IT and ITeS in India

  • The information technology (IT) and IT-enabled services (ITeS) sectors in India have become crucial growth catalysts for the Indian economy. The Indian IT-BPO sector is expected to grow up to US$ 100 billion during FY 2012.

    It has analysed that the IT-BPO sector's revenue as a proportion of India's gross domestic product (GDP) has expanded from 1.2 per cent in FY1998 to an estimated 7.5 per cent in FY 2012. Within the global sourcing industry, the country has been able to augment its market share from 51 per cent in 2009, to 58 per cent in 2011.

    Further, export revenues (including Hardware) are estimated to reach US$ 69.1 billion in FY2012 growing by over 16 per cent, while domestic revenues (including Hardware) would reach around US$ 31.7 billion, growing by over 9 per cent. Also, software and services revenues (excluding Hardware), comprising nearly 87 per cent of the total industry revenues, are expected to reach US$ 87.6 billion in FY2012.

    Sector Fact

    • The industry is expected to add 230,000 jobs in FY2012, thus providing direct employment to about 2.8 million, and indirectly employing 8.9 million people.
    • The industry's share of total Indian exports (merchandise plus services) increased from less than 4 per cent in FY1998 to about 25 per cent in FY2012.

    Investment Opportunities

    Indian IT's core competencies and strengths have placed it on the international canvas, attracting investments from major countries. A few of them are as listed below:-

    • India's inherent IT capabilities - abundant talented workforce and world-class companies.
    • The development of Tier-I and Tier II/III cities has enabled India to offer lower cost of delivery in comparison to other offshore locations.
    • Government policies and increase in the participation by public-private ventures have also helped in the growth of the IT-BPO sector.
    • Development of Software Technology Parks of India (STPI) and Special Economic Zones (SEZs).
    • The export-driven companies offer services ranging from managing complex computer networks and call centres, to software coding to maintaining technology operations.
    • Software Development, IT-Enabled Services and Telecommunications.
    • Enhanced global service delivery capabilities of Indian companies.
    • India's mature capabilities in higher, value-added activities and in the Global Delivery Model.
    • Core areas such as custom application development and maintenance as priority areas, which are easily offshoreable.
    • Large service centres of global companies, with R&D capabilities making India an IT hub

    Given its language-independent nature and cost benefits attached to offshoring, engineering services (automobile, energy, telecom and industrial design) could become a large opportunity for technically equipped Indian firms.

    Furthermore, investments by enterprises in IT infrastructure, applications and IT outsourcing has been increasing. Demand for domestic BPOs has been largely driven by growth in sectors such as telecom, banking, insurance, retail, healthcare, tourism and automobiles. The IT platform not only offers opportunities to exploit domestic demand but also facilitates access to the global avenues.

    New opportunities for India have emerged in areas such as public sector and healthcare and in geographies including Brazil, Russia, China and Japan.

    The computer software and hardware sector received foreign direct investment (FDI) of US$ 698 million during April-January 2011-12. Between April 2000 and January 2012, the sector received cumulative FDI of US$ 11.1 billion. The segment has been the third highest after services and telecommunications sectors in FDI cumulative inflows.

    Investment Policy Updates

    • The 51 STPI centres that have been set up since inception of the programme have given a major boost to IT and ITES exports. Apart from exemption from customs duty available for capital goods there are also exemptions from service tax, excise duty, and rebate for payment of Central Sales Tax.
    • Business Services: 100 per cent FDI under the automatic route is allowed in Data processing, software development and computer consultancy services; Software supply services; Business and management consultancy services, Market Research Services, Technical testing & Analysis services.
    • E-commerce activities: E-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform. Such companies would engage only in Business to Business (B2B) e-commerce and not in retail trading, inter-alia implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well.