The Billion Dollar IT Pie: What’s India’s Share?

Why do you find just a handful of Indian IT companies in the billion dollar fellowship? We take a closer look...

Industry experts, consumers, businessmen and entrepreneurs have been waiting for the Indian IT explosion. In fact, big and small IT companies have been mushrooming all over the subcontinent. Yet, when it comes to the coveted billion-dollar club, only a handful of companies (such as HCL, Infosys, Wipro, etc.) have made the cut. Notwithstanding the slowdown, India is doing well in the software and allied services industry, and the companies catering to the segment have been enjoying the billion-dollar guild. However, other segments of the IT industry such as hardware, telecom equipment and packaged software are lagging far behind and are nowhere near the mark.

Today, the IT industry is facing major problems related to infrastructure and technology, which are pulling them back. In fact, India lacks the proper environment to develop devices from inception to the final product. Yes, the Indian IT industry is good at conceptualisation, design and innovation, but when it comes to the actual product development, our IT giants outsource it to other countries, which only adds to the costs and lowers their profits. “While research and development is happening in our country, for manufacturing, the sector is looking at countries like China,” says Rajiv Bapna, managing director at Amkette.

To give you an example, countries like China can build a prototype of a phone within a week or less than that. But the same process in India will take more than a month or in some cases, even two months. This just shows that the IT hardware industry is not equipped to handle such tasks. China is not the only country building a name in the IT hardware. Other South-east Asian countries such as Thailand have also hopped on to the hardware-building bandwagon and are manufacturing various products.

The good news is that to overcome this obstacle, the government has taken several initiatives. In fact, it is a big buyer of the IT industry – 25% of the total IT spend in the country comes through it. To give a boost to our nation’s IT manufacturing, the Indian government has been working on projects for the past five years to develop more IT parks and industry workplaces. The Indian government is also initiating projects, which will help companies develop and manufacture products such as mobile phones or tablets within the country.

Similar plans are also being developed by private players with the help of the governments of Andhra Pradesh and Gujarat. This will not only generate jobs, but will also bring down the manufacturing, transportation and other costs considerably, in return boosting revenues of the IT companies. That said, however, industry insiders and experts feel that the delay in making concrete decisions is hampering the growth. Faster pronouncement and action from the government is required for rapid expansion and it also needs to spend more on IT services and allied segments.

Another way for IT industries to stay ahead – and join the billion-dollar revenue club in time – is to branch out into different verticals. “The IT sector needs to diversify into verticals where there is growth. For example, last year in India, the telecom, infrastructure and utilities verticals have gone through a downturn and have not been presented with opportunities for growth. At the same time, verticals such as banking, healthcare and education have continued to grow,” explains Harsh Chitale, CEO & whole time director at HCL Infosystems Ltd.

While you will find an array of IT companies in China under the billion-dollar banner, there are just a few in India that have exceeded that billion-dollar point in returns. If we take a look at the figures, the Indian IT companies contribute just a fraction to the worldwide IT industry. Worldwide projections for the IT industry for 2013 stand at about $3.7 trillion, out of which India will contribute to just 1%. Reports also say that the Indian IT services industry will reach $10.2 billion in 2013 – implying that the rest of the revenues will be generated by other IT segments. This can be a good opportunity for others to capitalise on, but can only be done if proper infrastructure and technology are in place.

The billion-dollar club may have the most sought-after membership, but any Indian firm keen to join the ranks needs serious support and backing up by the government. We need some serious reforms to get the process rolling and make India a manufacturing hub.

Where we stand: A quick view
-- The India IT services market is forecast to reach $10.2 billion in 2013 – 12% increase from an estimated $9.1 billion in 2012.
-- Worldwide projection for the IT industry for 2013 is about $3.7 trillion.
-- Government buys 25% of IT services and devices. Rest is taken up by other sectors and consumers.
-- India’s IT market size is about 1/8th the market size of China.
-- Current domestic IT market is worth about $25 billion, which is just about 1% of the total global IT market (while our GDP is about 2% of the global GDP and our population is 20% of the global population).

Worldwide IT Spending Forecast (In billion U.S. dollar)

n By 2016, the Indian IT services sector will grow at 14% and touch Rs 96,600 crore. The hardware industry will grow at 6% and touch Rs 44,400 crore while the software products segment is expected to grow at 14% and reach Rs 34,400 crore.
Data source: Gartner, HCL and others