Indian IT

The Indian IT-BPO sector (including the domestic and exports segments) is growing
at an estimated 28 percent in FY2007.1 Total revenue aggregate for the sector is expected to exceed USD 47.8 billion, nearly a ten-fold increase over the aggregate revenue of USD 4.8 billion, reported in FY1998, and direct employment is likely to
cross 1.6 million.2 As a proportion of national GDP, the revenue aggregate of the Indian technology sector has grown from 1.2 percent in FY1998 to an estimated 5.4 percent in FY2007. Net value-added by this sector, to the economy, is estimated at
3-3.5 percent for FY2007.3

Service and software exports remain the mainstay of the sector; FY07 export growth likely to beat forecasts and exceed 32 percent.5 While the US and the UK remain the dominant markets, contributing to 67 percent and 15 percent of total exports respectively, fi rms are also keenly exploring new geographies for business development, and to strengthen their global delivery footprint. Banking, Financial Services and Insurance, and Technology (Hi-tech/ telecom) are the main verticals, accounting for nearly 60 percent of the total; Manufacturing, Retail, Media, Utilities, Healthcare and Transportation follow – also growing rapidly.

IT services exports, accounting for 55-57 percent of total exports, are growing at
an estimated 36 percent and are expected to reach USD 18.1 billion in FY2007.
Newer areas of application and infrastructure management, testing, etc. are
gaining traction, with their share in the business-mix growing steadily. BPO
continues to grow in scale and scope, with fi rms increasingly adopting a vertical focused approach. Total exports for this segment are expected to exceed USD 8.3 billion in FY 2006-07, growing by 32 percent over the previous year. Lastly,
increasing traction in offshore product development and engineering services is supplementing India’s efforts in own IP creation. This group is growing at 22-23 percent and is expected to report USD 4.9 billion in exports, in FY 2006-07.

Service-line expansion is aiding service providers to take on larger and more complex deals, and is driving up the average ticket size of contracts awarded to Indian firms. High offshore component of delivery and superior execution in multi-location delivery continue to be key differentiators. Broad-based industry structure; IT led by large Indian fi rms, BPO by a mix of Indian and MNC third-party providers and captives,
reflects the depth of the supply-base. While the larger players continue to lead growth, gradually increasing their share in the industry aggregate; several high-performing SMEs also stand out.

The domestic market is also picking-up, showing defi nite signs of breaking-out of the trend of hardware linked growth with the contribution of software and services exceeding that of hardware for the first time in FY 2005-06. The total size of the domestic market is expected to cross USD 15.9 billion in FY 2006-07, a growth of 21 percent over FY 2005-06. Although this segment has been led by MNCs in the
past few years, Indian fi rms are gradually gaining ground. Overtime this segment could become a larger SME play, as the mid-sized fi rms increase their levels of IT adoption.

1.) The fiscal year for the Indian economy follows a twelve month cycle spanning
April – March. Hence all the fi gures reported for the current Indian fi scal year
(FY2007) pertain to the industry’s performance during April – December 2006 that
have been used to arrive at the year end estimates.

2.) Revenue fi gure includes the revenues from IT services, software, BPO,
engineering services and hardware, earned in the domestic market as well as
through exports either by Indian fi rms or by India-based centers of multinational
firms. Employee-base fi gure does not include employment in the IT
hardware sector.

3.) Value added in the technology services sector is estimated at 60-70 percent.