Indian IT to clock double-digit growth in 2010

Year will bring market growth, increased hiring and investments in green and new media initiatives, wrapping up 2009 as year of "mixed fortunes".
Written by Swati Prasad, Contributor on

INDIA--Recruitments should pick up, higher benches would likely return and green technologies could gather momentum, as the local IT industry goes through another round of consolidation, according to market watchers.

"There are encouraging signs of economic activity picking up," Som Mittal, president of Nasscom, told ZDNet Asia in an e-mail. "Technology firms are back on a hiring spree and mergers and acquisitions are in sight."

Nasscom's projections estimate that the Indian IT industry will climb between 4 percent and 7 percent during the 2009 financial year. However, from April 2010, the country should see "double-digit growth", Mittal said.

According to research house IDC, the domestic IT-ITES (IT and IT-enabled services) market should grow 15 percent in 2010, against 5.4 percent in 2009, to touch revenues of about US$27 billion (1.2 billion rupees).

Year of mixed fortunes
Vijay Mehra, executive vice president and head of global verticals at Patni Computer Systems, described 2009 as "a year of extreme uncertainty". He told ZDNet Asia in an e-mail: "Indian IT companies [last year] looked to align more closely with client business goals and design technology solutions that help cut costs and drive efficiencies.

"In fact, IT companies moved to [establish] fixed-price agreement models with customers," Mehra added.

According to Mittal, 2009 was also a year of mixed fortunes for the Indian BPO (business process outsourcing) industry. "The year saw the announcement of several e-government initiatives and the swift handling of the Satyam crisis," he noted.

"A positive that surfaced from the financial turmoil was the emergence of new business models, as companies took the path of innovation to stay tuned to customer needs and remain competitive", Mittal said.

According to Hari Rajagopalachari, executive director at PricewaterhouseCoopers, most companies saw the emergence of competition from low-cost destinations, net reduction in headcount and renegotiation of contracts.

On the positive side, Rajagopalachari told ZDNet Asia that the slowdown also forced many Indian providers to focus on improving productivity, efficiency and to optimally utilize both human and hardware resources.

"The year also saw the emergence of new technologies like cloud computing, and non-linear business models like software-as-a-service (SaaS)," he added.

Naresh Wadhwa, president and country manager of India and South Asia at Cisco Systems, concurred: "During 2009, technologies like virtualization, cloud computing, unified communications and SaaS became popular.

"IT came as a boon to the telecom industry as these companies invested in technologies that bring down costs and increase business productivity, like telepresence, wireless LANs, network security, network storage and voice solutions like IP telephony," Wadhwa told ZDNet Asia.

Touching on the semiconductor segment, Jaswinder Ahuja, corporate vice president and managing director of Cadence Design Systems, said market players--in efforts to save costs--focused on their core strengths and on consolidating and realigning resources to complement existing product lines. "They prioritized capital efficiency and looked for help in containing the costs of both hardware and software development," Ahuja said in an e-mail.

Higher employment, investment in 2010
According to Mittal, the new year will enjoy increased hiring activities, particularly around niche skills and domain specialization. "The year should see the industry hiring the best talent in India with domain specific skills," he said.

Rajagopalachari agreed: "Campus recruitments have picked up and 2010 might see IT companies maintaining a higher bench."

2010 will also see greater emphasis on e-government, he said, with many projects that are currently in the pilot stage expected to go live.

Rajagopalachari added that the banking, financial services and insurance sector will continue to see market recovery: "With banks getting back into shape, we foresee a stable outlook for bank spending."

According to Kumar Prabhas, vice president and general manager at Unisys Global Services India, 2010 will also see a tipping point in the use of biometric identification tools such as iris, facial or fingerprint scans, to verify user identity at the border and customs areas in airports.

During the year, inorganic growth would become prominent.

PwC's Rajagopalachari said: "Indian companies have the cash and are willing to go all the way in language-sensitive markets like Japan, Germany and France."

The year should also see increased investments. Wadhwa said: "IT Investments in the areas of e-government, virtual healthcare, distance learning, connected branch services, rural banking, managed data services, hosted unified communications and public safety and security, are likely to accelerate."

According to Cisco's Wadhwa, companies looking to transform and adopt collaborative cultures--enabled by next-generation technologies such as unified communications, business video, Web 2.0 and virtualization--will likely gain sustainable competitive advantage.

"Virtual data centers, collaboration technologies and telepresence will be the future of enterprise computing."

According to the IDC, in 2010, collaboration and unified communications such as "immersive telepresence", videoconferencing and other "socialytic" or Web 2.0 applications would witness integrated buildouts.

Moreover, power management and cooling efficiencies will get increased attention from large enterprise and BPO industry top managements, noted IDC. The year should also see the "establishment of 'green' and 'intelligent' cities and special economic zones (SEZs) across the country", the research firm said.

Growth not without challenges
Growth in 2010 for India's IT industry will come with its own set of challenges.

According to Mittal, issues such as the availability of an industry-ready workforce, availability of adequate infrastructure, competition from other low-cost countries, direct and indirect protectionist measures and currency fluctuations, are just some challenges the market is likely to face this year.

Apart from the need to attract and retain the best talent, Rajagopalachari noted that manpower shortages will also lead to salary hikes.

The other challenge emanates from the fact that infrastructure in the major cities of India has not kept pace with sustained development in the software industry, he said.

Moreover, India's legal systems remains an impediment.

"Though improving, the legal system will continue to deter movement of high-end research work and intellectual property (IP)-related work to India," Rajagopalachari said. "Robust IP protection remains essential to IT sector competitiveness," he added.

Lastly, with the high inflation witnessed in India, operational and financial expenses are expected to rise. This will narrow the wage differentials between India and the U.S., Rajagopalachari said.

Swati Prasad is a freelance IT writer based in India.

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