How Big is Indian IT Sector ?

Most people don’t realize this, but India’s tryst with information technology (IT) started more than three millennia ago. Aryabhata laid the basic foundation of IT and digitization with the invention of zero.

Fast forward to the 20th century, and Indian IT industry veterans have even more fascinating stories to tell. In the 1970s and ’80s, the code was physically shipped to clients. The industry remained small until 1990, gained some momentum in the post-liberalization age, and Y2K was the game-changer for the sector.

The statistics since 2000 speak for themselves. At the time of liberalization, in 1991, this was a $150 million industry. By the turn of the millennium, the sector had grown by more than 30 times to around $5 billion and has since ballooned to $150 billion, having expanded another 30 times. India accounts for nearly 55% of the “offshore” of this services market comprising IT, engineering and business process management. India leads by a margin, displacing erstwhile incumbents like Canada and Ireland. India’s five largest IT companies today count themselves among the top 20 firms in the industry globally, with the quintet also appearing among the largest 10 IT enterprises in terms of market capitalization.

The industry has been a major contributor to the Indian economy. Directly or indirectly, the sector contributes around 10% to the gross domestic product, nearly 25% of exports, and employs over 13 million people. Smaller IT firms account for about 60% of this contribution, while women make up around 35% of the industry’s workforce, making it one of the most diversity-friendly sectors in India.

Indian IT: The Journey From Good To Great

1st Generation (1970-1990)

Indian IT 1.0 was aimed at making the CIO a more effective business partner—responsive, efficient and effective. Quality and cost-effective talent and globalized operations were the foundational elements of this proposition.

2nd Generation (1991-2000)

Indian IT 2.0 saw a more active engagement on business issues with the CIO (and CXOs). From cost-effective talent, the proposition evolved to include domain expertise, as well as some IP frameworks and operational best practices. Cost savings were complemented with process re-engineering and the associated impact on business metrics. This $1 trillion market, growing in steady single digits, has been the playground of the industry so far.

3rd Generation (2001---)

The future, however, will see a far richer set of avenues as technology and software pervade the businesses further. With an increasing role in the enterprise agenda and value creation, many disruptive opportunities will emerge for Indian IT organizations:

End-to-end play: This is the “deepen the core” extension of the current proposition. As companies grapple with changing technology landscapes, rapidly changing needs and costs pressures, companies will be willing to hand over the business process to technology stack to make it future-ready and scalable. They would likely entail the relevant mix of scale and innovation at each layer. For example, highly automatable operations could potentially leverage robotic factories at the top of the stack (the business process layer). Custom solutions could be built using a modular architecture with a partner ecosystem, with infrastructure layers being provisioned by public cloud providers (think Google, AWS or Azure of today). This provides scalability, attractive economics and flexibility for the enterprise, and opens up pathways for large-scale partnership. This will also create opportunities to create new industry platforms and utilities, like Amadeus for travel.

Disruptive non-traditional plays: Can we imagine software from India riding over the commodity hardware of the next-generation autonomous car (remember the electric vehicle has only 18 moving parts)? IT companies are already playing an increasingly bigger role in media. Accenture and Sapient have combined their strong digital capabilities with acquired creative talent to become leading media agencies, actively competing with traditional players. In the financial sector, some companies are trying to become payments banks—competing with traditional players as well as fintech start-ups. Could the next digital bank be created by an Indian IT firm? Manufacturing 4.0 is set to have multiple technology drivers, including autonomous robotics, analytics, industrial Internet, augmented reality and 3D printing. Can Indian IT position for 3D manufacturing and extend given it is more about technology? Many non-traditional plays emerge given the strengths of the Indian IT in technology. 

New roles and services: A recent BCG study for an Asian government indicated that 75% of the existing jobs in that economy would be impacted by cognitive technologies and robotics, and that almost a third of them will get eliminated before 2035. Some other analysts have more aggressive predictions for traditional jobs indicating significant disruptions by 2025 itself. At the same time, this disruption will create several new roles—think drone traffic coordinators, robot compliance managers, or 3D printing specialists. Can Indian IT serve as a manufacturing operator for companies, using 3D printing remotely, just like how applications and infrastructure are managed off-site? As more such roles emerge, India’s talent advantage will once again come into play. Can Indian IT firms create large pools of such new skill sets to serve the emerging needs of their clients in the future?

These opportunities represent a multi-trillion dollar market that is likely to grow at a very fast rate. Instead of mere share shifts, IT firms will have the chance to pursue new markets with disruptive propositions and new business models. Unleashing Indian IT 3.0 can pivot India to innovation leadership, giving it a more central role in shaping the industries of the future.

Time to change the engine while still flying 

The success of Indian IT continues to drive high expectations, not giving it any breathing space to step back and reflect. The future is filled with new and exciting opportunities, but they pose some fundamental questions for Indian IT and all the stakeholders that must be rapidly addressed. 

• Today, Indian IT is the incumbent and innovation is being driven by nimble and new-age competitors. What should Indian IT do to avoid being disrupted and to take advantage of the opportunities being presented? 

• What policy changes and infrastructure enablers would the government need to think about to encourage the sector?

• The future will require a very different, and more heterogeneous, talent pool. How can the IT industry, the government and academia together collaborate on ways to develop the requisite skill sets for tomorrow? 

Indian IT is in pole position to build on its strong legacy and capitalize on the disruptions under way. The world is Indian IT’s oyster, but the sector will require a major metamorphosis. As Indian IT 3.0 evolves, it will not measure its success by the number of people employed or revenue generated, it will measure its success by the impact it delivers in transforming lives, enterprises, industries and societies. This will indeed be the journey from “good to great” for the sector.