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3. PROFILE OF INFORMATION TECHNOLOGY INDUSTRY
3.1 Introduction:
The Indian economy has undergone substantial changes since the introduction of economic
reforms in 1991. The economy of India is the tenth-largest in the world by nominal
GDP and the third-largest by purchasing power parity (PPP). The country is one of the G-
20 major economies, a member of BRICS and a developing economy that is among the top
20 global traders according to the WTO. IMF projects India's GDP to pick up in 2015 to
6.4 per cent. As per Central Statistical Organization, in 2015, India's GDP at current prices
is expected to be 120973.81 billion Indian Rupee.101
India has the second fastest growing services sector with its compound annual growth rate
at nine per cent, as per the Economic Survey for 2013-14. The services sector is a vital
component of the Indian economy and has emerged as one of the largest and fastest-
growing sectors not just in the country but in the global landscape; subsequently, its
contribution towards global output and employment has been substantial.
As per the Economic Survey, 102
in India, the growth of services-sector GDP has been
higher than that of overall GDP between the periods FY2001- FY2014. Services constitute
a major portion of India’s GDP with a 57 per cent share in GDP at factor cost (at current
prices) in 2013-14. During FY 2014–15, the sector is projected to grow at a healthy 5.6 per
cent, according to National Council of Applied Economic Research (NCAER).
The survey highlighted that some services like software and telecom were big ticket items
that gave India a brand image in services. The Indian IT-BPM industry is relentlessly
continuing its growth path. The IT industry demonstrated flexibility and resolves to adjust
to turbulent economic conditions and experience double digit growth. Overall revenue
(exports + domestic) for FY2015 is expected at USD 146 billion, a growth of ~13 per cent
over last year, an overall y-o-y addition of ~USD 17 billion.103
101
http://mospi.nic.in/Mospi_New/site/inner.aspx?status=2&menu_id=92 102
http://timesofindia.indiatimes.com/budget-2015/economic-survey-2014/Economic-Survey-2014-15-GDP-growth-seen-at-5-4-5-9/articleshow/38066583.cms? 103
The IT-BPM Sector in India: Strategic Review 2015, Report by Nasscom
85
Figure 3.1: Indian IT-BPM (Domestic + Export) Revenues
Source: NASSCOM104
3.2 Revenue generated by IT Industry:
Indian IT-ITES industry revenue was at USD 118 billion in FY2014-15 as compare to USD
105.2 billion in FY2013-14, registering an increase of around 10.3%. The overall
industry’s growth of this sector over the last five years is given in the table below.
Table 3.1: IT – ITES Industry Revenue Trends (in USD billion)
IT – ITES Industry Revenue Trends (in USD billion)
Year/ Description 2009- 10 2010- 11 2011- 12 2012- 13 2013- 14 2014-15
Exports 47.7 59.0 68.8 76.1 76.0 86.0
Domestic 20.3 17.3 19.0 19.2 32.0 32.0
Total 68.0 76.3 87.8 95.2 105.0 118
Source: NASSCOM
104
The IT-BPM Sector in India: Strategic Review 2015
Exports 55 23 20 0.4 - 98
Domestic
13 4 4 13 14 48
Total
69 26 24 14 14 146
IT
Services
E
Commerce
BPM Packaged software, ER&D
Hardware Total USD
Billion
FY
2015E
86
Figure: 3.2 IT BPM Revenues in FY 2014
Source: NASSCOM105
3.2.1 Exports of IT Industry-
FY2015 is expected to see the exports market at over USD 98 billion, recording a 12.3 per
cent growth over last year. ER&D and product development segment is the fastest growing
at 13.2 per cent, driven by higher value-added services from existing players and an
105
www.nasccom.in
87
increased business from GICs. IT services exports are to grow at industry rate of 12.6 per
cent. Value-added services around SMAC – upgrading legacy systems to be SMAC
enabled, greater demand for ERP, CRM, mobility from manufacturing segment and user
experience technologies in retail segment is driving growth in IT services.
Figure 3.3: Exports of IT Services
Source: NASSCOM
88
3.2.2 Domestic Market-
The need for Indian firms to effectively compete in a globalized world presents an
immense untapped opportunity for the supply side. As an economy, India is beginning to
stabilize post elections. With the government’s clear policies and economic growth agendas
particularly Digital India and Make in India, have helped drive a vision of a technology
enabled India. A further push in this direction is coming from the government’s Digital
India campaign which envisages a USD 20 billion investment covering mobile connectivity
throughout the country, re-engineering of government process via technology and enabling
e-delivery of citizen services.
The domestic IT-BPM market is rapidly approaching the USD 50 billion mark. In FY2015,
the market is expected to be a little over USD 48 billion, an annual growth of 14%. This is
faster than industry growth that is largely being driven by the growth in e-commerce
segment.
IT services (USD 13 billion) and software products (USD 4 billion) segments are the next
fast growing segment at 10 per cent and 12 per cent respectively. IT services is being
driven by SMAC-cloud enablement, custom developing application for mobile; with the
return of focus on infrastructure projects During FY2014-15, domestic IT services growth is likely to be at 9.7% as large enterprises
exhibit cautious spending pattern; driven by technology upgrades in BFSI, telecom and
State Governments, and compliance of MIS investments. The domestic BPO services
growth is estimated at 12% in FY2013-14, driven by demand from select customers
reverting to outsourcing business processes, especially from the BFSI, automotive and
retail sectors. Domestic software products is estimated at 9.5% due to increased demand for
retail, healthcare, education, manufacturing (vertical-specific) and SMAC (Social media,
mobility, analytics and cloud) -based solutions. With the advent of cloud, the next
opportunity is India’s 47 million SMBs, who are able to rapidly bridge the technology
adoption gap.
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3.3 Information Technology in India:
The Information Technology (IT) industry is one of the fastest growing sectors in India.
India has successfully established itself as a competitive and prominent destination for
outsourcing IT & IT enabled services over the last decade.
Government of India and the State Governments have put up efforts like, liberalization of
external trade, elimination of duties on imports of information technology products,
relaxation of controls on both inward and outward investments and foreign exchange,
setting up of Export Oriented Units (EOU), Software Technology Parks (STP), and Special
Economic Zones (SEZ), which helped IT industry to gain dominant position in world’s IT
scenario. Over the past decade, the IT / ITeS industry in India has been a story of
unparalleled growth. The compounded annual growth rate (CAGR) of the industry has
been over 25 % in the last 5 years. Most of the Indian firms, across all other sectors, largely
depend on the IT & ITeS service providers to make their business processes efficient and
streamlined. The Indian manufacturing sector has the highest IT spending followed by
automotive, chemicals and consumer products industries. (International Data Corporation-
IDC's Manufacturing Insight Report 2012*1)106
Indian organizations are turning to IT to help them grow business in the current economic
environment. IT is seen as a change enabler and a source of business value for
organizations by 85 per cent of the respondents, according to a study conducted by
VMware Inc (.*2.) Over these years four main components have formed the industry – IT
Services, BPO, Engineering Services and Hardware. Banking and financial services
account for the dominant share in India’s total IT export revenues. Telecom and
Manufacturing, the other consumers of India’s IT services have also witnessed increase in
share over this period resulting in a rise in concentration of the 3 sectors from 64% to 78%.
Exports from IT sector are rapidly growing which ultimately contributes to economy.
106
International Data Corporation-IDC's Manufacturing Insight Report 2012
90
Table 3.2: IT Professionals Employed by India
Employment in IT-ITeS Industry (in millions)
Year/ Segment 2009-10 2010- 11 2011- 12 2012- 13 2013- 14 2014-15
IT Services & Exports 1.0 1.15 1.29 1.4 1.5 1.6
BPO Exports 0.77 0.83 0.88 0.92 0.95 1.1
Domestic Market 0.53 0.56 0.60 0.64 0.68 0.80
Total Employment 2.30 2.54 2.77 2.96 3.13 3.50
Source: NASSCOM Strategic Review107
The industry currently employs 3.5 million – India’s largest private sector employer. It is
also playing a key role in promoting diversity within the industry women employees (>34
per cent share), 170,000 foreign nationals and a greater share of employees from non-Tier I
Indian cities.
