Indian IT Industry

- An Overview

Presentation by S. Lakshminarayanan, Addl. Secretary

Ministry of Communications & Information Technology, Government of India
 Agenda

• An overview of the Indian Economy

• Indian IT Industry – An Overview

• India’s competitive advantage

1
 Overview of
the Indian Economy

2
 Key Characteristics

• Economy de-linked from Political changes

¾Stable pro-reform government at the centre

• Sustained growth in the face of Obstacles

• Ambitious Long-term growth plans

• Recognized as the economic powerhouse of the 21st Century

• Knowledge based industries are attracting investments and

driving growth

3
 Economy: Strong Fundamentals

• Sustained GDP growth over the last decade – around 6% - despite significant
obstacles

• Inflation reached all-time low in 2002 and and currently hovers around at 4.5%

• Comfortable foreign exchange reserves position – US$ 88 bn (9/03)

• A stable Rupee (against major currencies) – currently Rs. 46 per US$

• Pre-payment of foreign debt significantly improved India’s rating

• Post 9/11 Foreign Direct Investment (FDI) grew 52% over the previous year –
US$ 6.1 bn (2001-02)

• Falling interest rates driving consumer demand

• Based on PPP, India is the fourth largest economy (US $ 2.9 trillion)

India – An Economic powerhouse of the 21stst Century

4
 Economy: Aiming for Rapid Growth

• GDP expected to grow 6.5% in 2003-04 – 8% p.a on an average over a five

year period (2002-2007)
• Aggressive infrastructure development goals
¾Active involvement of Private enterprise to augment Ports, Roads,
Airports, Power etc.
• Attract FDI in excess of US$ 10 bn annually
• Further simplification of legislation, de-licensing, setting up regulatory
authorities such as Central/State Electricity regulatory Commissions, etc.
• Achieve US$ 115 bn potential in Electronics hardware and IT Services by
2008

India high on the Radar of many MNCs

5
Electronics & Information Technology

¾ Sunrise Industry and the

Area of Growth for the
Millennium

6
 Indian Electronics & IT Industry

Î One of the fastest growing sectors of Indian industry.

Î A growth of 22% in production and 26% in exports during

2002-03, a period marked globally by a fall in ICT revenue.

Î Achieved a CAGR of 25% in production and 41% in

exports during last 5 years.

7
Indian Industry Grew at over 35% CAGR between 1999 and 2003

Key factors behind growth

Per cent in exports
$ million
z US IT investment boom
CAGR z Onsite staff supplementation
12,700 35% growth fuelled by major
technology waves

z Offshore growth led by

10,000 anchor MNC customers
40% z New emerging service lines
3,900
(R&D services, BPO)
Exports
2,650
Domestic 1,250
2,700 22%
FY ’99 FY ’03

8
 Production - 2002-03

CAGR
Value Growth (5 years)

IT & Electronics - Rs. 97,400 crore - 22% 25%

of which

- Hardware - Rs. 37,500 crore - 15% 11%

- Software & Services - Rs. 59,900 crore - 26% 43%

9
 Overview

• Large growth potential

¾ Burgeoning Consumer base – exposed to the latest
¾Increasing outsourcing trend
• Exports and global outsourcing will drive future growth
• Leveraging India advantage
• Indian technology production companies have
demonstrated capabilities to compete in the global market

10
 Exports - 2002-03

CAGR
Value Growth (5 years)

IT & Electronics - Rs. 53,100 crore 26% 41%

( $11.2 billion )
Hardware - Rs. 5,600 crore -3% 14%
( $1.2 billion )
Software & Services - Rs. 47,500 crore 30% 49%
( $10 billion )
ITES (part of - Rs. 11,700 crore 65%
S/w & services) ( $2.5 billion )

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 Strong Performance and Growth Potential

US$ 115 bn (Estimated)

