IT sector Overview

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India is the world’s largest sourcing destination for the information technology (IT) industry. IT and ITeS has played a major role in the overall growth and development of India. India is a home of some of the world’s top IT companies.  Some of the top IT firms in India are TCS, Tech Mahindra Limited, Infosys Technologies Limited, Patni Computer Systems Limited, Wipro Technologies Limited, Oracle Financial (I-Flex Solutions Ltd), Mahindra Satyam Computer Services Limited, Mphasis, HCL Technologies Limited and Larsen & Toubro Infotech Limited. The industry employs about 10 million workforces. More importantly, the industry has led the economic transformation of the country and altered the perception of India in the global economy.  The IT industry has also created significant demand in the Indian education sector, especially for engineering and computer science. The Indian IT and ITeS industry is divided into four major segments – IT services, Business Process Management (BPM), software products and engineering services, and hardware.

India’s IT industry amounts to 12.3 per cent of the global market, largely due to exports. Indian IT companies have, in recent years, started expanding their global footprint through the global delivery model to seamlessly service their clients’ needs worldwide. Industry analysts expect the top IT firms to grow between 23% and 27% in 2012 on the basis of an increased number of discretionary projects, improved pricing and robust business volumes.The Indian IT sector is expected to grow at a rate of 12-14 per cent for FY2016-17 in constant currency terms. The sector is also expected triple its current annual revenue to reach US$ 350 billion by FY 2025.

India’s internet economy is expected to touch Rs 10 trillion (US$ 146.72 billion) by 2018, accounting for 5 per cent of the country’s GDP. India’s internet user base reached over 400 million by May 2016, the third largest in the world, while the number of social media users grew to 143 million by April 2015 and smartphones grew to 160 million. Public cloud services revenue in India is expected to reach US$ 1.26 billion in 2016, growing by 30.4 per cent year-on-year (y-o-y). The public cloud market alone in the country was estimated to treble to US$ 1.9 billion by 2018 from US$ 638 million in 2014. Increased penetration of internet (including in rural areas) and rapid emergence of e-commerce are the main drivers for continued growth of data centre co-location and hosting market in India. The Indian Healthcare Information Technology (IT) market is valued at US$ 1 billion currently and is expected to grow 1.5 times by 2020. India’s business to business (B2B) e-commerce market is expected to reach US$ 700 billion by 2020 whereas the business to consumer (B2C) e-commerce market is expected to reach US$ 102 billion by 2020.

Global companies such as Accenture, HP Enterprise Services, IBM and Capgemini have a strong presence in India. These companies already have a large number of India-based employees — Accenture (40,000+), IBM (130,000+), HP Enterprise Services (15,000+) and Cap Gemini (26,000+); global players are aiming to develop onshore service providers who can deliver seamless hybrid onshore-offshore services at low costs.

Export of IT services accounted for 56.12 per cent of total IT exports (including hardware) from India. The Business Process Management (BPM) segment accounted for 23.46 per cent of total IT exports during FY15.

As the sector is making big employment, govt is also providing tax holidays and making software technology parks and Special Economic Zones. In the electronics and IT sector, 100% FDI is permitted under the automatic route. The major fiscal incentives provided by the Government of India in this sector have been for export-oriented units (EOU), software technology parks (STP) and special economic zones (SEZ).

Software Technology Parks (STPs) were set up as autonomous societies under the Department of Electronics and Information Technology in 1991 to promote software exports from the country. There are about 51 STP centers that have been set up since the start of the programme. STPs enjoy a number of benefits that include exemptions from service tax, excise duty and rebate for payment of Central sales tax. The most important incentive available is 100% exemption from income tax of export profits; the STPs have been instrumental in boosting India’s IT and ITeS exports. As per MoC&IT, exports by STP units crossed Rs. 2,044.40 billion in 2010–11. STPs have a pan-India presence, including in the cities of Bangalore, Bhubaneswar, Chennai, Coimbatore, Hyderabad, Gurgaon, Pune, Guwahati, Noida, Mumbai, Kochi, Kolkata, Kanpur, Lucknow, Dehradun, Patna, Rourkela, Ranchi, Gandhinagar, Imphal, Shillong and Nashik, among others.

The Special Economic Zones (SEZ) scheme was enacted by the Government of India in 2005 with an objective of providing an internationally competitive and hassle-free environment for exports. It provides drastic simplification of procedures and a single-window clearance policy on matters relating to Central and state government. According to the SEZ Approval Board of India, the maximum number of SEZs has been approved for the IT-ITeS sector. Overall for the IT, ITeS, electronic hardware and semiconductor sectors, the government has given formal approval to 354 SEZs and the number of notified SEZs in these sectors was 236 until 2010.

The recent developments in E-Commerce is important as some big player like Amazon, eBay, Alibaba group are investing heavily in India. Indian E-Commerce companies like Flipkart and Snapdeal also receiving big FDI. All due to this The Infrastructure which is also important for the business is developing.

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About Ashutosh Tilak

Tracking Indian Capital Market since 2010. Finance Student, On this blog I am writing about finance and Investing. You can contact me analystashu@gmail.com or @androidashu & @InsideFinanc on twitter