3.4 Indirect impact of IT/ ITes on Indian Economy:
NASSCOM and Deloitt conducted joint study and came up with the findings of indirect
impact of IT/ITes on Indian Economy. 108
Below figure 3.4 states the same
Figure 3.4: Indirect contribution of IT and ITeS to the Indian Economy
107
NASSCOM Strategic Review 2015 108
Indian IT and ITeS Industry: Impacting Economy and Society (2007 – 2008) , NASSCOM and Deloitt
Employment generation
Growth in other sectors
Balanced regional
development Growth in PE/VC funding
Indirect
Impact of
IT/ ITes
sector on
Indian
Economy
Spurring first generation
entrepreneurship Improving product &
service quality Front runner in
corporate governance Boost to country’s image
globally
91
a. Additional employment generation: The indirect employment generated, at the rate
of 4 additional jobs created in the economy for every 1 job created in the sector, is
even more socially relevant as nearly 75% of the workforce employed in those
additional jobs are SSC/HSC or less educated.
b. Driving growth of other sectors of the economy: Apart from contributing to the
growing income of its direct stakeholders (promoters, shareholders and employees),
the IT/ITeS industry has a multiplier effect on other sectors of the economy with an
output multiplier of almost 2 through its non-wage operating expenses, capital
expenditure and consumption spending by professionals.
c. Encouraging balanced regional development: By gradually spreading their business
operations to smaller Tier II/III cities, the IT sector (besides generating revenue and
employment) is also assisting in improving the supply of talent pool and
development of physical and social infrastructure, either directly by themselves or
by spurring the Government to action.
d. Fuelling the growth of PE/VC funding: The worldwide dot com boom and growth
in the IT sector kick-started VC activity in India which led to the creation of first
generation of India centric VC funds.IT/ITES continues to be the favourite sector
with the largest share (28%) of PE/VC funding,
e. Spurring first generation entrepreneurship: As per information available with
Software Technology Parks of India (STPI), 1,905 new units were registered during
the period FY01 to FY05, most of which are likely to be set up by first generation
entrepreneurs. While many first-generation entrepreneurs became billionaires in the
process, the practice of Employee Stock Option Plan (ESOP), first started by the
IT/ITeS industry, shared this wealth among employees as well thereby creating
many salaried millionaires.
f. Improving the product/service quality level: The fact that IT/ITeS companies cater
to and compete with global players has led to their adopting the highest quality
standards. This high quality of services and products has been the driver and
sustainer of growth which has helped move India out of the mediocrity, low
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quality image and has in fact raised the bar for other industries as well. Nearly
75% of Fortune 500 and 50% of Global 2000 corporations source their technology
related services from India with an increasing number of MNCs outlining their
investment plans for setting up R&D operations in India.
g. Front runner in practicing good corporate governance: The industry has been a front
runner in practicing good corporate governance and their commitment to infuse it in
their business activities have led to a creating a positive pressure within the
industry, as well as in other industries, with more and more companies adopting
global standards in corporate governance practices.
h. Boosting the image of India in the global market: Widely travelled Indians have
watched with ride as different countries and people look at India and Indians with
hitherto unknown respect and admiration. The India IT/ITeS industry has
contributed to what brand India stands for in today‘s global market.
3.5 Impact of IT and ITES Sector on India’s Growth:
The rapid adoption of Internet and mobile is creating enormous opportunities for
entrepreneurship in the country. A growing ecosystem of early stage funding, incubation
and peer learning is creating innovative start-ups building technology solutions and
products for India and the global market. Initiatives like creating a strong and robust
ecosystem for start-ups, innovation clusters and centers of excellence (CoEs) will
encourage entrepreneurship and build the next generation of Global companies from
India”.
IT-BPO sector has become one of the most significant growth catalysts for the Indian
economy. In addition to fuelling India’s economy, this industry is also positively
influencing the lives of its people through an active direct and indirect contribution to the
various socio-economic parameters such as employment, standard of living and diversity
among others. The industry has played a significant role in transforming India’s image
from a slow moving bureaucratic economy to a land of innovative entrepreneurs and a
global player in providing world class technology solutions and business services. The
93
industry has helped India transform from a rural and agriculture-based economy to a
knowledge based economy.
Increasing adoption of technology and Telecom by consumers and focused Government
initiatives – leading to increased ICT adoption
IT/ITeS sector has become one of the most significant growth catalysts for the Indian
economy. In addition to fuelling India‘s economy, this industry is also positively
influencing the lives of its people through an active direct and indirect contribution to the
various socio-economic parameters such as employment, standard of living and diversity
among others. The industry has played a significant role in transforming India‘s image
from a slow moving bureaucratic economy to a land of innovative entrepreneurs and a
global player in providing world class technology solutions and business services. The
industry has helped India transform from a rural and agriculture-based economy to a
knowledge based economy.
Key Highlights of the growth are as follows
1. Economic Development of country
2. Fast emerging as a growth story driven by a growing middle class, consumer
spending, and technology innovation.
3. Increasing adoption of technology and Telecom by consumers and focused
Government initiatives – leading to increased ICT adoption.
Due to above mentioned reasons; IT sector is looked up as fast growing sector, which
greatly influence the Indian economy and has great impact on people through its
contribution to the growth and sustainability.
94
Figure 3.5: Impact of India’s growth
Source: http://www.nasscom.in/impact-indias-growth#sthash.j3oOuGWg.dpuf
Source: NASSCOM
Opportunities
in smaller
towns
employment
for
differently
abled
Employment
For
Non
technical
Promoting
woman
entrepreneur
high growth
opportunity
for youth
employment
for out of the
main stream
candidate
Impact of Employment practices adopted by IT/ITes
95
a. Creating employment opportunities in smaller towns/cities: By recruiting talent
from non-metro towns and rural background, the industry has reached out to the
educated resource pool in these places and created employment opportunities,
which hitherto was largely limited. Large IT/ITES companies often have 33 to 50%
of their employees coming from non-metro/rural areas.
b. Encouraging employment of differently abled: Through their policy and practice of
employing differently abled people, training them and creating a conducive
working environment, IT/ITES companies are initiating a trend which could have a
significant impact on employment opportunities for the differently abled in India.
c. Opening opportunities for non-technical personnel: The growing employment
opportunities in this sector (both direct and indirect) are not restricted to the bet ter
educated or technically educated people alone While 75% of the employment
generated through the indirect route are filled in by candidates who are SSC/ HSC
or less educated, companies also help under qualified candidates to reach a desired
skill level by investing in their training and skill upgradation.
d. Promoting women empowerment: The growing trends in the number of women
employed in this sector indicates that not only does the industry offer equal
opportunity to women but also has in place proactive and sensitive mechanisms
which counter the common causes that discourage women from pursuing
employment in the corporate sector.
e. Providing high growth opportunities for the youth: The industry has created
excellent employment and fast track growth opportunities for the younger section of
the population and is likely to become one of the largest employers of a growing
‘young population’ of India. The overall median age group of the sector is 28.9
years with 70% of the workforce being in the age-group 26-35 years.
f. Creating opportunities for the ‘out-of-the-main-stream’ candidates: The IT industry
through its innovative recruitment practices has also hired persons who would not
typically be considered employable such as retired persons and housewives.
96
3.6 The benefits of doing business with India:
India’s investment friendly policies, forward–thinking reforms, higher disposable incomes
and rising middle class have made it an attractive outsourcing destination for foreign
investors. Young Workforce: Opportunity to work with enthusiastic and career–focused
Indians, who constantly upgrade their skills through training and certificate programs.
Fluency of Language: language or communication barriers will not be faced as over 350
million people in India are fluent in the English language. India has been successful in the
outsourcing industry mainly because of the fluency with which Indians speak English.
Robust Education created talent: You get access to a huge talent pool of experienced
specialists. The high value placed on education in India has resulted in a highly educated
workforce who has experience and knowledge in varied fields.
Cultural Diversity: You will face fewer cultural challenges when you share new business
ideas and endeavors with Indians, as they are always open to new ideas and opportunities
Organizations get dedicated employees to work for them, as many Indians work eight hour
shifts for six days a week. Indians also willingly work around the clock to compensate for
the time difference between India and the US or UK. Only India can give you access to
committed employees who are more than willing to work long shifts over odd hours.109
3.6.1 Advantage India -
On a yearly basis, 3.1 million students graduate from Indian universities in various fields
such as software programming, accounting or law. Currently India has 2, 297 engineering
colleges that graduate 500, 000 engineering students every year.
India can give you access to young talent, as more than half of India’s population is below
the age of 25. Over 60% in Indians are in the age group of 15–59.The higher education
system in India is the world’s third largest, after China and the US.India currently has 100
deemed universities, 215 state universities, 13 national institutions and 20 central
universities. There are 16000 colleges spread across India. The Indian Institutes of
Technology enroll about 8000 students every year.
