India will still enjoy IT growth this year

update Boosted by expected arrival of 3G, infrastructure consolidation and SMB outsourcing, India's IT spend will grow 14.1 percent in 2009, says Springboard Research.
Written by Eileen Yu, Senior Contributing Editor

update India's IT industry will show "strong resilience" in spite of the current economic climate, with spending projected to grow 14.1 percent this year.

According to a Springboard Research report released Tuesday, the Indian IT market will not be as severely affected by the downturn as economies in North America, Europe and Asia-Pacific markets such as Japan and Korea.

In fact, IT spending in India will still expand by 14.1 percent in 2009, albeit at a slower rate than the 18.1 percent growth it clocked last year, the research firm predicted.

Verticals such as retails and real estate, will see the largest cuts in IT budgets, Springboard noted, while telecommunications will see some growth from the anticipated arrival of 3G this year.

After a series of delays, India is expected to conduct its first 3G spectrum auction this year, though the country's Cabinet last week said a ministerial panel is currently looking to resolve several related issues, such as deciding on the base auction price.

However, carriers Mahanagar Telephone Nigam Ltd. (MTNL) and Bharat Sanchar Nigam Ltd. (BSNL), which are both India's state-owned enterprises or Public Sector Undertakings (PSUs), were given 3G spectrum last year ahead of private telecommunication services providers. MTNL recently launched its 3G mobile services in selected areas in New Delhi.

In an e-mail interview, Springboard's research manager Manish Bahl said the next big push for the country's telecommunication sector--and hence, the IT market--will come from the "expeditious" introduction of 3G services. Any delay, he said, will jeopardize the positive impact of 3G on the market.

Bahl noted, however, that the effects of a delay may not be as severe since the two state-owned service providers had received the mandate to launch 3G services.

"MTNL and BSNL will continue to expand reach and portfolio of services throughout 2009, and beyond," he said. "Besides, investment would also be driven toward meeting the government's target of 20 million broadband connections by 2010."

The analyst added that other dominant private service providers such as Bharti Airtel and Reliance, have IPTV-ready platforms and are likely to focus on infrastructure services including servers and storage.

The launch of 3G services will allow these operators to offer IPTV, cost-effectively, to a wider audience, Bahl said, adding that this will open up new avenues for India's IT players to ride out the economic storm.

Not as affected
According to Springboard, government initiatives to bolster economic growth, increased spending on public security and national defense, as well as IT initiatives in rural India, will pave the way for new technology.

"With the economic crisis expected to further worsen, we will see IT spending affected in India--although not to the same degree as in North America, Europe and other Asia-Pacific markets like Japan, Australia and Korea", Bahl noted in the Springboard report.

"[India] had delivered impressive growth and profits to both leading multinational and domestic vendors last year, and for many of these vendors, their Indian revenues grew more than 50 percent in 2008," he said.

In his e-mail to ZDNet Asia, the analyst explained that while the U.S. and European regions are already matured markets, India is still a growing economy. The country has seen accelerated GDP (Gross Domestic Product) growth of some 6- to 7 percent since 2000, compared to the United States' growth of less than 3 percent.

"Even in tough times like this, the Indian economy is expected to register a moderate growth of 5.5- to 6 percent, or more," Bahl said. "Interestingly, the decreased IT spending of major economies such as the U.S. and Europe, also prompted the attention of global domestic IT vendors to develop solutions suiting the needs of Indian companies."

In addition, state-level reforms will continue to drive growth across India, with projects aiming to modernize and streamline central and local governments, social services and hospitals, he said.

"With more government-funded projects being rolled out in rural areas, there will be adequate opportunities for IT vendors in 2009," he added.

According to the analyst, local enterprises will focus more on their core business in a bid to build specialization. This will increase their dependence on technology to reduce operational expenditure.

"Albeit in a slow pace, SMBs (small and midsize businesses) will also play their part to drive the market and this is well supported by the changing attitude of Indian companies to view IT as an investment," Bahl noted.

Springboard expects the economic downturn to "trigger a new kind of competition", driving businesses to closely focus on returns on investment calculations, improve their planning and deepen the involvement of IT vendors.

"While major multinational vendors continue to view India as a critical growth market, we expect other U.S.-based firms to amplify their resource influx into the region and set up special teams to focus only on emerging markets such as India," Bahl said.

The top 10 trends Springboard believes will shape India's IT market this year:

    1. Arrival of 3G will unlock enormous opportunities for IT vendors.

    2. Cost concerns will drive key focus on IT infrastructure consolidation.

    3. Economic pressures will drive SMBs toward outsourcing and software-as-a-service.

    4. Startups and smaller businesses will become more important accounts for IT vendors.

    5. Virtualization will gain traction in medium- and large-sized enterprises.

    6. IT outsourcing will be seen as a catalyst to HR (human resource) retention and cost reductions during this economic downturn.

    7. The media and entertainment industry will transform further with new technologies.

    8. Online advertising markets to gain momentum with the emergence of niche social networking sites and regional portals.

    9. The public sector will buoy IT spending.

    10. Green IT will be fueled by cost-efficiency benefits.

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