NEW DELHI--Faced with the Eurozone crisis and slowdown in developed economies, India companies will have little choice but to continue investing in IT to drive innovation, especially if they want to retain their footprint in the global marketplace.
Gartner last month revised its outlook for global IT spending downward to a 3.7 percent growth over 2011, compared its previous forecast of 4.6 percent. The research firm said worldwide IT spending was projected to total US$3.8 trillion in 2012. Last year, this figure clocked at US$3.7 trillion, up 6.9 percent from 2010.
According to the ZDNet Asia IT Priorities Survey 2012, some 73 percent of respondents in India said their IT budgets increased in 2011 over the previous year.
In addition, 66.3 percent expected to spend up to US$99,999 on IT deployments this year, while 21.4 percent said they would spend between US$100,000 and US$999,999. Conducted in fourth-quarter 2011, the survey polled 449 respondents in India.
Increasing overall productivity through new technologies was the leading IT priority in the country, with 83.5 percent highlighting this requirement. Improving business processes and efficiencies emerged second, at 81.5 percent, followed by aligning IT priorities with business growth at 77.5 percent.
Some 76.6 percent of Indian respondents chose reduction in overall IT costs as a priority, while ensuring compliance ranked fifth at 73.9 percent.
"Faltering global economic growth, the Eurozone crisis and impact of Thailand's floods on hard-disk drive (HDD) production have all taken their toll on the outlook for IT spending," Richard Gordon, research vice president at Gartner, said in a statement.
The EU is India's second largest trading partner so the Eurozone crisis is bound to affect the Indian economy, Rajeev Gupta, president of Fujitsu Consulting India, told ZDNet Asia in an e-mail.
Brian Robinson, research director at HfS Research, concurred: "Global economic volatility weighs on all participants within the outsourcing industry. Volatility, uncertainty, and social instability continue to disrupt economies around the world."
According to Gupta, India was able to weather the 2008-2009 recession better than most countries because of better regulations in its financial system and the Indian economy's overall growth momentum.
"In the present environment, while the first factor is still relevant, the economic growth is slowing down because of rising input costs, a high interest rate regime, and the almost-free fall of the rupee," he explained. "European banks have massive exposure to the sovereign debts of Greece, Italy, Portugal and Spain. This exposure will affect banks around the world in a globalized economy."
And there are clear indications of a slowdown in China, India, and other emerging markets.
Robinson said: "Over the last 12 to 24 months, the reduced demand has caused the developing economies in the East to overheat." He added that inflation continues to rattle a number of economies, including India, which is putting upward pressure on local costs.
According to surveys undertaken by HfS, there is continued downward pressure on pricing from buyers for new sourcing engagements. "This combination is not sustainable," Robinson said.
Little choice but to spend
The gloomy economic outlook, however, is not expected to significantly dampen IT investments in India.
Gartner projected the country's IT spending to total US$79.8 billion in 2012, a 9.1 percent increase from last year's US$73.1 billion. "Despite global economic challenges, enterprises will continue to invest in IT," the research firm said.
"Indian companies have no choice but to innovate and transition. Their IT spends are bound to increase," said Praveen Bhadada, director at Zinnov Management Consulting, a globalization and market expansion advisory firm.
"Even in cases where we do witness a drop in IT spend, it is because companies are moving on to the cloud or other contemporary platforms," Bhadada added.
Indian companies can ill-afford to cut down on their IT spends, even if impacted by the global economic landscape. According to a Gartner survey, CIOs from the Asian economy said their budgets were supporting business strategies that focused on growth and innovation.
The research firm estimates that telecommunications market will emerge the largest IT segment in India, with spending forecasted to reach US$54.7 billion in 2012, followed by the IT services market at US$11.1 billion. The computing hardware market is projected to churn US$10.7 billion, while software spending will touch US$3.2 billion.
Increasing aspirations of India Inc
According to Bhadada, there is increased aspiration among Indian companies to compete in the global arena. This is reflected in the Forbes 2000 list, he said, noting that in 2003, just 15 Indian companies made the list. In 2011, this number increased to 57.
"Indian companies are giving serious competition to foreign players. By 2015, we estimate 150 Indian companies to feature in Forbes 2000 list," he said.
When Indian companies are this ambitious, they cannot afford to cut down on their IT spend.
Bhadada said: "They cannot do business worldwide if they cut their IT spends." Through increased deployment of IT, these companies hope to innovate and transform their customer experience, thereby, achieving higher business growth, he noted.
Peter Sondergaard, Gartner's senior vice president and research head, said in a statement: "The days when IT was the passive observer of the world are over. Global politics and the global economy are being shaped by IT. IT is a primary driver of business growth."
According to the research firm's survey, two-third of chief executives in India believed IT would make a greater contribution to their industry in the next 10 years than in past decades.
This year, Bhadada noted that the next generation of IT services such as big data or business intelligence (BI), cloud computing, mobility and social collaboration will take the limelight.
"Companies are wondering what more they can do with the customer data available to them. They are looking for ways in which they can use it in order to offer more relevant services to its customers," he said, adding that this was driving them to look at BI tools.
Noting that cloud was also enjoying growing adoption, Bhadada said: "In the healthcare sector, we are seeing companies like Max Healthcare and Fortis using the private cloud."
IT adoption in the government sector and among Indian SMBs is also on the rise. According to Zinnov, adoption in the SMB segment was growing at 15 percent and expected to reach US$15 billion by 2015.
In future, Bhadada said cloud computing will become pervasive, mobility applications will increase, so too will big data and "social consumerism", in which social media networks are used as tools for marketing and addressing customer grievances.
Swati Prasad is a freelance IT writer based in India.