109
INDIA IN BUSINESS PREFERRED INVESTMENT DESTINATION, Report by Investment & Technology Promotion Division, Ministry of External Affairs, Government of India. 2014
97
3.7 Investment in IT Sector:
Indian IT's core competencies and strengths have placed it on the international canvas,
attracting investments from major countries.
According to data released by the Department of Industrial Policy and Promotion (DIPP)110
, the computer software and hardware sector attracted foreign direct investment (FDI)
worth Rs 60,503.21 crore (US$ 10.01 billion) between April 2000 and June 2014.
Some of the major investments in the Indian IT and ITeS sector are as follows:
Tata Communications plans to invest more than US$ 200 million to double its data centre
capacity in India to 1,000,000 square feet over three years.
Wipro has bagged a US$ 1.2 billion outsourcing deal from Canadian utilities major ATCO.
As part of the deal, Wipro will take over the IT subsidiary of ATCO, ATCO I-Tek, in an
all-cash deal worth US$ 195 million. L&T Technology Services has bought 74 per cent
equity stake in Thales Software India Pvt Ltd, to strengthen its avionics business. This
collaboration will enhance L&T's expertise in high-end avionics software. The Techno
park-Technology Business Incubator plans to set up 'OpeniSpace', an open innovation
space on its campus, for innovators and young student entrepreneurs.
The 'OpeniSpace' start-up space will provide plug-and-play facilities with 4 to 12 seats
along with Wi-Fi internet connectivity for young entrepreneurs.
Mphasis has announced the launch of an e-Surveillance and Power Efficiency Solution
'ProTecht', in partnership with Delta Power Solutions. The partnership will enable Mphasis
Payment Managed Services (MPMS), to offer the most comprehensive single window
solution for ATM security and power efficiency innovation across the ATM industry.
Apax Partners has bought a 1.5 per cent stake worth Rs 57.84 crore (US$ 9.56 million) in
software products and services provider Persistent Systems in a public market transaction.
110
Department of Industrial Policy and Promotion (DIPP) statistics, Department of Information and Technology
98
3.7.1 Government Initiatives-
India has been ranked the third–best country in Asia, with excellent investment potential
The Government of India played a key. The Central Government and the respective state
governments are expected to collectively spend US$ 6.4 billion on IT products and services
in 2014, an increase of 4.3 per cent over 2013, according to a study by Gartner.
Some of the major initiatives taken by the government to promote IT and ITeS sector in
India are as follows:
The Indian Government has implemented the "National IT Task Force" 108 point Action
Plan to promote the growth of Information Technology in India
India’s government has set up a Ministry of Information Technology to quickly approve
and implement IT projects and also to streamline the regulatory process in India
In May 2000, the Indian Parliament passed an Information Technology Bill, known as the
IT Act 2000. This bill mentions out severe punishment to cyber criminals and has also
brought E–commerce within the purview of the Indian law. India is now one among the 12
nations that has cyber laws.
India plans to set up industrial parks in the pharmaceutical and information technology (IT)
sectors in China to strengthen India-China trade and investment ties. 111
More than 20 small and medium enterprises (SMEs) in the IT sector have recently received
land allotment letters from the Government of Punjab to set up their units with an
investment of Rs. 500 Crore (US$ 82.71 million).
Government initiatives such as Mobile Seva, Digital India, and Pradhan Mantri Jan Dhan
Yojana will also trigger adoption of software solutions in the coming years, the IDC report
said.
Going forward, IDC expects the software market to grow at a stable pace in the next five
years (2014-2018) with a compound annual growth rate (CAGR) of 10.5%.
Some of the sectors to watch out for in the future, according to IDC, include entertainment,
retail and e-commerce, education, and hospitality.
Source: NASSCOM
111
http://planningcommission.gov.in/plans/mta/mta-9702/mta-ch27.pdf
99
Table 3.3: Information Technology Clusters
Sr. No City Illustrative list of companies
1 Mumbai/ Navi Mumbai Oracle Financial Services, TCS, Cognizant, iGate,
Deloitte, L & T Infotech
2 Delhi(NCR) HCL Technologies, Hewitt Associates, Infosys, Tech
Mahindra, TCS, Genpact
3 Bangaluru IBM, Infosys, Wipro, Siemens, TCS, Mhapsis, HCL
4 Chennai Oracle, TCS, Cognizant, Syntel, Microsoft, Wipro,
Capgemini
5 Hyderabad HSBC, Microsoft, Infosys, Wipro, Cognizant, Google
Inc.
6 Pune Infosys, Persistent, BMC Software, Tech Mahindra,
Zensar, IBM
7 Kolkata TCS, Delhi solutions, HCL, Tech Mahindra, Wipro,
Genpact
Source: ibid, 112
3.8 Global Sourcing Trends:
In the face of a volatile economic environment, 2012 recorded a steady growth for
technology and related services sector, with worldwide spending of USD 1.9 trillion, a
growth rate of 4.8 per cent over 2011. BPM services with 4.9 per cent (slightly above
industry average) contributed majorly to the growth; followed by IT services and packaged
software each with 3.3 per cent growth. IT, BPM services and software products continued
to lead, accounting for over USD 1 trillion – 58 per cent of the total IT spend. IT hardware
with growth rate of 7 per cent, touched USD 797 billion and accounted for the remaining
42 per cent of the worldwide technology spend in 2012.
112
Key highlights of the NASSCOM.IDC study on the domestic services (IT-ITES) Market opportunity
100
In line with growth in global IT spend, global sourcing market also grew to USD 124-130
billion, growth of 9 per cent over 2011 – nearly twice the growth of global IT spend.
APAC spend grew 6 per cent, nearly 1.6X faster than mature geographies. IT spends of
America remained steady at 5 per cent and EMEA recorded a minimal growth of 1 per cent
over 2011. The impact was also visible on the vertical spending with emerging verticals
driving incremental growth in 2012. While BFSI and manufacturing segment remained the
two largest verticals in terms of total share in IT spending with more than ~40 per cent
share, emerging verticals like healthcare, retail, government and utilities contributed ~30
per cent of total IT spend in 2012.
Lingering concerns about the global economy also impacted contracts; volume fell ~13 per
cent, however Average Contract Value (ACV) remained fairly steady at USD 21 billion
largely due to a number of mega-deals in BPM. In terms of regional contracts, APAC was
the sole market to have registered significant growth over 2011, 55 per cent (value terms)
and increased its share in total contract value to 15 per cent; EMEA contracts declined 13
per cent and the Americas by about 2.5 per cent.113
3.9 Indian IT Industry -Analysis by NASSCOM:
According to survey from Fortune, almost the biggest 100 companies in America treat
India as their first choice of abroad software. NASSCOM has highlighted the prevailing
trends of IT Industry in their strategic analysis- NASSCOM Strategic Review 2015.114
While worldwide IT-BPM spend was USD 2.3 trillion, growing at 4.6 per cent over 2013,
global sourcing of services grew by 10 per cent, and India continued to hold on to its
leadership position with a 55 per cent market share. In FY2015, the Indian IT-BPM
industry is estimated to account for revenues of USD 146 billion, growing by 13 per cent
over last year, Industry exports are over USD 98 billion growing at 12.3 per cent, while the
domestic segment, which has benefited from the inclusion of ecommerce and mobile app
industry, is estimated to touch USD 48 billion. The industry today is India’s largest and
113
NASSCOM Annual Report 2012-13 114
NASSCOM Strategic Review 2015
101
most diverse private sector employer, with a direct workforce nearing 3.5 million,and
effecting over 10 million indirect jobs. At the same time the industry’s relative share in
India’s GDP has swelled to 9.5 per cent, it offsets more than 70 per cent of India’s oil
import bill, attracts a major share of PE/VC investments into the country, has effected
balanced regional growth and empowered diverse sections of the society, and is the face of
the Indian MNC story. The Indian IT-BPM industry has exhibited rapid evolution – in
terms of expanding their vertical and geographic markets, attracted new customer
segments, transformed from technology partners to strategic business partners imbibing a
shared vision, offering considerably wider spectrum of services over the years. Today, the
Indian IT-BPM industry has already begun moving from enterprise services to providing
‘enterprising solutions‘. These are not standard lift and shift solutions – key to this world is
a high degree of proactivism, maturity, business understanding and entrepreneurship.
