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India Information Technology Report Q3 2011
Business Monitor International, July 2011, Pages: 68
In 2011, India's IT market should consolidate its strong performance in 2010 thanks to an improving economy and consumer sentiment. Computer shipments were up by around 30% in 2010 compared with 2009, and although growth is expected to moderate in 2011 due to base effects, it should remain comfortably in double-digits.
The Indian addressable market for IT products and services is projected to increase from US$19.7bn in 2010 to US$41.2bn by 2015. Having postponed IT projects during the econoimc slowdown, many Indian private and public sector organisations are now investing again in upgrading their IT infrastructure. The economic slowdown has encouraged a greater focus on RoI,, and vendors have reported demand for virtualisation solutions.
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.
Industry Developments
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 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, at the start of 2010, 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, 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 2010 when a court suggested that national ID cards should be made mandatory for all citizens.
Competitive Landscape
In 2010, HP and Dell continued to compete for top spot in the combined Indian PC market, with Dell enjoying a growing share of desktop sales, while Taiwanese vendor Acer was ranked in third place overall. In 2011, tablets have emerged as a major competitive battleground as vendors engage in a race to release more affordable devices for the Indian market. Q211 saw the Indian release of the iPad2 Q211 less than 50 days after its US launch while Samsung has targeted a 40% share of the Indian tablet market in 2011.
In the enterprise software segment, US giant Oracle claims around 7,000 clients across the Indian government and private sectors. Among recent wins reported by Oracle in key verticals, were the Punjab National Bank (PNB,) India's second-largest public sector bank, and Hindustan Petroleum Corporation (HPCL) another of India's largest public sector organs. 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.
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.
Computer Sales
BMI estimates that the Indian addressable market for PCs (including notebooks and accessories) will be worth around US$8.0bn in 2011, up from US$6.8bn last year. The addressable market is expected to grow around 18% in 2011, although this represents a deceleration on 2010, thanks largely to base effects. The main driver in 2010 was once again the consumer notebook segment.
BMI predicts the market will grow at a compound annual growth rate (CAGR) of 14% between 2011 and 2015, with unit sales resuming strong growth. Growing PC penetration in lower-tier cities should help to maintain demand for some time to come. Business demand could receive a lift in 2011 from tenders deferred as a result of the economic situation and migrations to Microsoft's new Windows 7 operating system could also help sustain a new cycle of hardware upgrades.
Software
The Indian software market CAGR for 2011-2015 is projected at 18%. In 2010, vendors reported that enterprise IT spending was trending upwards, with stronger demand for technology from the small and medium-sized enterprise (SME) segment. The local market is likely to grow strongly in 2011, 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.
Services
India's IT services market is estimated at around US$7.5bn in 2011 and is projected to grow to US$16.9bn in 2015.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 few 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.
E-Readiness
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.
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.
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