India’s domestic market for IT set to grow three times faster

Bangalore: For India’s top technology firms focused on the markets of US and Europe, the country’s $15-billion-plus domestic market for IT services is the latest battleground. In a year when top markets for software exports are recovering and expected to grow at less than 5%, India’s domestic market for IT is set to grow three times faster, mainly on the back of higher government spending on IT and new outsourcing projects from local banks.

“We will be looking at IT to aid customer acquisition and financial inclusion. The attempt will be to take banking to remote areas using technology services,” says Pushpinder Singh, DGM-IT, Bank of India , which plans to spend Rs 600 crore on technology this year. “For some of the contracts, we will continue with existing vendors. We will be evaluating others for new projects,” he added.

Indian government departments and public sector units are going to spend the most on IT this year. The biggest driver for higher government spending on IT and related areas is India’s UID project, which according to CLSA Research will lead to $10 billion worth of investments in IT consulting, system integration, and computer hardware over the next five to six years. CLSA sees an $1-billion business opportunity for consultants in the first five years and a need to raise manpower by 15% for their services. Some 18,000 systems specialists and programmers will drive a $2.4-billion pie for integration of UID into existing software systems.

“As this sets in, business process re-engineering (BPR) activities should pick up, as the full benefits of UID for businesses become clear. We expect 36,000 people to join the BPR wave around UID, creating a $6-billion market over the first five years,” CLSA researchers said in their report last year.

“Apart from UID, IT hardware growth will get a fillip with $1.1 billion worth of equipment sold to the government and another $1.8 billion of incremental demand from the private sector and government-owned companies,” the report adds. What’s critical is that vendors like IBM, TCS, Infosys and Wipro see newer opportunities emerging even during a global slowdown in software spending because state-owned enterprises like BSNL and ONGC — and other ministries too — seek to become more efficient.

Experts tracking this sector say India Post, Indian Railways and LIC will spend $3 billion on information technology this year, and the government’s share of total IT spend in India will cross 10% over the next two years from 6% right now. Praveen Bhadada, manager-consulting, Zinnov Management Consulting says: “In the 10th five-year-plan (2002- 2007) 0.3% was spent on IT. In the 11th five-year-plan, IT spend increased to 0.5 %. If we extrapolate this, government is going to spend about 2 % on IT. If today, $1.5 billion is spent annually, it could easily go up to $ 7-8 billion over the next three to five years.”

For one, India’s department of posts (DoP) is set to spend up to $1 billion on its IT-led business revamp over the next five years with top tech firms like IBM, TCS, Infosys and Wipro pursuing several outsourcing contracts for helping the postal department automate and integrate its business processes with a standard software solution. Accenture is in the process of developing a plan for this revamp.