India has a new mantra - Information Technology (IT) - and almost everyone has started chanting it. This IT mantra has its roots in the "passionate and strategic infection" spread by the unrivalled success of India’s export led software industry. This passionate infection has not only made the software sector as one of the high value-addition and net foreign exchange earning industry, but has created history of sorts on the Indian stock exchanges. The potential of its high capacity to generate wealth, foreign exchange and employment has already caught the imagination of India’s businessmen, citizens, economists, bureaucracy and politicians, alike. Software driven IT industry is today at the top of India’s national agenda as an instrument and a model, for the modernisation of India’s economy.

In India, there has been a gradual shift towards usage of IT in government, public sector, private sector as well as public services and education. However, usage of computers is yet to reach many homes in the country. Undoubtedly, it was the computerisation of railway passenger reservation system in 1986- that brought computers closer to masses. And, in the last two years - it is the power of internet, E-Commerce as well as Government of India’s thrust - which is bringing I.T. in daily life of a common person in India.

Pioneering work done by Indian software companies using the high speed datacom links brought in new paradigm of offshore software development. In fact, Indian software industry has been recognised as representing one of the most successful business model that can help to sustain high growth and competitiveness. Thus, with software as the driving engine, since early 90’s, the Indian IT industry has been growing at a phenomenal growth rate. What’s more, India’s software industry is torch bearer for not only India’s IT industry but even Indian economy’s global ambitions. It is a way to build competitiveness in technology-driven service economy.

India has many advantages to become an important player in the global IT industry. By marshalling its vast human, industrial and technological resources, especially with expansion of its software sector – the engine of the IT Industry, India can raise productivity of domestic manufacturing and services. Obviously, this will lead to IT in governance, IT in industry and IT for every citizen of the country. There are even talks of infusing tangible productivity gains amongst various sectors and communities through use of IT. The domestic opportunity is evident.

To gauge the dimensions of the IT industry in India, it would be pertinent to look at the achievements, indicators and growth prospects of the Indian I.T. Industry:

The Domestic IT Market in the year 1997-98 had a landmark achievement when it crossed Rs 10,000 crore mark and aggregated revenues of Rs 11,272 crore. However, it fared equally well in 1998-99 when it grew by more than 20.37% to Rs. 13,568 crore.

The size of the domestic market during the period 1993-2001 is depicted in the following chart:

The domestic IT industry in India earned revenues of Rs. 13,568 crore and grew by 20.37% in the year 1998-99 over the revenues in 1997-98 of Rs. 11,272 crore. Therefore, even as other industrial sectors saw single digit growth, the IT industry continued to experience high double digit growth rates. In the current year, IT industry is expected to receive a stronger thrust on the back of government as well as industrial purchases. The domestic software and services market continued to post strong performance in 1998-99 with revenues of Rs. 4,950 crore growing at more than 41% over revenues of 1997-98.

However, moderate performance of 1998-99 year-on-year with 1997-98 was the result of cut throat competition, margins coming under pressure and Indian customers increasingly becoming value conscious. Therefore, even as hardware (Servers and PCs) volumes went up, the value of their sales experienced a downturn and were found to be at Rs. 3716 crore at the end of 1998-99. However, this aspect was more than compensated by strong buoyancy in networking as well as peripherals segments. The domestic peripherals segment (including networking) earned revenues of Rs.1,360 crore compared to Rs. 833 crore of revenues during 1997-98. This was largely helped by strong demand for non impact printers and rich multimedia capabilities. The networking segment scored strong buoyancy with a virtual boom in demand for networking solutions. The above numbers of domestic IT industry are pointers towards trends that are in sync with global movements.

Some of the major trends of the domestic IT market during the period 1998-99 were:

• Growth in demand for personal computers along with the rising popularity of the Internet are two major forces driving the growth of the domestic IT industry. PC (including PC servers) sales in the country in the year 1998-99 were more than 820,000 units aggregating revenue of over Rs 3,100 crore. However, the industry also witnessed an accelerating paradox of increasing unit sales and constrained revenues.

• The installed base of PCs in the country was 3.2 million as on 31 March 1999. Thus, the PC penetration rate in the country translates to about 3.2 computers for every 1000 people. However, India has 37 million cable TV connections.

• Y2K bug or Year 2000 solutions emerged as an important driver of domestic IT market during 1998-99. Although Indian organisations were late to give due importance to this immoveable deadline, they were responsive enough to take a head-on course of action and achieve high levels of Y2K compliance within a relatively short period of time. Government sector further received a thrust for Y2K compliance through setting up of sub-Ministry Y2K Action Forces chaired by senior Secretary level functionaries in respective Ministries / Departments. With the Task Forces being made strongly accountable for Y2K compliance of their respective sectors, this led to greater appreciation of problem on hand and thus reflecting upon stronger demand for new systems, software and services.

• IT users in India are already having a marked preference for open platforms that can be implemented at low cost. Popular platforms such as Intel / Windows NT / Unix emerged as popular choices of users for integrating all functions and departments of organisations, while also promising extremely high transaction processing rates.

• Open platforms such as Linux, Pearl and Apache are gaining increasing acceptance amongst large software developers and major IT users. However, this trend is even more marked amongst Small and Medium Enterprises (SMEs) as it brings near zero cost purchase / support coupled with functionality that is as good as in priced products of similar genre. This is expected to help drive IT penetration in SME sector.

• ERP implementations, systems integration and SOHO (Small Office Home Office) continued to be at the forefront of IT growth in India.

• Government markets emerged as one of the strongest drivers. These were not relegated to Y2K related purchases only, constituting 28.4% of total expenditure by this segment. In fact, an entire gamut of projects envisaged in Central and governments’ policies are being initiated.

• Companies are beginning to look at E-commerce as a viable option. 