The Indian IT-BPM industry is leading the drive to design solutions incorporating SMAC
(Social, Mobile, Analytics Cloud,) to offer innovative, enterprising answers. These
enterprising solutions are able to create client impact on not only cost, but also revenues,
profit margins and cash flows.
3.9.1 Indian IT-BPM Performance-
The Industry contribution relative to India’s GDP is set to touch an estimated 9.5 per cent
and share in total services exports >38 per cent. Exports (incl. hardware) are likely to record a 12.3 per cent growth to reach over USD 98
billion, up by ~USD 11 billion last year. Domestic IT-BPM market at USD 48 billion is set
to grow faster than exports market at 14 per cent, driven largely by the addition of
ecommerce into the picture.
3.9.2 Indian IT-BPM Value Proposition-
India continues to reinforce its position as the only country in the world from where one
can do anything and everything. India has continued to maintain its first mover advantage
and retained its leadership position in the global sourcing arena with a share of 55 per cent
102
in FY2015. At the foundation of this value proposition are four robust growth pillars,
which defines its attractiveness as a key destination.
1. A highly connected and a digital ready economy-
India remains a high potential market worldwide, offering multiple opportunities for unmet
needs. With the world’s second largest population (~1.2 billion), India also presents a
large, burgeoning end-user market. Additionally, with 937 million mobile subscribers, 278
million internet users, an USD 14 billion ecommerce market, and an economic growth rate
that is soon expected to surpass that of China, India is set to leapfrog into the digital world.
The Government’s Digital India and Make in India initiatives are only expected to
accelerate India’s plunge into the connected digital world.
2. India, remains an excellent business delivery center for the IT-BPM industry-
Currency movements and increased operational efficiencies have ensured that India’s
position as the world’s most cost competitive sourcing destination has only become
stronger in the past year. Even Tier I cities in India like Bengaluru continue to be between
8-10 times cheaper than source countries and significantly cheaper than other low-cost
destinations. Additional cost benefits have been passed on to customers through astute
internal initiatives including moderate wage inflation, adopting automation and nonlinear
models to control salary expenses, introducing newer career bands, flattening
organizational pyramid, etc. India is home to the highest volume of diverse, employable
talent in the world. India is expected to churn out nearly 5.8 million graduates and
postgraduates in FY2015, out of which 1.5 million people form an industry suitable, ready
to hire pool. At the same time, the IT-BPM industry has been growing in size, scale,
maturity and domain expertise and focused in addressing what customer businesses’
demand. The industry has been catalyzing business transformation for global clients
through its established global delivery chain – ~640 ODCs across >78 countries, acquiring
local talent for language skills and cultural compatibility with clients. The variety and scale
on offer in India again allows for multiple collaborative models to exist. This unique
diversity gives ample opportunities to providers to choose their organization size, business
models to adopt, and what kind of partnerships to create. The agile start-up ecosystem
103
(3,100+ start-ups) in the country has impacted large enterprises too – the need to be nimble
has prompted larger firms to re-organize their structure with advanced decision-making
capabilities, while the need to offer innovative, unmet needs has led them to build
partnerships with smaller firms.
3. The Indian technology industry is today a global “Digital Skills Hub”-
Today, the country hosts ~7,000 digital focused firms with start-ups fueling innovation by
investing further in futuristic technologies. India has been creating a future-ready digital
workforce, with more than 1, 50,000 employees with SMAC skills. ~50,000 employees are
skilled in analytics 30,000 people in enterprise mobility and >50,000 in cloud and social
media & collaboration.
4. A strong innovation backed ecosystem–
Organizations in India are consistently innovating around products, processes and business
models to deliver enhanced value propositions to the clients. While start-ups are
increasingly driving innovation around emerging tech-dependent areas like edu-tech,
health-tech, ad-tech etc., large firms are looking to benefit by investing, co-creating and
partnering with innovative startups.
The above initiatives are ensuring consistently high CSAT scores from clients, with over
85 per cent agreeing that transformative work can be delivered out of India, and further
reinforce India’s leadership position in the global sourcing market.
Indian IT- BPM Industry is demonstrating its existence and establishment on the five core
pillars that it has nurtured and evolved over the past couple of years. With customers
increasingly engaging with Indian service providers as a ‘strategic partner’, rather than just
a pure ‘technology service provider’, key players in the Indian sourcing industry have re-
aligned and capitalized
3.9.3 Future Outlook-
The future of the global technology industry will be shaped by economic forces, and
adoption of new technologies. To survive in a globally connected, and increasingly
competitive world, IT enabled enterprise digital transformation will be a must. With
rapidly-evolving technologies, changing consumer preferences and oftentimes competing
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channels, many organizations struggle with how to transform internally to meet the
challenges of this new, always connected digital world. Organizations therefore need to
carefully walk the path towards a comprehensive digital transformation with a concrete
strategy to utilize its strengths and alleviate its challenges. As the global economy
improves, and consumer confidence increases, investing in new technologies such smart
computing products, internet of things, products and platforms, cloud computing, mobility
and analytics will enable vendors to gain efficiency, agility, access to consumers, and
innovation which when properly leveraged will provide tremendous opportunity for the
delivery of real competitive value to clients.
The Indian IT-BPM industry is expected to continue to partner and handhold clients to
enable business success in the digital era, and is well set on its goal to reach revenues of
USD 300 billion by 2020. At the same time, challenges around economic volatility,
protectionism, competition and customer
new services, technologies, verticals and geographies.
FY2014 total revenues (domestic + exports; excludes hardware) is expected to grow by
about 13-15 per cent to reach USD 106-111 billion; of this, exports are likely to be about
USD 84-87 billion, a growth of about 12-14 per cent. For the industry to continue on the
growth path and to counter the challenges of understanding will need to be addressed by
concerned stakeholders.
The global economy has improved 2013 onwards, with global GDP increase by 3.5 per
cent in 2013 and further by 4.1 per cent in 2014. Simultaneously, the growing importance
of the BRIC economies in world trade means that these markets are maturing from just
being sources of cheap labour to sources of innovation. Five major technology changes are
expected to open new opportunities for service providers – smart computing (expected to
drive industry-specific solutions), Software-as-a- Service (SaaS to play a dominant role),
social technologies (empower all elements of an industry’s value chain including suppliers,
employees, customers, and business partners), mobility (access to anytime, anywhere
information) and analytics (real-time intelligence). Another mega trend is around buyers of
technology: the expanding role of IT means that the stakeholder has expanded beyond
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CIOs; employees now are influencing corporate tech adoption and IT’s role is also shifting
from a reactive back-end support operation to a proactive enabler of innovation.115
India continues to be the global sourcing leader, but the total global sourcing (IT+ BPM)
market of USD 124-130 billion accounts for only a little over 10 per cent of global IT-BPM
spend – highlighting the still large, untapped market opportunity. Indian IT-BPM firms are
well set to take advantage of this opportunity by working towards enhancing their existing
capabilities, developing new capabilities and expanding their focus to emerging alternative
outsourcing destinations, it will have to mitigate various challenges it faces at the macro,
operational and ecosystem level.
At the same time, for the industry to continue on the growth path and to counter the
challenges of emerging alternative outsourcing destinations, it will have to mitigate various
challenges it faces at the macro, operational and ecosystem level.
Macro level challenges: The ongoing global recession is having a fairly big impact on
business sentiments and customer confidence, particularly in the main markets of US and
Europe. With challenging labour market conditions in these geographies, governments are
increasingly resorting to protectionism to boost their economies. Changes in their policies
are impacting availability of work permits and visas; the threat of taxation on outsourcing
firms is another challenge. Within India market, the upcoming elections of 2014, the
continuously rising wage inflation and currency volatility continue to be areas of concern.
The industry is also facing certain challenges thrown up by newer technologies that are
disrupting the traditional services and traditional forms of delivery. For e.g. cloud-based
technologies have the potential to cannibalize business through automation and platform
based delivery.
Operational challenges: The industry will need to explore new avenues of growth – shift
from services to IP-led growth, adapt and take advantage of the changing technology
landscape to offer differentiated products/services to customers and showcase value beyond
cost. These efforts will go a long way in transforming India’s image from a low cost
destination to an innovation hub.
115
NASSCOM Strategic Review 2014
106
Ecosystem: India’s competitiveness as the foremost outsourcing destination is being
threatened by wage inflation, the rise of other locations, particularly the Philippines and
China as alternative sourcing destinations and also the customers’ desire to de-risk
geographic concentration. India is also likely to face a talent shortage (in terms of the
quality of people available rather than the quantity) in the medium terms. Cyber espionage
is a serious, emerging threat that could lead to security compromise and data breaches,
compromise of personal information, risks of insider threats due to liberal access to client
networks, and access sensitive IPR information.
