Indian IT-ITES Sector To Exceed USD 36 Billion in FY 2006

Thursday, February 09, 2006

Key Findings of NASSCOM Strategic Review 2006 released IT-ITES sector estimated to grow by 28%, to account for 4.8% of GDP in FY06 Employment in software and services sector to touch 1,287,000 Software and service exports to grow by 32%, to reach USD 23.4 billion NASSCOM, the premier trade body and 'voice' of the IT software and service industry in India, today announced the key findings of the Strategic Review 2006, on the eve of its fifteenth annual event 'NASSCOM 2006: India Leadership Forum, scheduled from February 15-17, 2006 in Mumbai. Estimates for FY06 (in USD billion) Sector Figures IT Software and Services Exports 23.4 Hardware 6.9 Domestic Market 6.1 Total IT-ITES Sector 36.3 *Total may not match due to rounding off Commenting on the key findings of the Strategic Review 2006 findings, Mr. S Ramadorai, Chairman, NASSCOM and CEO & MD, TCS, said "The Indian IT-ITES sector continues to chart double-digit growth and is expected to exceed USD 36 billion in annual revenue in FY06. Out of this, software and services exports are estimated to grow by 32%, to reach USD 23.4 billion in FY06. Indian IT-ITES is well on track to achieve the targets that the industry aspires to achieve by the end of the decade." Mr. Kiran Karnik, President, NASSCOM said, "2005 offered a steady growth for the industry. Along with increased presence of Indian IT companies across the globe, we saw new services lines emerging and the Industry reached the next level in services offered. Mergers and acquisitions by Indian players was also a key trend. Inspite of the growth seen so far, it is estimated that less than 10 percent of the addressable market for globally sourced IT-ITES has been captured till date, indicating significant headroom for growth." The Strategic Review 2006 reviews the industry's performance in 2005, estimates the growth expected in the current fiscal (FY06) details the service line trends observed across the various industry segments over the past year, presents an assessment of India's competitiveness as a sourcing destination, analyzes the sustainability each individual factor contributing to India's leadership position and provides a view of the outlook projected for the global and Indian IT-ITES industries - outlining the opportunities, challenges and agenda for key stakeholders to further extend India's leadership in this space. Key highlights of the NASSCOM Strategic Review 2006 Steady growth: The Indian IT-ITES expected to exceed USD 36 billion in annual revenue in FY06, an increase of nearly 28 percent in this current fiscal Exports to account for nearly two-thirds of the total revenues IT-ITES sector to contribute to 4.8 percent of GDP in FY06 Engineering and R&D, software products hold significant opportunity forIndia - growing at 37% and 43% (CAGR FY 2003-06E), respectively Indian IT-ITES sector on track to achieve the targeted USD 60 billion in exports by FY 2010 IT Industry-Sector-wise break-up USD billion FY 2004 FY 2005 FY 2006E IT Services 10.4 13.5 17.5 -Exports 7.3 10.0 13.2 -Domestic 3.1 3.5 4.3 ITES-BPO 3.4 5.2 7.2 -Exports 3.1 4.6 6.3 -Domestic 0.3 0.6 0.9 Engineering Services and R&D, Software Products 2.9 3.9 4.8 -Exports 2.5 3.1 3.9 -Domestic 0.4 0.8 0.9 Total Software and Services Revenues 16.7 22.6 29.5 Of which, exports are 12.9 17.7 23.4 Hardware 5.0 5.9 6.9 Total IT Industry (including Hardware) 21.6 28.4 36.3 Total may not match due to rounding off *NASSCOM estimates have been reclassified to provide greater granularity -Revenues from Engineering and R&D services and Software Products reported separately (erstwhile clubbed with IT Services / ITES-BPO) -Historical values for a few segments have changed -For ease of comparison, details for two preceding years have been restated as per the new classification Employment trends: Total IT Software and services employment to reach 1,287,000 in FY06 Industry has already initiated several initiatives to further enhance the availability of and access to suitable talent for IT-ITES in India A comprehensive skill assessment and certification programs for entry-level talent and executives (low-middle level management) launched An image enhancement program to build greater awareness about the career opportunities in this segment NASSCOM is working with the academia across the country to encourage and facilitate greater industry interaction Employment figures-Software and Services sector Sector FY 2004 FY 2005 FY 2006E IT Services 215000 297000 398000 ITES-BPO 216000 316000 409000 Engineering Services and R&D and Software Products 81000 93000 115000 Domestic Market (including user organizations) 318000 352000 365000 *Figures do not include employees in the hardware sector Emergence of newer locations: As global delivery matures, newer locations are emerging; however India remains the undisputed leader India maintains its distinctive lead amongst offshore destinations Strong fundamentals will help sustain India's value proposition 28% of the suitable talent available across all offshore locations (outranks the next destination by a factor of 2.5) Keen emphasis on security and quality Sustained cost competitiveness, gains from increased productivity, utilization and scale expansion Growth in Domestic market: Complementing the continued growth in IT-ITES exports is a growing domestic market Domestic market coming into its own, to grow by nearly 22% in FY 2006 Strong demand over the past few years has placed India amongst the fastest growing IT markets in the Asia Pacific region Growth in the domestic market is witnessing the early signs of service line depth that characterizes maturing markets Global product companies are also looking to introduce localized versions of their software products to drive usability and penetration Several large domestic contracts announced last year were won by MNCs Coming of age of Indian multinationals: Traditionally India-centric, indigenous players beginning to build noticeable presence in other locations - through cross border acquisitions and organic growth in other low-cost locations Global majors continuing to significantly ramp-up their offshore delivery capabilities - predominantly in India Portfolio of services sourced globally continued to expand into higher-value, more complex activities From outsourcing to global sourcing: Transition from outsourcing to global sourcing to drive the next phase of evolution in process quality frameworks and practices Having aligned their internal processes and practices to international standards such as ISO, CMM, Six Sigma, etc., companies in India are seeking to further increase the quality and productivity benchmarks by introducing adaptations more suitable for remote service delivery Going forward: For India to fully capitalize on the opportunity and sustain a disproportionate lead in the global IT-ITES space, we need to focus on five key areas: Enhancing the talent pool advantage - focus on skill development to better leverage the worlds largest working population Strengthening urban infrastructure in existing (tier I) and emerging (tier II and tier III) cities and continued emphasis on proactive regulatory reform to facilitate greater ease of doing business Driving a philosophy of operational excellence amongst industry players (across the board) to ensure that India based delivery sustains world-leading benchmarks in performance Catalyzing domestic market development Actively promoting an uncompromised agenda towards global free trade