• Middle level enterprises are beginning to procure mid-range systems.

• Large sectors but with low IT penetration, such as textiles and healthcare are receiving strong thrust from government as well as private sector to adopt IT.

• Users are wiling to pay premium for quality value added services. Workgroup solutions are on the agenda of FTUs as well as those who are upgrading their systems.

• The year 1999-2000 is expected to post enhanced performance aided by streamlined public procurement procedures. This would be helped by infrastructure, telecom, government and Finance sectors.

• SME (Small and Medium Enterprises) and SOHO market would continue to be major drivers of domestic market in the year 1999-2000.

• The vertical segment contributions to the total domestic IT market pie may be fragmented as below:

The year 1998-99 emerged as a mixed year for the Indian hardware industry in India. While it achieved a critical mass in volume terms and value of shipments, it shrank by approximately 18.89% over its past year’s performance in revenue terms. The revenues of the hardware industry stood at Rs. 42.50 billion in 1998-99, as against Rs. 52.4 billion in revenues during 1997-98. This is partly due to unexpectedly weak exports performance. The year also witnessed cut throat price wars, entry of new players, new introductions in VFM (Value for Money) segments, and this resulted in growth in volumes, albeit at reducing margins.

The increasing thrust by private sector to have a connected enterprise and implement state-of-the-art enterprise computing systems contributed to this thrust. At the same time, there has been a growing awareness in the small and medium scale sector (SMEs) and SOHO of the benefits of IT. They contributed about 32% of total hardware shipments. With this contribution, their purchases may not be counted anymore as small compared to large corporates even as SMEs along with SOHO segment are being credited for driving domestic IT industry’s growth during 1998-99. In fact, it was their preferences for the nature of the systems and network architectures that kept the mood buoyant in the hardware industry. They signified a new generation of users who are not looking at moving on an organic growth path of using IT for backroom operations and then using it as a front end for decision making process.

Over the years, the hardware industry in India has been steadily losing its industry share in favour of software and services industry, in conformity with international norms. During the year, software industry contributed 65% of total Indian IT industry’s revenues. Notably, :

• Overall, hardware industry shrank by about 18.89% in revenue terms in the year 1998-99, as compared to revenues of 1997-98 but, overall PC unit shipments grew by 30.2 percent in volume terms

• Servers market grew by about 8.17% during the period in volume terms

• A highlighted price war was unleashed with domestic majors as well as MNC companies promising to give best deal to the user. It clearly was a factor that helped to improve hardware performance (in volume terms). With tight money conditions, the market saw buyers being wooed by extremely competitively priced products with standard international features and quality.

• It was an year in succession for market share supremacy of Pentium chips. While Intel captured a large chunk of high end user market with Pentium II based systems, Pentium Celeron / II held about 63% of total microprocessors market.

For the software industry, the year 1998-99 was another good year. While exports showed an impressive 67.5 % growth over last year’s level, the domestic industry also demonstrated a growth rate of over 41%.

In 1998-99, the software industry in India was worth Rs. 15,890 crore (US $ 3.9 billion) and if we add in the in-house development that takes place a many large commercial/corporate end-users, then the total software industry would be close to Rs. 170 billion or US $ 4.1 billion, whereas ten years back, the software industry in India was not more than Rs. 2000 million or US $ 150 million.

Despite these growth rates, India’s share in the total global software market is low, but India still enjoys an advantage over most of the other nations, which are trying to promote exports. However, India commands a 18.2% market share in the global cross-country customised software market opportunity. This is due to the fact that India possesses the world’s second largest pool of scientific manpower which is also English speaking. Coupled with the fact that quality of Indian software is good and manpower cost is relatively low, it provides India a very good opportunity in the world market.

As on 31st March 1999, the software industry in India employed more than 250,000 people and continues to be amongst the fastest growing sectors of the Indian economy. No wonder, software exports has been identified as a thrust area by Government of India, both for software exports as well as in the domestic market, After showing impressive growth in the export market, the recent trend in the industry is to give increased focus to domestic market, so that all possible resources may be enhanced for a ultimate quantum jump in the international market.

In the year 1998-99, the domestic peripherals industry stood at Rs. 13.60 billion as compared to Rs. 8.33 billion last year. It posted a stupendous growth rate of more than 63.27%. The trend of companies moving away from dot matrix printers became more pronounced in 1998-99, with almost 46% of printers sold comprising of inkjet and laser printers (non impact printers). In fact, even within non impact printers segment, inkjet printers emerged as a popular choice.

The training segment of the Indian IT industry had a good year, during 1998-99. It sold a potent mix of education and hope. As per industry estimates, this segment aggregated about Rs. 12.5 billion worth of revenue, and registered an impressive growth of over 32.7% over the last year’s revenues. With the number of computers installed going up, the gap between demand and supply of trained manpower is increasing steadily. The training segment is expected to continue to boom in the coming years. The growth areas would be accentuated by high end platform specific certifications oriented training, corporate and government users, and that for general PC use by SOHO users. This year, many of the leading institutes were in a consolidation phase. They are looking at emerging overseas markets which are almost nascent, and also have objective of emerging as amongst the world’s leading training service providers.

Networking has emerged as a major area of operation in the IT industry. During 1998-99, the segment netted Rs. 9.8 billion worth of revenue, a growth of almost 37.06% over the previous year’s Rs. 7.15 billion.

The next wave of domestic spending will be spearheaded by landmark recommendations of National IT Task Force and drive in the private sector to establish enterprise computing and electronic commerce systems. It is expected that in the year 1999-2000, the IT industry of India would further improve its performance and may gross revenues of Rs. 361 billion or US $ 8.39 billon, with software and services industry continuing to command more than 60% share in Indian IT industry’s revenues.