India's IT growth to slow down in 2009

The global financial meltdown is expected to finally reach local shores this year, dragging India's IT and IT-enabled services (ITES) industry to its lowest growth in five years.
Written by Swati Prasad, Contributor
INDIA--The global financial meltdown is expected to finally reach local shores this year, dragging India's IT and IT-enabled services (ITES) industry to its lowest growth in five years, according to IDC.

The research firm's local analysts said at its Directions conference Saturday, the overall growth of India's IT-ITES industry will crawl to 10.8 percent in 2009, generating revenues worth some 3,095.73 billion rupees (US$64 billion). Exports are projected to expand 11.2 percent to over 2,000 billion rupees (US$41 billion).

Last year, the Indian IT-ITES industry grew 14.4 percent with revenues of US$58 billion (2,790 billion rupees).

IDC India's country manager Kapil Dev Singh, said: "Though certain signs of a revival can be seen in the domestic market, spending is unlikely to pick up before mid-2010."

IT spending behavior would remain conservative throughout 2009, due to uncertainty in the economic environment, Singh said at the conference. "Several factors augur well for the Indian economy, such as a stable government at the center, economic reforms, buoyancy in the stock markets, and the fact that inflation and global oil prices are under control," he said.

Despite these positives, IDC predicts the hardware market to remain under pressure throughout 2009. The analyst firm expects the hardware and software segments to see a resurgence in demand only in the second half of 2010.

"The biggest [IT] spender today is the end-consumer," Singh said.

From 2009 to 2010, IDC expects high growth to come from verticals such as government, through various e-government initiatives currently underway, education and telecom. Between 2011 and 2012, sectors such as retail, healthcare and pharmaceuticals, would also join these high-growth verticals.

Enter "Growth Phase 2.0"
The domestic IT-ITES market growth projection from 2008 to 2013 is expected to moderate at 15.8 percent, compared to the average growth of 25 percent recorder between 2003 and 2008

Singh said: "This signals the onset of a new phase of growth, Growth Phase 2.0, that will be marked by moderate growth and a much larger industry base."

This growth phase will see IT vendors helping enterprises design and deliver "new age" services to their customers by leveraging the existing IT infrastructure.

IDC expects the ICT vendor community to offer innovative products and services in Growth Phase 2.0 that will be fundamentally different from the past in the way they are delivered and consumed.

"These shifts and changes in the technology-product-market landscape will be further shaped by the economic recovery through 2009 to 2010, and is expected to build up after 2010," Singh said.

Praveen Sengar, IDC India's senior manager of software and services and industry verticals research, said: "During these recessionary times, green IT is being sold to Indian companies as a cost-cutting measure."

Indian companies are fast embracing concepts such as virtualization, unified communications and cloud computing, in order to bring down their capital expenditure, he added.

Domestic market to grow faster
IDC expects the Indian IT-ITES industry to cross 5,281 billion rupees (US$110 billion) by 2013, with the domestic market growing faster than exports and will account for 41.9 percent of the overall market in 2013, compared to 31.7 percent in 2008.

Between 2008 and 2013, the India IT-ITES industry is projected to expand at an average growth rate of 13.9 percent with the domestic market growing slightly higher at 15.8 percent, compared to exports growth of 12.7 percent.

Singh said: "This changing trend signals increasing focus of enterprises to leverage capacities they have built up over the last few years."

Sengar added that the top five business priorities of Indian companies today are focued on cutting costs and expenses, increasing profit margins, improving customer service, gaining operational efficiencies and managing business risks.

Their top five IT priorities, on the other hand, are to improve access to relevant information, improve availability and performance of IT infrastructure, lower cost of underlying IT infrastructure, improve security of data and IT systems, and deploy applications that better fit the businesses processes.

Swati Prasad is a freelance IT writer based in India.

This article was originally posted on ZDNet Asia.

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