Keeping these challenges and variations in mind, the Indian IT-BPM firms will need to
keep continuing the transformation of its business models and strategies for future growth.
The need for expansion to new markets, further enhancing customer centricity, flexible
delivery models, and continue to make strategic investments.
In order to achieve the next level of growth, it is imperative for industry stakeholders to
work together on five core agendas that will enable India to retain and enhance its status as
the world’s most favored outsourcing destination. On the one hand, efforts must be made to
improve the industry ecosystem: in terms of establishing world-class infrastructure,
enhancing India’s corporate governance and risk/ security framework, thus, enhancing
confidence in India as a business destination. The government should make it a top-most
priority to significantly improving the quality of education. Another important factor in
establishing India as an innovation hub is the need to foster entrepreneurship – having a
very strong and robust funding system to finance various start-ups, setting up of a plethora
of innovation clusters, Centres of Excellence (CoEs) and research labs to drive primary
research and correspondingly, a very strong IP protection and implementation framework.
As technology is rapidly emerging as a platform to deliver social change, it is also
necessary for the government to ensure that the technology infrastructure is well
established for the delivery of technology- enabled services in healthcare, education,
financial and public services. Finally, both the industry and NASSCOM must look to
expand beyond core markets – explore opportunities in new, emerging geographies,
underpenetrated verticals that have long-term potential and meet and expand customer base
– SMBs, India’s domestic market and other developing nations.
107
3.10 Indian IT/ITES Industry: Impacting Economy And Society:116
Indirect contribution to the Indian economy: The growth of the IT/ITES sector and its
resultant contribution to the economic growth and development has also resulted in certain
wider impacts, which in many cases have had a rub-off effect and set bench- marks for
other sectors of the economy while boosting the image of India in the global market.
i. Additional employment generation: The indirect employment generated, at the rate
of 4 additional jobs created in the economy for every 1 job created in the sector, is
even more socially relevant as nearly 75% of the workforce employed in those
additional jobs are SSC/HSC or less educated
ii. Driving growth of other sectors of the economy: Apart from contributing to the
growing income of its direct stakeholders (promoters, shareholders and employees),
the IT/ITES industry has had a multiplier effect on other sectors of the economy
with an output multiplier of almost 2 through its non-wage operating expenses,
capital expenditure and consumption spending by professionals
iii. Study show that USD 15.85 billion spent by the IT/ITES industry in the domestic
economy in FY06 generate an additional output of USD 15.5 billion
iv. Encouraging balanced regional development: By gradually spreading their business
operations to smaller Tier II/III cities, the IT sector (besides generating revenue and
v. Employment) is also assisting in improving the supply of talent pool and
development of physical and social infrastructure, either directly by themselves or
by spurring the Government to action
In case of Bhubaneswar (a Tier III city), some of the key impact of the IT/ITES sector has
been as follows:
1. Increase in software exports - Software ex- ports from the state reached USD 183
million in 06- 07, a 60% rise over exports in 05-06, on track to reach the target of
500mn USD by 2011-12.
2. Increase in registered IT/ITES units – The number of registered and exporting units
has risen steadily showing a CAGR of 118 and 170% respectively as compared to
116
NASSCOM & DELOITTE REPORT, 2008
108
98-99. Besides the capacity expansion of existing units, many of the big companies
are also setting up operations in the city
3. Employment – Supply of IT professionals, which was higher than demand till 2004,
now have a shortfall of 62,697. Demand for IT professionals is expected to reach
430,000 by 2011-12 with the corresponding figures on indirect employment being
1,720,000
4. Education – While building and expanding capacity of educational institutes are
underway, IT majors are undertaking training initiatives to improve student quality.
a. Infrastructure and other amenities – Keeping in line with the expansion/entry plans
of major IT/ITES companies, IT parks and townships are being built with a
corresponding improvement in other amenities like roads, housing, retail and
entertainment facilities Spurring first generation entrepreneurship: Corporate
India consisted of either large family owned businesses or multinational companies
till the advent of the IT/ITES industry, and it was rare to see a first generation
entrepreneur. The shift of focus from physical capital to intellectual capital and the
advent of the PE/VC funding enabled a large number of first generation
entrepreneurs with no wealth to try their hand at starting new enterprises. The
demonstrated success of these entrepreneurs created an aspiration among the
middle class and spurred them to exploit their potential with confidence.
b. As per information available with Software Technology Parks of India (STPI),
1,905 new units were registered during the period FY01 to FY05, most of which
are likely to be set up by first generation entrepreneurs While many first-generation
entrepreneurs became billionaires in the process, the wealth created was not
restricted among the founders alone. The practice of Employee Stock Option Plan
(ESOP), first started by the IT/ITES industry before it was adopted by many other
industries as well, shared this wealth among employees as well thereby creating
many salaried millionaires.117
117
www.stpi.in
109
c. Improving the product/service quality level: The fact that IT/ITES companies cater
to and compete with global players has led to their adopting the highest quality
standards. This high quality of services and products has been the driver and
sustainer of growth which has helped move India out of the “mediocrity”, low
quality image and has in fact raised the bar for other industries as well. Indian
exports had traditionally been restricted to low end, low-technology oriented
products like gems and jewelries and garments/apparels. It is with the advent of
IT/ITES industry that the world began to recognize that Indian products and
services could also compete and win against global competitors on quality
parameters. India is now also emerging as a research and development centre for
some of the large IT/ITES companies in the world, once again demonstrating that
India now stands for quality.
d. 30% of companies worldwide who have reached Level 5 of Capability Maturity
Model Integration (CMMI) are Indian IT/ITES firms.
e. Nearly 75% of Fortune 500 and 50% of Global 2000 corporations source their
technology related ser- vices from India with an increasing number of MNCs
outlining their investment plans for setting up R&D operations in India.
f. Front runner in practicing good corporate governance: The industry has been a
front runner in practicing good corporate governance and their commitment to
infuse it in their business activities have led to a creating a positive pressure within
the industry, as well as in other industries, with more and more companies adopting
global standards in corporate governance practices.
g. The major IT/ITES companies in India have in recent times received national and
international recognition for their corporate governance initiatives.
h. Boosting the image of India in the global market: Widely travelled Indians have
watched with pride as different countries and people look at India and Indians with
hitherto unknown respect and admiration. The India IT/ITES industry has
contributed to what brand ‘India’ stands for in today’s global market. While India
Inc. has been witnessing an acquisition spree of overseas companies in recent
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years; the IT/ITES sector has led this phenomenon with the highest share (23%) of
outbound M&A deals in 2006 .
i. Human Resource Development: The fast growing IT/ITES industry has been
struggling with several issues concerning availability and quality of talent. The
industry has responded to this issue by evolving sustainable and innovative
solutions. Since the educational institutes lagged behind in supplying the requisite
number of trained people required for the industry and their curriculum could not
keep pace with the changing trends in technology, the IT/ITES industry themselves
came forward and made massive in- house training investments, which helped
them power their growth and compete at par with international giants in the global
market. The industry has also gone beyond and collaborated with the government,
private educational institutions as well as industry associations to contribute
towards capacity building, skill development and continual training of existing and
potential employees to enhance their capabilities and competitive skills. The
industry is also making efforts to ensure that employees are provided a stimulating
and healthy working environment for improving their level of satisfaction and
productivity.
j. Training of workforce: The industry has played a pioneering and pro-active role in
developing the talent pool in the country by forging links with the academia and
the Government. It has not restricted its efforts to developing its own employees
but is also investing in raising the overall standard of education. The industry has
collaborated with academic institutions for the bridging the gap between the
education imparted to students and the actual requirements in the job scenario.
Collaborations have been in the areas of curriculum development and course
design, training for students. NASSCOM has been involved in developing
standards for training and recruitment at entry level to make students more
employable. These training address both the technical and soft skills training needs.
k. The top 5 software companies are investing close to USD 430 million in FY08 to
train around 100,000 engineers hired during this period. Companies on an average
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conduct 163 training programmes annually; with almost 80% spend on training
entry level hires.
l. Promoting higher education: The industry has emphasized upon developing its
workforce by encouraging and aiding up gradation of skills and abilities. It has
done so through various means including provision of scholarships as well as
training and development activities. Many companies have tie-ups with educational
institutes for supporting the higher education needs of their employees and provide
full/partial scholarships thus supporting their career goals. NASSCOM has been
involved in building the talent base for high end skills in areas like multimedia
convergence and bio-informatics while working with the Ministry to develop
institutes that produce highly specialized professionals.
m. Improving the work environment: Improving the work environment: IT/ITES
companies have been taking the lead in providing a conducive work environment
to employees leading to increased productivity and better morale. The facilities
provided focus on health of employees by providing gymnasium; yoga/meditation
facilities as well as their safety through pick and drop facilities. • To cater to the
need of providing a work-life balance, particularly to women employees, 90% of
the companies surveyed offer flexible working hours while 59% offer a work from
home option.
