian IT-BPO sector is the next sunshine sector of India. IT-BPO sector is growing at a CAGR of 16 per cent & it is the preferred employer of youth generation. BPO sector is also taking part in the growth of other sector too. |
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Knowledge & skilled people are the first requirement for any industry. IT industry is feeling heat in this front. Not only in India, are worldwide companies feeling crunch for skilled workforce. There is huge demand for skilled manpower in the IT industry.
According to recent report by IDC, Indian IT-BPO sector will grow at a rate of more than 16 per cent to become USD 132 billion industry by 2012.
Report suggest that Indian domestic IT and ITes market is expected to cross USD 50 billion mark in 2012 with a CAGR of 18.4 per cent in the five year period. Exports are the major contributor in this growth with the tune of 3, 20,278 cr. Overall IT industry will grow to 5, 29,976 cr. (USD 132 bn) by 2012 representing the growth of 16.5 per cent. Total domestic sector will grow from 37 per cent to 40 per cent.
Industry Outlook |
Indian Information Technology Sector is one of the fastest growing sectors over the past years. IT sector is witnessing the 33% YOY growth & $ 64bn revenue for the financial Year 2007. India has emerged as the fastest growing IT hub in the world, its growth dominated by IT software & services, BPO, Banking Financial Services and Insurance (BFSI), High Technology and Telecom, Manufacturing and Retail and other key segments include Media, Healthcare, Airlines and Transportation and Utilities. |
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Dollar depreciation is the major threat for the IT companies for this year. Despite the falling dollar Indian IT companies are still leaders in the global IT market. The year 2007 is the average year for the IT companies & the beginning of some future problems for the IT companies; the falling dollar is one of the major concerns for the IT companies, they are also struggling for the quality manpower & the big neighbor China & Philippines who are growing faster & giving tough competition to Indian IT sector.
The value of the dollar against the rupee depreciates nearly 15% from the last 2 quarters which is affecting the profit margins of IT companies. They are in the serious pressure for maintaining the growth path. The next major concern for the IT sector is the knowledge crunch. IT sector is seeking knowledgeable peoples who are ready to take challenges. Only 25% of total workforce is eligible for taking up these challenges. |
Key Indicators
 Global IT spending has grown at 7.3% to nearly reach USD 1.7trillion in 2007.
USA (61%) & UK (18%) is the favorite export markets. Europe is the next favorite export destination growing at a CAGR of more than 55% over FY 2004-07.
BPO is the hot segment in Indian IT sector. It is estimated that revenue for the FY 2008E would be around USD 12.5 bn as against USD 9.5 bn for the last financial year and it is estimated that the BPO industry would be the USD 60bn by 2010.
IT exports are expected to cross USD 40.8bn in FY 2008 as against USD 31.9 bn, a growth of 28 per cent.
Domestic IT market is estimated to reach USD 23.2 bn in FY 2008 as against USD 16.2 bn in FY 2007, a growth of 43 per cent.
Total direct employment generation nearly 2 mn an increase of about 375,000 professional over FY 2007.
IT services export, BPO export and Domestic IT industry provides direct employment to 865,000, 704,000 and 427,000 professionals respectively.
IT services accounts 5.5% of GDP in FY 2008.
Hardware remains the largest segment of the domestic market and is expected to grow at 44 per cent in FY 2008.
Segment wise Revenue break Up
Export Destinatiuons
USA is the largest export market for the Indian IT companies followed by UK. While the recent financial depression in USA & falling dollar is hurting the profitability of the companies. So, now Indian IT companies are eyeing other emerging markets like Europe.
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Forex Earnings Break ups
Banking and Financial Services is the major part of export earnings. It constitutes 40 per cent of total exports followed by HI- tech/ Telecommunications services.
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Taking Part In Economic Growth
Indian IT sector is continuously taking part in Indian economic growth. IT industry is contributing through GDP growth, forex earnings & employment generation. In 1998 IT industry is contributing 1.2 per cent of GDP which is 5.2 per cent in 2007. IT Industry is a constant contributor in GDP It has the average growth rate of 18.14 per cent since 1998.
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Export Earnings
. In FY 2007 IT exports earnings IT industry is one of the largest service sectors of India. It is significantly contributing in export earnings clocked to USD 31.9 bn grown over 31 per cent from the previous year. Earnings for the FY 2008 is expected to be around USD 40 bn which is 25.39 per cent from the FY 2007.