120
15

100
CAGR
96-97 to 02-03: 24%
80 02-03 to 08-09: 32%
in US$ billions

60

60

40
US$ 21.25 bn

2.7 40
20 US$ 5.8 bn
10.4
8.15
0
1996-97 2002-03 2008E

Electronics Hardware Software - Exports Software - Domestic

By 2008, India will build a US$ 40 billion Electronics Hardware Industry

Source: Ministry of IT, MAIT 12

 ICT, a Growth Driver

Target

Cable TV 4m 13% 70 m
Subscribers

105 m 18% 225 m

TV Sets

PC Penetration 8m 27% 20 m

Cell Phones
23 m 28% 45 m

44 m 30% 125 m
Telephones

Internet Subscribers 3.7 m 58% 30 m

Present CAGR (5 year) 2008

Source: STPI 13
 Global Outsourcing – a Key Driver for Exports

12

Electronics Hardware 1.2

10 exports Doubled
in last 3 years

8
in US$ billions

6
10.4
0.6
4

2 4

0
1999-2000 2002-03

Software & Services Electronics Hardware

Present wave of global outsourcing likely to benefit India significantly

Source: Ministry of IT, MAIT 14

 Opportunities in Software Sector

(McKinsey Report) Year 2008

Total Market Exports
IT Services Exports $ 28-30 bn $ 28-30 bn

Software Products $ 8-11 bn $ 8-11 bn

IT Enabled Services $ 21-24 bn $ 21-24 bn

Exports

Domestic Market $ 13-15 bn

Total $ 70-80 bn $ 57-65 bn

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 IT Industry by the Year 2008

‹ IT Exports
¾ 35% of India’s Total Exports in 2008
¾ from 20.4% during 2002-03

‹ Share of IT Software & Services Industry in GDP

¾ Likely to be 7% of GDP in 2008

¾ from 2.4% of GDP during 2002-03

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The India Advantage

17
 Why India?

• Rapidly Improving Infrastructure

• Large Talent Pool Availability

• High Quality Educational Infrastructure

• Low Operating Costs

• R&D Strengths

• Established Technology Clusters

• Government Incentives

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 Large Talent Pool in India Gives it a Significant Edge

Education Statistics No of people Employed: 2003

500,000
• 10,600 accredited institutions
450,000

• Over 3 mn graduates & Post Graduates per 400,000

annum 350,000

Workforce Number
300,000
• 675,000 Technical Graduates p.a which 250,000 500,000
include 200,000 385,000
150,000
• 375,000 Engineers
100,000
160,000
• ~ 50,000 Management Graduates 50,000

0
• Large pool of English speaking, computer IT Enabled Software Electronics
Services Hardware
savvy graduates

Significant portion of new graduates are being employed by the Electronics hardware and IT Sector
Source: Department of Education, Ministry of HRD, E&Y Research 8
Source: Ministry of IT, Press Reports 19
 Excellent sources for knowledge and human resources

Descriptions Total Government Private

Universities / Deemed 284 255 29
Universities
IITs* 7 7
IIITs* 2 2
IISc* 1 1
IIMs* 6 6 *
IIT – Indian Institute of Technology
Degree Colleges 10,000 IIIT – Indian Institute of Information Technology
IISc –Indian Institute of Science
IIM – Indian Institute of Management

India has successfully developed world-class technical and management institutions over the last 40 years

Source: STPI 20
 Significant strengths in R&D

• 175 of the Fortune 500 companies have R&D

operations in India

• A vast network of state-owned national research

laboratories provides world-class support

• IT R&D services currently account for more than 15%

of total IT exports.

TI has secured Every Philips HP Labs does

225 US patents for product having high-level research
work done in software on futuristic
Embedded Software in it has a Technologies
and VLSI contribution for emerging
from the markets.
Bangalore campus

Source: Press Reports 21

 Hi-tech clusters for accelerating innovation

• Software Technology Park (STP) centers in 35

cities across the country

• Approval for setting up of 21 Special Economic

Zones (SEZs) in various parts of the country

• Electronic Hardware Manufacturing Clusters

exist in Bangalore, Goa, Hyderabad, Mumbai,
Noida, Pondicherry

Source: SEZ Website, STPI 22

 Investor Friendly Government Policies

• FDI regime liberalized – most sectors de-licensed

• Liberalization of foreign exchange regulations

¾Rupee convertibility on trade account

¾Unrestricted repatriation of Capital & Dividend allowed

¾Foreign exchange earnings can be retained in overseas accounts

• Rationalization of Customs duty structures

• Indirect tax reform - proposal to introduce VAT

• Profits on exports under EHTP/STP scheme exempt from tax till 2010

• Introduction of SEZs to boost manufacturing

• IPR protection – new patent law

• Labour reforms

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Thank You

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