3.11 Road Ahead:
Globalization has had a profound impact in shaping the Indian IT industry with India
capturing a sizeable chunk of the global market for technology sourcing and business 118
Services. Over the years, the growth drivers for this sector have been the verticals of
manufacturing, telecommunication, insurance, banking, and finance and of late, the
fledgling retail revolution. As the new scenario unfolds, it is getting clear that the future
growth of IT and ITeS will be fuelled by the verticals of climate change, mobile
applications, healthcare, energy efficiency and sustainable energy. Traditional business
118
http://www.ibef.org/archives/detail/b3ZlcnZpZXcmMzY2OTgmODk, accessed on 5th
Dec 2014
112
strongholds will make way for new geographies, there would be new customers and more
and more of SMEs will go for IT application and services. As the new scenario unfolds, it
is getting clear that the future growth of IT and ITeS will be fuelled by the verticals of
climate change, mobile applications, healthcare, energy efficiency and sustainable energy.
Traditional business strongholds will make way for new geographies, there would be new
customers and more and more of SMEs will go for IT application and services.
Demand from emerging countries is expected to show strong growth going forward. Tax
holidays are today extended to the IT sector for STPI and SEZs. Further, the country is
providing procedural ease and single window clearance for setting up facilities.
For India to fully capitalize on the opportunity and sustain a disproportionate lead in the
global IT-ITES space, stakeholders need to continue working towards timely and coherent
execution of initiatives to address supply-side concerns across the following areas
1. Augmenting Talent Supply
2. Creating world-class infrastructure
3. Strengthening information security
4. Enhancing operational excellence
5. Providing regulatory support
6. Catalyzing domestic market development
7. Fostering an ecosystem for innovation
Nasscom recently projected that the Indian IT Industry would grow to about $300 billion
by 2020, and would create different verticals that would focus on specific areas such as
domestic IT Market, Software products & e commerce. Incremental revenue is a measure
of market share that has evolved as the new benchmark for the IT sector.
Industry exports expected to reach USD 84-87 billion, with growth rate of 12-14 per cent
Domestic revenues to grow by 13-15 per cent.
SMAC (Social media, Mobility, Analytics, and Cloud) technologies to fuel growth
Future of industry -- a complete blend of services, products, solutions and platforms
Some of the key growth drivers that are expected to open new opportunities for the
industry are smart computing, ‘anything’-as-a-service, technology enablement in emerging
verticals and the SMB market. “Technology can also play a critical role in enabling
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transformation in India and add to India’s GDP. The domestic market in India is maturing,
it was the fastest growing market in the year and NASSCOM will look to partner with the
government in enhancing technology adoption in the country”,
India is the only country that offers the depth and breadth of offerings across different
segment of this industry – IT Services, BPM, Engineering & R&D, Internet & Mobility
and Software Products. IT Services is a USD 50 billion sector, BPM is a USD 20 billion
sector, Engineering crossed USD 10 billion and Software products, Internet & Mobility are
emerging opportunities with 9 billion. Today, existing and new companies are expanding
their offerings to build India as the hub for analytics, mobility, cloud, social collaboration
and emerging verticals like healthcare and medical devices.
Figure 3.6: Classification of Sector wise earnings
Source: NASSCOM
The growth in the Indian IT industry is expected to be around 30 per cent and the overall
sales are projected to touch US$ 17 billion in FY 15, according to Manufacturers
Association of Information Technology (MAIT).
IT Services, 56%
BPM, 23%
Engineering, 11%
Software Products, 10%
IT Services BPM Engineering Software Products
114
The IT services market in India is expected to grow at the rate of 8.4 per cent in 2014 to Rs
476,356 million (US$ 7.88 billion), according to International Data Corporation (IDC).119
Indian insurance companies plan to spend Rs 117 billion (US$ 1.93 billion) on IT products
and services in 2014, a 5 per cent increase from 2013, as per Gartner.
Indian enterprises are enhancing their IT security operations capabilities across
departments. The Indian market for security infrastructure and services is expected to grow
from US$ 989 million this year to US$ 1.4 billion by 2017, as per Gartner.
Majority of the fortune 500 and Global 2000 corporations are sourcing IT – ITES from
India. A number of reputed companies in electronic / IT / Telecom hardware have setup
their units in the country. India is rapidly becoming an R & D hub.
The contribution of the IT/ITES industry to India’s economy and society has been well
established and is indeed significant. This industry has at its call, the two most important
tools for making this impact, a young motivated work force and technology. Both together
can make a significant impact on improving the lives of the poor. The IT/ITES industry has
made a beginning it is on track to set an example that would encourage others to emulate
and help change the face of India.
3.12 Foreign Trade Policy (2015-20):
The new policy would boost exports and create jobs while supporting the Centre’s 'Make
In India' and 'Digital India' programmes. The broad objective is to focus on support to
services and merchandise exports, number of very important initiatives such as focus on
export of high value addition products, Focussed on improving ease of doing business,
debottlenecking, to make services globally competitive and Market diversification.
Moreover, FTP would focus on defense, Pharma, environment-friendly products and
value-added exports. The govt. will continue to incentivize units located in special
economic zones, with a focus on employment-creating sectors and also promote e-
commerce.
119 http://timesofindia.indiatimes.com/tech/it-services/IT-spending-in-Indian-manufacturing-to-double-by-
2016-IDC/articleshow/15341076.cms
115
By implementing Foreign Trade Policy, FTP 2015-2020, the India’s share in the World
Trade is expected to double from the present level of 3% by the year 2020. By taking
measures for import substitution at one side, the forthcoming Foreign Trade Policy focuses
on increasing exports at the present scenario of increasing current account deficit CAD.
The new FTP includes necessary measures to boost productivity and earn exportable
surplus at competitive rates in exports.120
According to senior Indian Revenue Service officials, the minimum alternate tax (MAT)
was imposed on SEZs because they were not reporting revenue correctly. There were also
cases of export units selling goods in the domestic market and passing these off as exports
to get incentives. Instances of smuggling had also been detected in some jewellery export
units but the commissioners of the SEZs did not allow these cases to be booked under the
more stringent customs act and preferred the SEZ Act instead.
3.13 SEZ Policy:
India was one of the first in Asia to recognize the effectiveness of the Export Processing
Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965.
With a view to overcome the shortcomings experienced on account of the multiplicity of
controls and clearances; absence of world-class infrastructure, and an unstable fiscal
regime and with a view to attract larger foreign investments in India, the Special Economic
Zones (SEZs) Policy was announced in April 2000.
This policy intended to make SEZs an engine for economic growth supported by quality
infrastructure complemented by an attractive fiscal package, both at the Centre and the
State level, with the minimum possible regulations. SEZs in India functioned from
1.11.2000 to 09.02.2006 under the provisions of the Foreign Trade Policy and fiscal
incentives were made effective through the provisions of relevant statutes.
120
http://businesstoday.intoday.in/story/new-foreign-trade-policy-to-boost-exports
manufacturing/1/210901.html
116
After extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into
effect on 10th February, 2006. The main objectives of the SEZ Act are:
(a) generation of additional economic activity
(b) promotion of exports of goods and services;
(c) promotion of investment from domestic and foreign sources;
(d) creation of employment opportunities;
(e) development of infrastructure facilities;
It is expected that this will trigger a large flow of foreign and domestic investment in SEZs,
in infrastructure and productive capacity, leading to generation of additional economic
activity and creation of employment opportunities.
The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and
creation of related infrastructure.
The SEZ Rules provide for different minimum land requirement for different class of
SEZs.