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Direct Employment Generation
IT industry is the largest private sector employer in India & it is growing at a CAGR of 26 per cent. It is expected that the total employed persons in IT industry would be 2 mn in FY 2008. According to Ministry of Labor & Employment 12 per cent of total employed persons are engaged in IT sector.
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Indirect Employment Generation
IT sector generates not only direct employment; it also generates indirect employment too. According to study every one direct employment generates four indirect employment opportunity too. These indirect opportunities count about 6.5 million in various sectors. Theses sectors are the direct service provider of IT sector like catering, housekeeping, transport and security etc.
According to NASSCOM study these service provider employed SSC/HSC and less educated persons; who are the 75 per cent of total employed workforce. Therefore IT industry is significantly contributing in the growth of less educated people. |
Growth Driver for Other Sectors
IT sector is significantly contributing in the growth of other sectors. According to NASSCOM study every Rs. 1 spent by IT sector creates a Rs. 2 growth in the economy
IT Software & Services
| The growing economy of India open the path for one of the fastest growing economy in the world & India is ready to take position after US & china in coming years. India’s on going GDP growth at over 8 per cent shows the potential & the enough fuel for becoming the number three economy in the world. Among the various growth drivers in Indian economy, India’s service sector has contributed in a big way. IT software & services has contributed significantly in the growth of Indian service sector |
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The IT software & service has shown strong growth rate of 25 per cent over the years. IT sector is the biggest exporter in India & it has recorded 30 per cent YOY growth rate in exports. Indian domestic market is also growing significantly over the past few years.
Robust demand in domestic sector
| Indian Information technology sector is known for its services to other countries. In the beginning all the activities are concentrated on foreign markets; but he recent past years the scenario has changed in a big way, now Indian domestic sector is emerging a huge market for the IT companies. Indian IT companies & Foreign IT companies are realizing the growth potential of Indian domestic IT sector. All leading MNC’s are setting up base in India. India has been attracting large offshore business and now accounts for about 60 per cent of the global offshore activities. |
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Outsourcing continues to be the growth rider
Outsourcing is the major part of the Indian IT Software services & it continued to be the primary growth engine. In addition to the growth IT companies are continuously doing research & developing software for catering various needs globally. India is one of the leading software exporters in the world.
Some concerns are emerging due to the appreciating rupee & emerging other destinations like China & Philippines. These countries are providing cheap human resource & better infrastructure facilities. |
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In 2007 Indian IT companies exports worth USD 18 billion which is 35% higher than the previous year & in the year 2008 NASSCOM expecting the growth of 28% in export revenues which is USD 23.1 billion.
This table shows that the worldwide It spending are growing at the CAGR of 6 per cent from 2006-2011E. Telecom, Media and Tech is leading the way with the CAGR of 7.2 per cent followed by energy and Resource services at the CAGR of 6.8 per cent
Business Process Outsourcing (BPO) |
Business process Outsourcing (BPO) industry is one of the sunshine industries of India. BPO industry is one of the fastest growing industries in India. Worldwide India has the leading position in the BPO segment due to its largest English speaking & educated population.
According to NASSCOM study the “BPO economy” in India today is anywhere between $25 billion and $50 billion and growing 30-40% a year. BPO industry employs about 550,000 people, about the same as the IT industry now, but BPO employment is growing faster than IT and touches a much wider spectrum of society. |
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Indian BPO sector grows about 31 per cent in FY 2007 at USD 9.5 billion & expected to grow at the same rate in FY 2008 at USD 12.5 billion. From the FY 2004 to FY 2007 Indian BPO sector recorded a growth of 179 per cent in its earnings.
BPO export earnings grows significantly 33 per cent in FY 2007 with the tune of USD 8.4 bn & hope the trend will continue for the FY 2008 with total export earnings estimated to USD 10.9 bn. |
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BPO sector is providing fuel for another sector like real estate, travel & tourism, security services, hospitality, telecommunication, HR consultants & legal consultants. BPO industry is engaging lots of young population, who are the growth drivers of other industries too. This young generation is the largest consumer in India. This young generation is creating more demand in the sector of housing, hospitality, insurance, auto industry & travel and tourism sector. |
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BPO industry is facing the slowdown due to the appreciating rupees, competition from other countries, good infrastructure, higher input costs & lack of legislative initiatives. BPO industry is facing challenges from other growing countries like China, Philippines and Sri Lanka. These countries are providing quality infrastructure & full support from their governments.
