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Information Technology (IT)

The Indian IT market is predicted to grow to $65 billion by 2009, a compounded annual growth rate of 21 percent. As per recent data released by IDC, the IT market of India crossed the $25 billion mark in 2004. This included a contribution of $16.7 billion from exports, and $8.5 billion from the domestic market.

According to IDC, the domestic market grew by 22.9 percent over 2003 and the growth primarily came from IT services (26 percent), PCs (25 percent), dotcom products (32 percent) and multifunction devices (48 percent).

Thus, the domestic IT market is clearly on a growth trajectory and the YoY growth rate is expected to peak at 23.3 percent in 2005, the highest during this business cycle (2004-2009). IDC predicts that the domestic market will grow at an average rate of 17 percent for the period 2004-09 and will move from Rs 38,303 crore in 2004 to Rs 84,878 crore in 2009.

The IT exports market on the other hand grew by 32 percent in 2004 (in rupees) touching Rs 75,477 crore revenue. IT services exports clocked Rs 51,047 crore whereas ITeS and hardware exports clocked Rs 24,430 crore. The growth came primarily from BPO services, which grew by 42 percent in 2004. IDC predicts that the export market will grow at an average rate of 22.2 percent touching nearly Rs 2, 06, 000 crore by 2009.

NASSCOM - McKinsey report

A report prepared by NASSCOM-McKinsey puts annual revenue projections for India’s IT industry in 2008 at US $ 87 billion. The report also identifies four broad areas where markets are emerging vis-à-vis 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, says the report.

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
(International)

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

IT-enabled
Service

15

2

17

2

19

0.4

E-business

4

1

5

5

10

0.2

Total

50

12

62

25

87

3.3

* 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.  

Looming IT labor shortage

However, if India doesn't take urgent action to reform education and build modern infrastructure, the nation could fall far short of its potential as an outsourcing haven. That's the conclusion of a new study released on Dec. 16 by McKinsey Global Institute and NASSCOM.

The first inklings of a tightening talent supply are already visible in rising staff turnover and skyrocketing wages. If offshore outsourcing work grows as rapidly as expected, the study predicts, in five years India will have a shortfall of 150,000 IT engineers and 350,000 business-process staff.


What happened to that limitless pool of labor? India graduates around 350,000 engineers each year -- five times as many as the U.S. -- and a stunning 2.5 million university graduates overall. The country's entire IT and and BPO sectors now employ fewer than 700,000 people. So even the demand for such professionals doubles in five years, it would seem that India should have more than enough.

The problem, McKinsey argues, is that only about a quarter of India's college graduates are "suitable" for employment by multinationals or their Indian outsourcing partners. The chief handicaps are weak spoken-English skills, especially among graduates of non-elite schools, and the uneven quality of college curricula and faculty.

At the same time, the poor condition of India's roads, phone lines, airports, and railways is hobbling the country's international competitiveness. Its infrastructure is already strained to the limits. Unless India can unclog its arteries, it won't be able to handle its projected growth, and foreigners may look to invest elsewhere -- especially as costs in India start to rise.

 
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