With US$ 40 billion in revenue, the Indian information technology sector continues to be one of the sunshine sectors of the Indian economy. 

The information Technology sector is growing despite the fact that the rupee has shown considerable appreciation.The software and services industry continue to be the dominating factor in the overall growth of the Indian industry. In 2005-06, the Indian software and services industry exports witnessed a healthy growth, its total exports reaching Rs. 104,100 crore (US$ 23.6 billion), an increase of 33 per cent in dollar terms and 30 per cent in rupee terms over the previous financial year. This segment will continue to show a robust growth and the total value of software and services export is estimated at Rs. 141,800 crore (US$ 31.3 billion) in 2006-07, an increase of 36 per cent in rupee terms and over 32 per cent in dollar terms. The Business Process Outsourcing (ITES-BPO) sector has emerged as a key driver of growth for the Indian software and services Industry. As export revenues from ITES-BPO estimated to grew from US $ 6.3 billion in year 2005-06 to US $ 8.3 billion in year 2006-07, a year-on-year growth of over 31 per cent was achieved. Consumer electronics sector is estimated to achieve a production level of Rs. 20,000 crore during 2006-07, as compared to Rs. 18,000 crore in the year 2005-06, thus achieving a growth over 11 per cent. The fast growing segments during the year were colour TV, DVD players, home theatre systems. The colour TV production has shoot up to over 12 million units during the year 2006-07. The flat segment CTVs now accounts for more than 50% of the total domestic TV production. The PC sales are expected cross 6.5 million units during the year 2006-07. The high growth in PC sales was attributed to increased consumption by Industry verticals such as Telecom, Banking and Financial Services, Manufacturing, Education, Retail and BPO/IT-enabled services as well as major e-Governance initiatives of the Central and State Governments.

Even in the event of a falling dollar and a strengthened rupee, India is the undisputed leader in offshore services, accounting for 65-70 per cent of the global offshoring pie. It tops the list of 30 countries on criteria such as language, Government support, labour pool, infrastructure, educational system, cost, political and economic environment, cultural compatibility, global and legal maturity, and data and intellectual property security and privacy, says Gartner.

In 2006-07, software and services exports grew by 33 per cent to register a revenue of US$ 31.4 billion, whereas the domestic segment grew by 23 per cent to US$ 8.2 billion. Within exports, IT services touched US$ 18 billion, a growth of 35.5 per cent. The country’s IT exports have, in fact, come quite far, starting from a few million dollars in the early 90s. The Government expects the exports turnover to touch US$ 80 billion by 2011, growing at an annual rate of 30 pc per annum.

Apart from being a great offshoring destination, India offers a market with very high returns. Evidently, multinationals are investing aggressively in their India units. For instance, IBM has the biggest staff in India. According to industry estimates, the turnovers of firms such as Dell, Intel, Microsoft and IBM are way beyond the half-billion dollar mark. Cisco is believed to have crossed the billion-dollar mark in domestic sales in 2006-07, and HP India is said to have an India turnover of around US$ 2.5 billion.

•  IBM India has entered a US$ 600 billion, five-year deal with Vodafone Essar. It is also working with Bharti Enterprises and Idea, and other Indian corporates. With its revenues from these deals crossing the US$ 2-billion mark, the company plans to invest US$ 6 billion in India over the next three years.

•  Microsoft India, which is the only subsidiary outside the US where Microsoft has an end-to-end presence through six business units, now reports directly to the company’s headquarters in Redmond. With an estimated turnover of over US$ 763 million, the company has reworked its pricing strategy and is localising its offerings. Its Windows operating system (OS) - XP and now Vista - still has over 90 per cent market share and is a leading player in the server OS segment, too.

•  Like IBM, the US$ 57-billion Dell has its largest employee base (13,000) outside of the US in India. In Q3 of FY 2008, the company posted a 47 per cent growth in revenues in India. In comparison, its China chapter registered growth of 22 per cent. Its India turnover stands at around US$ 600 million.

•  Cisco, which has already committed US$ 1.1 billion to India, will be launching a huge brand re-positioning campaign in the first quarter of CY2008. It has already sold over 200,000 IP phones over the last few years.

•  Intel India is banking on the mobility boom (laptops, mobiles), gaming, SMEs, e-governance, education initiatives and low-cost computing initiatives in India. It is also banking on its WiMax forays in the country.

IT spending in India is set to grow the fastest in the world in 2008, says global research firm IDC.

•  The server market in India grew by 30 per cent year-on-year to reach US$ 169 million in factory revenues during the second quarter of 2007, according to IDC Asia/Pacific Quarterly Enterprise Server Tracker, Q2 2007.

•  The overall client PC market in India grew 22.1 per cent, recording 1.53 million shipments in Q2 2007 calendar year as against 1.25 million in the corresponding period last calendar year, IDC said. Desktop PC shipments showed a growth of 11.3 per cent while notebook PCs spurted by 73.1 per cent during the same period (April-June) this year.

Moving beyond software, India is now emerging as a hi-tech manufacturing hub. The Department of Information Technology (DIT) has received investment proposals worth over US$ 25 billion from 17 Indian and multinational companies.

Investments worth over US$ 6 billion have already been committed while another
US$ 20 billion are in the pipeline. These include India’s first LCD panel unit by Videocon at an investment of US$ 1.8 billion and two other proposals for solar cells and photovoltaic cells by Moser Baer and Titan Energy Systems of US$ 3.2 billion and US$ 1.2 billion, respectively.

The proposals come in the wake of the semiconductor policy, under which the Centre plans to give financial sops to companies planning fab units. At least 2-3 units are eligible for incentives under the fab category and about 8-10 under the eco-system section.

The M&A space in the IT sector has been fairly busy. In November 2007 alone, there were 13 domestic deals and one cross border deal. Six private equity (PE) deals with an investment value of US$ 44 million were inked in one month alone.

Around 58 merger and acquisition (M&A) deals were conducted in November at a value of US$ 940 million, as against 51 deals amounting to US$ 610 million in October 2007, according to a report by Grant Thornton, an accountant and business advisory firm.

The total number of M&A deals during the first 11 months of 2007 now stands at 638, with an announced value of US$ 50.79 billion.

During 2007, the industry saw global players focussing on building up their delivery capacities in India so as to remain competitive with the larger Indian players. Large Indian companies were also looking to build and strengthen domain and technology capabilities even as they were spreading the services delivery infrastructure.

Finally, the mid-size companies focussed on getting scales on a few chosen domains and technology capabilities. Experts feel that the IT industry can offset the impact of a stronger rupee in the short term by improving productivity, currency hedging, adjusting the onshore/off shore ratio and migrating to an appropriate global service delivery model and negotiating new contracts in rupee terms.