Table 3.4: SEZs in India
Sr. No SEZ Area
1 SEEPZ Special Economic Zone
2 Kandla Special Economic Zone
3 Cochin Special Economic Zone
4 Madras Special Economic Zone
5 Visakhapatnam SEZ
6 Falta Special Economic Zone
7 Noida Export Processing Zone
Source: www.sezindia.nic.in
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3.13.1 Importance of SEZ-
The incentives and facilities offered to the units in SEZs for attracting investments into the
SEZs, including foreign investment include:-
a. Duty free import/domestic procurement of goods for development, operation and
maintenance of SEZ units.
b. 100% Income Tax exemption on export income for SEZ units under Section 10AA
of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of
the ploughed back export profit for next 5 years.
c. Exemption from minimum alternate tax under section 115JB of the Income Tax
Act.
d. External commercial borrowing by SEZ units’ upto US $ 500 million in a year
without any maturity restriction through recognized banking channels.121
e. Exemption from Central Sales Tax.
f. Exemption from Service Tax.
g. Single window clearance for Central and State level approvals.
h. Exemption from State sales tax and other levies as extended by the respective State
Governments.
The Government later imposed a Minimum Alternate Tax (MAT) of 18.5 per cent on the
book profits of SEZ developers and units with effect from April 2012. The concept of
MAT was introduced in 1987 to enable the government to raise revenue from companies
that paid no tax or very little tax. SEZs contribute to about 25 per cent of the country's total
exports. However, SEZ projects are being surrendered as imposition of taxes has
eliminated the incentives
The major incentives and facilities available to SEZ developers include:-
1. Exemption from customs/excise duties for development of SEZs for authorized
operations approved by the BOA.
2. Income Tax exemption on income derived from the business of development of
the SEZ in a block of 10 years in 15 years under Section 80-IAB of the IT Act.
121
www.sezindia.nic.in
118
3. Exemption from minimum alternate tax under Section 115 JB of the IT Act.
4. Exemption from dividend distribution tax under Section 115O of the IT Act.
5. Exemption from Central Sales Tax (CST).
6. Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).
Table 3.5: Performance of SEZ
Years Exports Growth over
previous year Value in Rs. Crores Billion USD
2005-2006 22,840 5.08 -
2006-2007 34,615 7.69 52%
2007-2008 66,638 14.81 93%
2008-2009 99,689 22.15 50%
2009-2010 2,20,711 49.05 121%
2010-2011 3,15,868 70.19 43.11%
2011-2012 3,64,478 81.00 15.39%
2012-2013 4,76,159 88.18 31%
2013-2014 4,94,077 82.35 4%
Source: www.sezindia.nic.in
3.14 Industry status in Maharashtra:
Maharashtra is the second largest state in India both in terms of population and
geographical area (3.08 lakh sq. km.). The State has a population of 11.74 crore (Census
2011) which is 9.3 per cent of the total population of India. The State is highly urbanized
with 45.2 per cent people residing in urban areas. Maharashtra is the most industrialized
State and has maintained leading position in the industrial sector in India. The State is
pioneer in Small Scale industries. The State continues to attract industrial investments from
both, domestic as well as foreign institutions. It has become a leading automobile
production hub and a major IT growth centre. It boasts of the largest number of special
export promotion zones.
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3.14.1 GSDP of Maharashtra-
GSDP at constant (2004-05) prices is 8, 96,768 crores during 2013-14, as against 8, 35,929
crores in 2012-13, showing an increase of 7.3 per cent as per the first revised estimates.
GSDP during 2013-14 at current prices is 15, 10,132 crores, showing an increase of 14.2
per cent over the previous year.
Advance estimates for 2014-15 published by Central Statistics Office (CSO), GoI revealed
that GDP at constant (2004-05) prices is expected at 1, 06, 06, 476 crores with a growth of
5.0 per cent, whereas at current prices is expected at ` 1, 26, 53,762 crores
Since August, 1991 to October 2014, in all 18,709 industrial proposals with an
Investment of 10, 63,342 crore were approved. Out of these 8,376 projects (44.8 per cent)
with an investment of 2, 54,784 crore (23.9 per cent) with proposed employment of 10.95
lakh were commissioned and 2,115 projects with an investment of ` 88,086 crore &
proposed employment of 3.03 lakh are under execution.
The IT industry has attracted 441 proposals with highest investment of 3, 82,766 crore
(36 per cent), followed by fuel industry with an investment of 1, 42,283 crore (13.4 per
cent).These two industries accounted for almost 50 per cent of the total approved
investment.
Information Technology (IT) Policy, aims to make Maharashtra the most favored
destination for investments in the IT and ITES industry. This is intended to be achieved by
directing the State support at opening up large scale employment opportunities, facilitating
growth of skilled and globally employable man-power, unprecedented spurt in exports,
creating hassle-free and industry-friendly working environment, associating urban local
Governments as responsive key stakeholders in promoting business and enterprise in the IT
industry, and providing a legal framework for data protection and consumer privacy. The
policy aims to achieve the following:-
Promotion of public and private IT Parks; Cost effective and fully reliable telecom
connectivity to the IT & ITES units all over the State; Excellent road connectivity from
main Highways to the IT Parks; Permission to developers of IT Parks to invest funds to
construct connecting roads from highways to IT Parks; Ensuring reliable and quality power
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supply round the clock in IT Parks by permitting unlimited back up power and captive
power generation; Levying power charges on IT and ITES units at industrial rates;
Exemption of IT & ITES units from statutory power cuts in power supply, etc.
3.14.2 FDI in Maharashtra-
Since August, 1991 to March, 2012, in all 4,246 Foreign Direct Investment (FDI) projects
(20,643 at all-India level) amounting to 97,799 crore (`4, 25,811 crore at all-India level)
were approved. Of these, 45 per cent were commissioned and 10 per cent are under
execution with a share of investment of 51 per cent & eight per cent respectively. During
2011-12, in all 105 FDI projects with an investment of ` 5,454 crore were approved. The
United States of America & Mauritius are the two prominent countries investing in
industrial sector of the State with 14 and 13per cent share respectively in total FDI.
Below are industry group wise approved FDI projects since Aug 91 to October 2014.122
Table 3.6: Industry wise approved FDI projects in Maharashtra
Industry Type No. Investment in Crore
IT Industry 762 12765
Financial Services 667 11858
Hotel & Tourism Industry 95 6326
Business Management Consultancy 369 4962
Transportation 108 4124
Cements & Ceramics 58 3727
Power & Fuel 39 2841
Total 4,246 97,799
Source: Economic Survey of Maharashtra 2014-15,*List is indicative
122 Economic Survey of Maharashtra 2014-15
121
3.14.3 Special Economic Zones in Maharashtra-
The State has adopted the Special Economic Zone (SEZ) policy with effect from February,
2006 to boost the economic growth. The State has received 236 SEZ proposals up to
December, 2014. Of these, 124 SEZs were approved by the Central Government (formal
approval 104 and in-principle approval 20) and 66 of them are notified. As on 31st
December 2014, twenty four SEZs were executed with total investment of 18,786 crore on
area of 3,059 ha. which generated employment of about 1.31 lakh. The division wise
approved and notified SEZs are given in Table (Up to December 2014)
Table 3.7: Approved and notified SEZs
Division No. of SEZ Proposed Employment (*Lakhs)
Approved Notified Executed Approved Notified Executed
Konkan 61 29 5 35.87 9.84 .46
Pune 36 21 14 10.63 6.17 0.83
NAshik 6 1 0 2.12 1.25 0
Aurangabad 11 7 3 1.37 0.31 0.01
Amaravati 3 3 0 0.40 0.40 0
Nagpur 7 5 2 5.46 3.92 0.01
Total 124 66 24 55.85 21.89 1.31
Source: Directorate of Industries, GoM, http://www.sezindia.nic.in/index.asp
3.14.4 Public & Private IT Parks -
Considering Maharashtra’s strengths in terms of human resources, connectivity and
infrastructure, and the special significance of Information Technology (IT) for generating
employment, increasing efficiency and improving the quality of life, the State Government
announced its first IT Policy in 1998. These Policies have been highly successful.
Maharashtra Industrial Development Corporation (MIDC) and CIDCO have developed 37
public IT parks. For getting private participation in creating world-class infrastructure for
IT industry, 479 private IT parks have been approved, out of which 144 have started
122
functioning with an investment of `3332 crore, and proposed employment of about 4.44
lakh. The remaining 321 IT parks with proposed investment of ` 8,955 crore have been
given Letter of Intent and are expected to generate 11.94 lakh employment opportunities.
The private IT parks are located in Pune (166) followed by Greater Mumbai (158), Thane
(128), Nagpur (5), Nasik (4), Aurangabad (3) and Wardha (1) districts.
