The beginning of 2013 saw Infosys, India’s second biggest IT Company, upwardly revising its revenue guidance. Having posted a stronger than expected quarterly profit, the shareholders of Infosys surprisingly found a 17 per cent increase in the value of shares held by them. However, even before the widely shared optimism could fully sink in, the quarterly performance of the Tata Consultancy Services Ltd (TCS), Indian market leader in the sector, posted results which outshone those of the Infosys’.
It is noteworthy that till recently Infosys was the bell weather of the IT industry in India. However, for the last four quarters, the IT giant had not been able to meet its predictions due to slowing down of the global economy which directly and indirectly affected its business.
Infosys along with other IT majors—Wipro and HCL (barring TCS) had reportedly performed below par and below expectations in the corresponding preceding period(s). The $100bn Indian IT industry had grown only 14 per cent in 2008-2013 compared to registering 33 per cent growth during 2003-2008. Therefore, for the investors and technology enthusiasts, the recent results came as a happy surprise.
So is this the beginning of recovery or just a blip in the fortunes of India’s IT industry and the Indian economy?
The answer may very well be neither or both since the IT industry mirrors the Indian economy. If one recovers, the other will also follow suit. It is significant to note that Indian economy was primarily an agriculture based economy. Now the service sector forms the significant part of the GDP.
The Indian Government has, since August 2012, introduced a slew of economic reforms widely dissected by the lay and informed either as populist or unpopular. The universal sentiment acknowledges it to be too late if not too less.
Interestingly, by the time the Indian government undertook the aforesaid measures, 80 per cent of the budget allocation already stood expended. The cumulative fiscal deficit till August 2012 stood at Rs 4.13 trillion which itself almost equals the 80 per cent spent from the allocated budget of 2012. The necessary conclusion of this being that the government is inescapably dependent on borrowings and compulsions to finance these reform rollouts at the very outset. Further, much to the surprise of the market, the wholesale inflation seems to be easing in the past few months, with core inflation having stayed below 5 per cent for two consecutive months. However, it is expected that the inflation will rise in the next fiscal year once the full impact of the much required phased diesel price deregulation is felt by the economy. The story would have been scripted differently had the deregulation of diesel taken place earlier since the economy would have more effectively absorbed the inflationary pressures.
The timing of the reform measures is equally suspect since the tenure of the current government in India comes to an end this year. The unusually small period available coupled with a prospect of a change of regime render the measures woefully incapable of making an impact on the economic environment of the country. For reforms to take shape and make an impact on the economic environment of the country, a stable government is a necessity. This is unlikely since elections are due as early as next year.
However, all is not as grim as it seems. India’s demographic dividend translates into a large and flourishing market for the IT sector. Ironically, India’s challenge as well as strength lies in its numbers (1.2bn of the world population, with 572mn in the age group of 0-24 years). The overall Internet penetration in India is low at just 10 per cent as compared to other Asian countries like China. But what is interesting and encouraging is that the penetration of claimed Internet users in rural India has reportedly grown from 2.6 per cent in 2010 to 4.6 per cent in 2012, which is 73 per cent in terms of Compound Annual Growth Rate (CAGR) in 2012. Also, the Telecom Regulatory Authority of India (TRAI) reported more than 929 million (close to 1 billion) wireless subscribers in India in 2012.
This data shows the potential and strength of the IT market, be it in mobility or e-commerce. Forrester estimates that the e-commerce revenues in India will increase by more than five times by 2016, from US$ 1.6 billion in 2012 to US$ 8.8 billion.
With the rise of social media, cloud computing, mobility and the interplay between these components have led to proliferation of Big Data. Inadequate infrastructure and talent crunch make it difficult for the Indian IT sector to tap the full potential of Big Data. In the recently published National IT policy, the Government of India has shown commitment to create at least 10 million skilled manpower and to increase spending on cloud initiatives. The government also plans to set up 15 new laboratories for testing hardware and software products under public-private partnership (PPP) model.
IT experts Martin Hilbert and Priscila Lopez in their research paper analyzed the total global storage and computing capacity from 1986 to 2007. Their estimation figures showed that while global storage capacity grew at an annual rate of 23 per cent over that period, general purpose computing capacity (a measure of the ability to generate and process data) grew at a much higher rate of 58 per cent. They also estimated that the percentage of data stored in digital form increased from only 25 per cent in 2000 to 94 per cent share in 2007 as data storage mediums including hard drives, CDs and digital tapes became prominent. This is as much a challenge as it is an opportunity for India too.
A well equipped IT sector can effectively tap the huge pile of information in India generated by the ever increasing population and bring in the next wave of change in the country.
1) Forrester as Research Partner with ASSOCHAM 2012, “Trends in India’s Ecommerce Market”.
2) Martin Hilbert and Priscila Lopez, “The world’s technological capacity to store, communicate, and compute information,” Science, February10, 2011.