India Information Technology Report Q1 2012
Business Monitor International, February 2012, Pages: 68
Business Monitor International's 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 set to continue a strong recovery in 2012 owing to a growing economy and healthy consumer sentiment. Computer shipments were up by around 16% in 2011, compared with 2010, and in 2012 growth should remain in double-digits, with notebooks the main PC market driver.
The Indian addressable market for IT products and services is projected to increase from US$21.0bn in 2012 to US$42.2bn by 2016. New cloud computing offerings and increased competition in this segment should fuel further demand from end-users to utilise this technology. Having postponed IT projects during the economic slowdown, many Indian private and public sector organisations are now investing again in upgrading their IT infrastructure.
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
In 2011, local governments made a significant contribution to the IT market through procurements related to various ICT-programmes. The Gujarat government issued a tender for desktops, while the government of Karnataka announced a pilot programme to bring ICT education to 5,000 schools. Meanwhile, the government of Punjab selected virtual computers for 480 computer labs across schools in the state, as part of an initiative called ICT Education Project for Punjab.
The federal 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 mandatory for all citizens.
Competitive Landscape
2011 saw the release of several lower-priced tablets from Indian vendors. In October 2011, Datawind released a US$60 tablet (US$30 with subsidies), with an inbuilt modem and a SIM card for internet access. This followed the September 2011 launch by Indian computer peripherals maker Best IT World of a 7-inch tablet priced a INR13,995 (U$02.6.) The device was the latest in a series of launches of lowcost Android-based tablets by local companies. Devices from tier-1 vendors like Apple and Samsung are currently too expensive for many consumers.
In September 2011, IBM won a large managed services tender from mobile telco giant Vodafone's Indian unit. The deal, which has a value estimated at between US$800,000 and US$1bn, will result in IBM managing Vodafone India's information technology systems until 2017. IBM, the leader in the Indian IT services market faces increasing competition from domestic IT giants, which since the onset of the global financial crisis, have concentrated more on their domestic market.
Meanwhile, HP is now planning to increase its presence to challenge IBM and the leading domestic companies, with a particular focus on the financial services vertical. In September 2011, HP announced the inauguration of two new facilities in Bangalore, India. Earlier, HP had announced that it expected to add more than 500,000 sq f of real estate in FY11 through three new facilities in Bangalore and one in Chennai.
Computer Sales BMI estimates that the Indian addressable market for PCs (including notebooks and accessories) will be worth around US$8.2bn in 2012, up from US$7.2bn in 2011. Owing to favourable economic conditions, the addressable market in US dollar terms is expected to grow around 13%.
BMI believes the PC market will grow at a CAGR of 16% between 2012 and 2016, with unit sales maintaining 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 addressable software market is forecast to reach US$2.6bn in 2012. In 2011, vendors reported that enterprise IT spending was continuing to trend upwards, with stronger demand for technology from the SME segment. The local market is likely to grow strongly in 2012, with more projects from key ITspending 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-tier 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$8.5bn in 2012 and is projected to grow to US$18.3bn in 2016. 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. According to the law, 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.
Executive Summary
SWOT Analysis
Table: India IT Sector SWOT
Indian Telecoms Industry SWOT
India Political SWOT
India Economic SWOT
India Business Environment SWOT
Business Environment Ratings
Table: Regional IT Business Environment Ratings
IT Markets Overview
Asia
IT Penetration
Sectors And Verticals
Market Overview - India
Government Authorities
Table: IT Industry Tax
Industry Forecast
Table: India's IT Sector - Historical Data & Forecasts (US$mn Unless Otherwise Stated)
Industry Forecast Internet
Macroeconomic Forecast
Table: India – GDP Contribution To Growth
Competitive Landscape
Table: Regional Broadband Penetration Overview
Company Profiles
IBM India
Wipro (India)
Microsoft India
Tata Consultancy Services (TCS)
Country Snapshot: India Demographic Data
Section 1: Population
Table: Demographic Indicators, 2005-2030
Table: Rural/Urban Breakdown, 2005-2030
Section 2: Education And Healthcare
Table: Education, 2002-2005
Table: Vital Statistics, 2005-2030
Section 3: Labour Market And Spending Power
Table: Employment Indicators,1996-2001
Table: Consumer Expenditure, 2000-2012 (US$)
Table: Average Annual Manufacturing Wages, 2000-2012
BMI Methodology
How We Generate Our Industry Forecasts
Transport Industry
Sources
- IBM India
- Wipro (India)
- Microsoft India
- Tata Consultancy Services (TCS)
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