During 2014-15, total 15 private IT parks were approved. Since the 2003 Policy, IT exports
from Maharashtra have increased by 135%, positioning Maharashtra among the top three
States. The growth rate of FDI in the State’s IT sector has been the highest in the country.
3.14.5 Exports from Maharashtra-
The main products exported from the State are gems & jewellery, software, textiles,
readymade garments, cotton yarn, metal & metal products, agro-based products,
engineering items, drugs & pharmaceuticals and plastic & plastic items. To recognize the
efforts put up by the exporters and to boost the exports, the State is taking initiatives like
giving awards based on export performance and implementing space rent subsidy scheme
for Small Scale Industries for participation in international exhibitions. Since 2007-08, the
State’s share remained at 27 per cent in the total exports from India.123
Table 3.8 Exports from the State and India
Source: Directorate of Industries, GoM *Till October 2014, Economic Survey of Maharashtra, 2014-2015
123
Directorate of Industries, GoM,Economic Survey of Maharashtra, 2014-2015
Year Maharashtra India
2009-2010 2,28,184 8,45,125
2010-2011 3,08,515 11,42,649
2011-2012 3,94,005 14,59,280
2012-2013 4,17,626 15,46,7666
2013-14* 2,88,384 10,68,089
123
3.15 Pune as an emerging IT hub:
NASSCOM, the apex industry body of Software and Service Companies in India, today,
revealed the findings of an extensive study conducted in association with Netscribes to
assess the competitiveness of nine Indian cities as destinations for IT Enabled Service
companies. The three-month long study evaluated the top nine cities including Ahmedabad,
Bangalore, Chennai, Hyderabad, Kolkata, Kochi, Mumbai (including Navi Mumbai), Pune
and NCR (Delhi, Noida and Gurgaon). The cities were assessed on factors such as
manpower availability, real estate, telecom infrastructure, policy initiatives, power
infrastructure, city perception and entrepreneurial history.
Table 3.9: Ranking of Indian IT Cities
CITY RANK
HYDERABAD 1
KOCHI 2
CHENNAI 3
KOLKATA 4
AHMEDABAD 5
BANGALORE 6
MUMBAI 7
NCR 8
PUNE 9
Source: NASSCOM releases findings of "Super Nine" Indian ITES Destinations.
Speaking on the study, Mr. Kiran Karnik, President, NASSCOM, said, "About 90% of all
ITES companies in India are concentrated in nine major cities while others have not been
able to attract more than two companies each. Our study reveals that despite a large number
of ITES companies being based in Mumbai, NCR and Bangalore, these cities are facing
increasing competition from other cities. Cities such as Hyderabad, and Kochi are
emerging as attractive ITES destinations primarily due to rapid improvements in
124
infrastructure (power, international bandwidth and urban transportation) and lower
manpower costs due to lower cost of living and lack of alternative employment
opportunities in these cities."
Table 3.10: City Ranking based on various parameters
Cities
Tel
ecom
Pow
er
BF
AI
Est
ate
Man
pow
er
Cit
y P
erce
pti
on
En
trep
ren
eurs
hip
AHMEDABAD 9 4 2 4 8 6
BANGALORE 8 7 6 6 1 1
CHENNAI 4 2 5 5 3 4
HYDERABAD 5 3 3 2 2 5
KOLKATA 6
1 4 3 7 7
KOCHI 2
6 1 1 9 9
MUMBAI 1
5 9 9 4 2
NCR 3 9 8 8 5 3
PUNE 7 8 7 7 6 8
Source: NASSCOM
According to NASSCOM,124
the ITES industry in India is experiencing the third wave of
growth; both in terms of geographical areas of operation and services offered.
In the first phase, the industry was dominated by captive centers of large multinationals
such as GE, American Express, and Swiss Air who set up operations in leading metros of
the country such as Delhi and Mumbai
124 NASSCOM PERSPECTIVE 2020: Changing Business, Changing India, 2009
125
In the second phase, the growth of the industry attracted numerous entrepreneurs (in many
cases, employees of multinationals who quit their jobs to set up their own ITES ventures)
again in and around Delhi (NCR) and Mumbai (including Navi Mumbai)
The third phase of growth has been more geographically dispersed - with new locations
emerging such as Hyderabad, Pune, Bangalore, Chennai, and more recently, Kochi
The growth has been driven by three factors:
1. The desire by state governments to attract entrepreneurship, which resulted in the
former offering attractive policy environments and incentives
2. The rapid improvement in key infrastructure such as power, telecom bandwidth,
and real estate in newer locations
3. The need for ITES companies to lower operating costs (especially employee costs,
and transportation.
3.15.1 Importance of Pune:
“Due to the growth shown by Pune IT industry and the future it presents for itself, STPI has
shifted all western India operations to Pune. The city today stands at number two in terms
of Software Exports after Bangalore which means it makes Maharashtra at number two for
Software Exports in India. (IT Industry Meet 2014) Pune boasts of a total of Rs. 29,000
crore software exports as of FY 2012-13 raising Maharashtra’s Exports to Rs. 51,000
crores second only to Karnataka which is at Rs. 80,000 crores. These exports are only STPI
Export figures and are accounted on the basis of Annual Appraisal and Softex Forms
submitted by STPI registered units. Pune already has 40,000 sq.ft. of STPI space and
13,000 sq.ft. of this space is available for newer start-ups to register for. The technology
park at Hinjawadi houses many software companies. Some of them are: IBM India, AtoS,
Synechron, Mahindra Engineering (located at the remotest corner of phase 2), Idea
Cellular, KPIT Cummins, Tata Technologies, Infosys, Wipro, Credit Suisse (located inside
Wipro), Tata Consultancy Services, Geometric Limited, Tech Mahindra, Cognizant
Technology Solutions, Persistent Systems (under construction), Honeywell, Mindtree,
3DPLM Software Solutions, CECsoft, Compulink, Pesh-Infotech and Digital Group
InfoTech. It also houses product companies such as Compulink and CISCO. Phase 1 & 2 of
126
the Hinjewadi IT Park are completed. Currently, phase 3 is under construction. Aundh area
in Pune is also developed area near to Hinjewadi, many IT firms are established like
Sungard, Syntel and Convergys.
Pune city was the first city to be selected as a location for IT Industry by Ministry of
Communications and information technology during early nineties. Pune is first city to
have Software Technology Park (STP) in the Country located at Hinjewadi with soft
exports to the tune of Rs. 6,500 crores employing over 54,000 professionals
Figure 3.7 Map of Pune
127
3.16 Mumbai & its Importance as an IT City:
Mumbai is the largest metropolis as well as the financial, commercial, industrial and
celluloid capital of India. It is the cosmopolitan city with the potpourri of cultures and
glamour. Foreign investors tend to look at India through the prism of Mumbai
Mumbai holds the pride of being the wealthiest city in the country, with the highest GDP of
all the cities in South, West and the Central Asia. Mumbai has been rated among the top 10
centers for commerce and is aptly known as the commercial and the entertainment capital
of India. Mumbai accounts for 25% industrial output, 5% of India's GDP and also 70% of
the capital transactions in Indian economy. It also has the corporate headquarters of several
prestigious Indian companies and various multi-national corporations.
Figure 3.8: Map of Mumbai
128
3.16.1 Contribution to State GDP-
Mumbai is Maharashtra’s and India’s main economic engine. It contributes about Rs.
40,000 crore in taxes to Maharashtra and the Centre annually. The share of Mumbai in total
revenue collection from metros is more than 50% in case of income tax and excise duty.
Mumbai and its surrounding regions contribute over 20 per cent of the state’s GDP.
Promising IT Sector
Out of India’s total exports, the share of IT products (mainly software) has increased from
1 per cent in the early 1990s, to 18 per cent in 2001. Mumbai, the financial and commercial
capital of the country, provided the initial lead in the Info Tech Industry. Despite
competition from Bangalore, Mumbai has created a niche in the IT industry scenario of
India, with a large number of multinationals as well as small software units located here.
The Santa cruz Electronic Export Processing Zone (SEEPZ) and the International InfoTech
Park in Vashi, Navi Mumbai offers excellent facilities to IT companies.
The Four Pillars of Economic Renewal of Mumbai City
As per Dr. Narendra Jadhav, the four major pillars of economic renewal of city like
Mumbai would include (a) Improving Infrastructure (b) Enhancing access to social
amenities, c) deepening financial markets d) strengthening institution & governance125
125
Bombay first, Fact Book on Mumbai,2003
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