BPO industry is eyeing for the government initiatives in terms of better infrastructure facilities, export tax benefits, stable rupee & education & training facilities. |
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KEY INDICATORS
Indian ITES-BPO exports grew from USD 6.3 billion in FY 2005-06 to USD 8.4 billion in FY 2006-07.
ITES-BPO employee base has grown to 553,000 in FY 07 from 415,000 in FY 06.
The annual revenue of the domestic market grew to USD 1.2 billion in FY 2006-07 from USD 0.9 billion in FY 2005-06.
Indian ITES-BPO provides cheap services worldwide, which saves 25-50 percent over the original cost.
Through continuous innovation, Indian ITES-BPO sector provides quality services at the global standards. |
IT Education & Training
Educated population is the big asset of any country. They are like the catalyst for developing country and economy. India is one of the fastest growing economies in the world. India’s service sector is the biggest contributor in the GDP growth. Service sector is totally depending upon the skilled people. So, there is always need for skilled people.
According to Goldman Sachs report (Dreaming with BRICs: The path to 2050) Brazil, Russia, India and China are rapidly developing and by 2050 will eclipse most of today’s rich countries. |
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According to the Goldman Sachs India is the rising star among the BRICs countries. India has the potential to grow the fastest growing country over the next 30 to 50 years.
For the development of world & Indian economy there is huge demand for educated & skilled work force. By 2020 the developed world will have a shortage of 40 million working people says a report “India’s New Opportunity 2020 “ brought out by the All India Management Association (AIMA), The Boston Consulting Group (BCG), The High Level Strategic Group and the CII.
Indian IT-BPO sector is the preferred destination for worldwide offshoring activities. India has the large pool of young population. India produces 3.1 million English speaking graduates annually.
Despite the large young graduate population, India is facing a crunch for skilled peoples. These graduates are not enough skilled for IT industry.
Various studies including NASSCOM-McKinsey Study 2005 throws up some interesting insights to validate India’s positive human-power status:
- The number of IT-BPO professionals employed in India grew from less than 200,000 people in 1998 to over 1.6 million in 2007, largely because of the country’s demographic profile and network of high-quality academic institutions.
- India currently has around 347 institutes of higher education and 16,885 colleges with a total enrollment of over 9.9 million. These produce around 495,000 technical graduates, nearly 2.3 million other graduates and over 300,000 post-graduates every year.
- Even at current levels of employability, India has the largest pool of suitable offshore talent, accounting for 28 percent of the total suitable pool available across all offshore destinations.
- India’s emergence as a preferred outsourcing destination has created the need for about 2.3 million professionals by 2010. Based on current estimates, a shortage of 0.5 million skilled knowledge workers may arise if remedial action is not taken.
Source: NASSCOM
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Opportunities
India currently has around 347 institutes for higher education but they are failing to provide skilled graduates & postgraduate up to industry standards. IT-BPO industry is facing tough challenges in the front of HR. Every year three lakh engineering graduates & 2 million graduates are passing, but they are not up to the mark.
According to a survey conducted by global HR Consultancy Manpower Inc- Talent Shortage Survey 2007 , Global results says 41 percent employers are facing challenges for filling up vacant position due to unavailability of skilled workforce. |
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The worse hit countries are USA (62%), Japan (61%), and New Zealand (62%) & some problems for India (9%), Ireland (17%) and China (19%).
Some companies are realizing the demand supply mismatch in industry & they are ready to take opportunity. IT education & training sector is attracting companies due to huge potential. Companies like NIIT’s who are providing IT training & education are growing rapidly.
NIIT has various plans to tap the market: they are tied up with ICICI bank to launch the NIIT institute of Finance, Banking & Insurance Training Limited (NIFBIT) in order to meet the shortage of professional in banking sector. Similarly it has tied up with Indian Institute of Management (IIMs) to introduce NIIT Imperia. Some other companies are APTECH, HCL & Siemens etc.
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Legislative Initiatives
The Government of India has announced IT as a thrust area. Accordingly, it is providing for more liberal policy framework for the sector. Major Laws and Regulations that affect the IT industry are listed below:
Foreign Trade Policy
- Permits import of all kinds of computers in India without any licenses.
- Import of second hand computers including personal computers and laptops are restricted and can only be imported against a license.
- EPCG Scheme for software sector
- Duty free import by EOU/ STP/ EHTP and SEZ
- Duty free purchase from DTA by EOU/ STP/ EHTP and SEZ
Excise Duty
- 12 per cent on sale of packaged software.
