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 sector is estimated to grow to US$ 88.1 billion in FY2011, with the IT software and services sector (excluding hardware) aggregating US$ 76.1 billion of revenues, according to a report ‘The IT-BPO Sector in India: Strategic Review 2011’, released by software industry body National Association of Software and Service Companies (NASSCOM).

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 6.4 per cent in FY 2011. Further, the sector’s share of total Indian exports (merchandise plus services) has increased from less than 4 per cent in FY1998 to 26 per cent in FY2011.

According to the report within exports, IT Services segment was the fastest growing segment, growing by 22.7 per cent over FY2010. The sector aggregated US$ 33.5 billion in export revenues, accounting for 57 per cent of total exports. Meanwhile, the BPO segment increased by 14 per cent to reach US$ 14.1 billion in FY2011.

The engineering design and products development segments garnered US$ 9 billion in revenues in FY2011, on the back of fuel efficiency norms, increasing use of electronics, localised products and convergence of local markets.

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

(Source: Investment Commission of India & NASSCOM Strategic Review 2010)

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, stated NASSCOM.

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$ 470 million during April-October 2011, according to the Department of Industrial Policy and Promotion (DIPP). Between April 2000 and October 2011, the sector received cumulative FDI of US$ 10,879 million, according to DIPP. The segment has been the third highest after services and telecommunications sectors in FDI cumulative inflows.

• 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. The most important incentive available is 100 per cent exemption from Income Tax of export profits, which has been extended till 31st March 2011. (DIT, NASSCOM)
• 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

(Source: Consolidated FDI Policy, 2010)