Saturday, July 26, 2008

India’s Information Technology Industry

The Indian software industry has grown from a mere US $ 150 million in 1991-92 to a staggering US $ 5.7 billion (including over $4 billion worth of software exports) in 1999-2000. No other Indian industry has performed so well against the global competition.
The annual growth rate of India’s software exports has been consistently over 50 percent since 1991. As per the projections made by the National Association of Software and Services Companies (NASSCOM) for 2000-2001 (April 1, 2000 - March 31, 2001), India’s software exports would be around $ 6.3 billion, in addition to $ 2.5 billion in domestic sale.
Indian Software Industry 1995-2000
(US $ million)

Domestic software Market
Software Exports
Indian Software Industry
(* Source: NASSCOM Report)
Today, India exports software and services to nearly 95 countries around the world. The share of North America (U.S. & Canada) in India’s software exports is about 61 per cent. In 1999-2000, more than a third of Fortune 500 companies outsourced their software requirements to India.
NASSCOM’s survey during 1999-2000 indicates a reversal in the mode of services offered by India. In 1991-92, offshore services accounted 5 per cent and on-site services 95 % of the total exports. However, during 1999-2000 offshore services contributed over 40 percent of the total exports.
The NASSCOM - McKinsey report on India's IT industry
According to a NASSCOM-McKinsey report, annual revenue projections for India’s IT industry in 2008 are US $ 87 billion and market openings are emerging across four broad sectors, IT services, software products, IT enabled services, and e-businesses thus creating a number of opportunities for Indian companies. In addition to the export market, all of these segments have a domestic market component as well.
Other key findings of this report are:
  • Software & Services will contribute over 7.5 % of the overall GDP growth of India
  • IT Exports will account for 35% of the total exports from India
  • Potential for 2.2 million jobs in IT by 2008
  • IT industry will attract Foreign Direct Investment (FDI) of U.S. $ 4-5 billion
  • Market capitalization of IT shares will be around U.S. $ 225 billion
Projected Revenues - 2008
($ US billion)

India Based India Centric Sub total
Domestic Total 1998
IT Services 23 7* 30 8.5 38.5 2.1
Software Products 8 2 10 9.5** 19.5 0.6
15 2 17 2 19 0.4
E-business 4 1 5 5 10 0.2
Total 50 12 62 25 87 3.3
Exports of $50 billion in 2008
* Legacy/client server, ERP and package work and Internet all have different proportions of work outside India where revenues are not export revenues.
** Resale of imported products included.
Promotion of IT - governmental incentives:
With the formation of a new ministry for IT, Government of India (GOI) has taken a major step towards promoting the domestic industry and achieving the full potential of the Indian IT entrepreneurs. Constraints have been comprehensively identified and steps taken to overcome them and also to provide incentives. Thus for example, venture capital has been the main source of finance for software industry around the world. However, majority of the software units in India is in the small and medium enterprise sector and there is a critical shortage of venture capital kind of support. In order to alleviate this situation and to promote Indian IT industry, the Government of India has set up a National Task Force on IT and Software Development to examine the feasibility of strengthening the industry. The Task Force has already submitted its recommendations, which are under active consideration. Norms for the operations of venture capital funds have also been liberalized to boost the industry. The Government of India is also actively providing fiscal incentives and liberalizing norms for FDI and raising capital abroad.
Recently, an IT committee was set up by the Ministry of Information Technology, Government of India, comprising Non Resident Indian (NRI) professionals from the United States to seek expertise and advice and also to step up U.S. investments in India's IT sector. The committee is chaired by Minister of Information Technology, Government of India, and the members include Secretary, Ministry of Information Technology and a large number of important Indian American IT entrepreneurs.
The group will:
  • Monitor global IT developments and refine Indian IT policy to meet global requirements. Specifically, this will help angel investors, venture creators and incubation;
  • Promote the growth of human resource development in the IT sector with the aim of creating quality-based education;
  • Promote R&D in the sector by identifying thrust areas and drawing up a blueprint for action.
India’s most prized resource in in today’s knowledge economy is its readily available technical work force. India has the second largest English-speaking scientific professionals in the world, second only to the U.S. It is estimated that India has over 4 million technical workers, over 1,832 educational institutions and polytechnics, which train more than 67,785 computer software professionals every year. Government of India is stepping up the number and quality of training facilities in the country to capitalize on this extraordinary human resource. It is the knowledge industry that will help take the Indian economy to a sustained higher rate of growth and the policy makers are fully aware of this.

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