Copyright Act
Minimum 7 days & maximum 3 year imprisonment with the minimum fine of Rs.50, 000 & maximum of Rs. 2 lakh, for violating the copyright act.
Special Economic Zone (SEZ)
- Exemption from customs duty on goods imported into the SEZ.
- Exemption from customs duty on goods exported from the SEZ.
- Exemption from excise duty on goods brought from Domestic Tariff Area (DTA) to the SEZ.
- Exemption from service tax on taxable services provided to a Developer or Unit to carry on the authorized operations in a SEZ.
- Exemption from the securities transaction tax in case the taxable securities transactions are entered into by a non-resident through the International Financial Services Centre (IFSC).
- Exemption from levy of Central Sales Tax on the sale or purchase of goods by the Developer or SEZ unit.
- Local sales tax/ VAT exemption or concession on supply of goods to an SEZ Developer or Unit or sale of goods by an SEZ Developer or Unit.
- Tax Holiday for SEZ units engaged in manufacture or providing services A new section 10AA has been inserted in the IT Act by SEZ Act, 2005 which provides that the units in SEZ which start manufacturing or producing articles/ things or which start providing services on or after April 1, 2005 will be eligible for a deduction of 100 percent of export profits for the first five years from the year in which such manufacture/ provision of services commences and 50 percent of the export profits for the next five years. Further, for the next five years a deduction shall be allowed of up to 50 percent of the profit as is debited to the profit and loss account and credited to the Special Economic Zone Reinvestment Reserve Account (subject to conditions).
- Tax Holiday for Offshore Banking units in SEZ
- Interest received by non-residents and not ordinary residents on deposits made with an Offshore Banking Unit on or after April 1, 2005 shall be exempt from tax.
- Exemption from Minimum Alternate Tax (MAT).
- Exemption from Capital Gains.
Concerns
| Indian IT industry is performing well over last two decades but now some concerns are emerging in the Indian Information Technology Sector. These concerns are not only for Indian IT sector, it’s a worldwide. Global IT companies are feeling heat due to current recession in USA economy & India is threatened most because USA is a major export destination for Indian IT sector. |
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Depreciation of Dollar
Last half year is the worst time for exporters because of continuous fall in dollar. Dollar depreciates nearly 15 per cent in last months. Falling dollar is eroding profits for most IT companies because exports are the major part of its earnings. All big companies like Infosys, Wipro, TCS, and Satyam are reporting huge loss in their final accounts.
Tough Competition
India is the leader in IT offshoring services but now India is facing tough challenges from emerging IT destinations like China, Philippines and Sri Lanka. These countries are providing quality workforce, better infrastructure and government supports.
Need of Skilled & Educated workforce
IT sector is also suffering in the front of skilled & educated professionals. Our system is not generating skilled people according to the requirement of IT industry. We are producing lots of graduates and post graduates but they are not up to the IT industry standards. The demand of skilled workforce is globally, global companies are also facing challenges in front of HR solutions.
Slowdown in USA
The recent slowdown in US economy is the major concern for Indian IT industry because USA is the favorite destination for IT exports. A large amount of forex earnings comes from US. Slowdown in US economy is not a good sign for world economy because US economy is the world’s largest economy. A large number of countries depending upon the US, So this is the indirect slowdown for those countries.
Conclusion
No doubt Indian It industry is the sunshine industry of India over the years. IT industry improves the image of India worldwide. Our IT talent is recognized by the global companies. Global companies are not only outsourcing their work, but they are also setting up their base in India. IT giant Microsoft chooses India for setting up their office, which is the only office outside the USA. Indian IT professionals are working in the worlds top IT companies at top levels.
IT industry is continuously contributing in India’s growth story; IT industry is the largest employer in private sector. IT companies are providing boost for other sectors too. IT-BPO sector is also improving the society of India; BPO sector is providing large opportunities for young generation.
The sweet story of IT sector is now facing the challenges in various fronts. They are facing the challenge from the depreciating dollar, emergence of new IT destinations, skilled & educated workforce. If the IT sector wants to remain the sweet story for longer terms they have to take some serious steps for tackling the concerns. There is serious need for IT companies to take action. US slowdown is indicating for search of other export destinations. UK, Europe will be the next destinations for IT exports. There is huge opportunity left behind in these markets. IT companies should go for catching up the opportunities in these markets.
IT industry needs skilled & educated workforce, so IT companies should take steps for development & training for unskilled people. IT training & education sector is becoming hot day by day because of demand for IT professionals in India & globally.
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