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India Information Technology Report Q4 2010
Business Monitor International, October 2010, Pages: 66
India Information Technology Report provides industry professionals and strategists, corporate analysts, information technology associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on India's information technology industry.
India's potentially vast IT market appears to be making a strong recovery in 2010 thanks to an improving economy and consumer sentiment. Computer shipments were up by as much as one-third in the first half of 2010, compared with the same period of 2009, although shipments have yet to return to the high-water mark recorded before the global economic crisis.
The Indian addressable market for IT products and services is now projected to increase from US$16.3bn in 2010 to US$34.3bn by 2014. IT spending was down significantly in H209, which brought a doubledigit annualised shipment decline in PC sales, but growth had resumed by the fourth quarter. Stronger growth in enterprise spending is expected in 2010, and government procurement should also grow robustly, along with opportunities in healthcare, education, telecoms and financial services. The long-term potential of India's IT market is plain: less than 3% of people in India own a computer (about one-fifth of the level in China), meaning particular potential in the lower end product range. However, realisation of this long-term growth potential depends on fundamental drivers such as raising India's low computer penetration, rising incomes, falling computer prices and the government's ambitions to connect the vast rural areas to the outside world.
According to data from Indian IT association Nasscom, India's technology and business services revenues accounted for 6.1% of GDP in fiscal 2010, up from 1.2% in 1998. This was despite the fact that earlier Nasscom had downgraded its growth projections for the domestic IT sector as a result of the global economic crisis. IT and business process outsourcing (BPO) exports grew only 5.5% in 2010, due mainly to IT budget cutbacks by clients in Western countries.
The government's five-year e-government plan, unveiled in 2006, was assigned a nominal budget of INR23,000 crore through 2011. The budget covered 26 core projects including agriculture, income tax, pensions, land records and passports. However, as of the end of 2009, many of these projects had yet to be awarded, or even tendered.
A key driver of informatisation in the government sector is likely to be the e-ID card programme, which took a step forward in June 2009 when the government announced a new head for the Unique Identity Authority of India. After repeated delays, the project is still at a very early stage. However, it has been estimated that the total cost of the project could be at least INR1.5bn lakh crore. The project received a boost in January when a court suggested that national ID cards should be made mandatory for all citizens.
In 2010, HP and Dell continued to compete for top spot in the combined Indian PC market, while Taiwanese vendor Acer was ranked in third place. In H110 Dell announced its intention to go after the Education PC segment, particularly the private schools market. Meanwhile, Acer has forecast that it will achieve 30% volume growth in the Indian market in 2010, growing faster than BMI's estimate for the market as a whole.
A significant opportunity will be created by demand from Indian businesses and government agencies for help to utilise cloud computing. There are already more than 50 cloud computing service providers working in the Indian market. Indian internet services providers (ISPs) and data centre service providers such as Bharti Airtel, Sify, Trimax, and NetMagic are investing in bandwidth and facilities to support new cloud service offerings.
Meanwhile, Indian IT companies like Wipro, Infosys, TCS, HCL and Mahindra Satyam are developing cloud computing applications and solutions for verticals ranging from financial services and banking to manufacturing.
BMI now estimates that the Indian addressable market for PCs (including notebooks and accessories) will be worth around US$6.5bn in 2010, up from US$5.3bn last year. Shipments were up by as much as onethird in H110, showing continued improvement as the rate of growth exceeded that recorded in Q409. The main driver was once again the consumer PC segment, but sales growth of desktops, which accounted for above 60% of PC sales, also reached double digits.
BMI predicts that the market will grow at a compound annual growth rate (CAGR) of 18% between 2010 and 2014, with unit sales resuming strong growth. Despite the economic headwinds of 2009, the market has a number of potential strong growth drivers. Business demand could receive a lift in 2010 from tenders deferred from 2009. The business segment also saw growth in Q110, and migrations to Microsoft's new Windows 7 operating system, and new Intel core technology could also help to trigger a new cycle of hardware upgrades.
The Indian software market should continue to record healthy growth, with software spending CAGR for 2010-2014 projected at 23%. In H110, vendors reported that enterprise IT spending was trending upwards, with stronger demand for technology from the small and medium-sized enterprise (SME) segment. Despite the recent economic headwinds, the local market is likely to grow strongly in 2010, with more projects from key IT-spending verticals such as financial services, telecoms and consumer goods. In recent years, the SME market in India for hardware deployment has grown, and this has resulted in an increasing opportunity in this segment for applications. More demand for solutions and hardware now comes from second- and third-tier cities. Industry reforms and privatisations, government regulations and new global competition have encouraged SMEs to use more technology. Recently, there has been an increased enthusiasm for hosted applications and software-as-a-service (SaaS), which improved telecoms infrastructure makes more feasible.
India's IT services market is estimated at around US$6.3bn in 2010 and is projected to grow to US$14.3bn in 2014.The Indian market has traditionally been low margin, with India's IT majors such as Infosys, Wipro and TCS focusing most of their attention outside the domestic market.
Particularly following the US and global economic downturn, however, vendors are now more attuned to the growing size of the Indian IT services market opportunity.
Over the next one to two years, vendors are expected to compete for a share of significant spending on major public sector IT projects such as ID cards, e-government and railway modernisation. There is an increasing number of large projects, particularly from the government, but also from key verticals such as banks, telecoms, defence, manufacturing and retail. A significant opportunity will be created by demand from Indian businesses and government agencies for help to utilise cloud computing, which is driving data-centre investments.
Broadband subscriber numbers have consistently fallen behind target in India. The main reason for the slow uptake is thought to be insufficient demand, although the government has taken some measures to reduce tariffs and encourage alternative forms of service provision. One brake on PC penetration is a poor dial-up internet home-user experience, even in cities. If this is to change, the government must take the initiative in improving bandwidth availability. Government plans to encourage WiMAX network deployment may have some impact on penetration.
Key Issues For Investors
Despite a cheap and well educated workforce, India's business environment is impeded by excessive government regulation. Foreign equity holdings remain restricted in many sectors. Hiring and firing procedures, meanwhile, are governed by rigid labour laws, under the terms of which companies employing more than 100 people need the permission of the local chief minister to lay off workers. Other concerns include: the 670-odd industries reserved for small-scale producers; high import tariffs levied on foreign-made goods; failing infrastructure and, above all, poor power supplies; and a corrupt bureaucracy needed to approve 'permits' for even the most routine tasks. India is now fast-tracking the creation of South East Asian-style 'special economic zones' aimed at tackling some of these bottlenecks.
Indian IT Sector SWOT
Indian Telecoms Industry SWOT
India Political SWOT
India Economic SWOT
India Business Environment SWOT
IT Business Environment Ratings
Asia IT Business Environment Ratings
Table: Asia Pacific IT Business Environment Ratings
Asia Regional IT Markets Overview
India Market Overview
Table: IT Industry Tax
Industry Forecast Scenario
Table: India IT Sector - US$mn Unless Otherwise Stated
Table: Rural/Urban Breakdown, 2005-2030
Table: Consumer Expenditure, 2000-2012 (US$)
Table: Internet - Historical Data And Forecasts
Table: India – Economic Activity
Internet Competitive Landscape
Table: Regional Broadband Penetration Overview
Tata Consultancy Services (TCS)
How We Generate Our Industry Forecasts
IT Ratings – Methodology
Table: IT Business Environment Indicators
Table: Weighting Of Components
- IBM India
- Wipro (India)
- Microsoft India
- Tata Consultancy Services (TCS)
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