The PM likes to call it inclusive growth, analysts see it as secular growth while the industry would believe it to be overall growth. The Bard of Avon would have said whats in a name? as long as it is undiluted growth with no statistical shenanigan involved. "Who cares" when it is unfettered growth, feels Dataquest; instead, we would rather hail this growth story as the ultimate democratization of Indian IT.

The story is of the growth of the domestic IT services sector, and how it is gradually attracting similar interests to that of the software exports story. Though India in FY 07 was still the kingpin of the global offshore lexicon, thanks still to an overwhelming increase in domestic consumption, it also supported, at the same time, a vibrant local IT services market, a phenomenon not visible a few years back.

True, software exports still scored high in FY 07 on both the glamour and fiscal quotients, but the 30% growth story of a sector that reached Rs 20,948 crore is not just to get easily eclipsed. In fact, the combined effect of rupee appreciation against the dollar could soon lead to the domestic IT services market even matching the wealth of its glamorous exports cousin, rupee by rupee or more ironically dollar by dollar. (That, though would not be great news.)

Identifying the Catalysts
Tracking the growth story of the domestic IT services market over the last three years projects a sinusoidal curve. There was a 39% growth in FY 05, the first complete year of revival (and hence, renewed optimism) following the slowdown-affected inertia that had gripped the industry since the turn of the millennium. More importantly, that was also the year of large BFSI, telecom and manufacturing organizations aggressively deploying IT and landmark deals (Bharti-IBM, BoI-HP, Dabur-Accenture) as automation was finally accepted as a profitable business stratagem.

Last years (2005-06) growth, however, was a more conservative 15%; and we had proclaimed, and not without reason, that the domestic IT services market is yet to mature.

At least, not beyond the BFSI, telecom and manufacturing troika and a few selected enterprises. The much-hyped SMB segment was particularly chided for not living up to the expectations. Nevertheless, a quick turnaround was expected immediately, especially driven by the government and a few other sunshine sectors like construction, retail, healthcare and transportation.

The 30% growth in FY 07 proved the hope was not misplaced; while BFSI, telecom and manufacturing were still the primary catalysts, both government and SMBs came to the party with not just a bang, but a real blast. Add to it, a few landmark deals, especially in the infrastructure sector, like DLF, Delhi International Airport, Road Transport Authority, Navi Mumbai SEZ, and the Rs 20,948 crore market size gets easily justified. And while traditional business lines like network integration, AMCs and facilities management still dominated the pie (58%), the good news was that consulting (10%), packaged software implementation (8%) and managed services (6%) started gaining traction.

Though most major banks and by now probably even the insurance companies had completed their first phase of IT deployment (in many cases, also the second and the third), BFSI was still the flagbearer for the domestic IT sector in FY 07. Total or strategic outsourcing deals like the Dena Bank-Wipro Infotech, UCO Bank-HP, HDFC Standard Life-Wipro Infotech still dominated the domestic landscape. Idea Cellular-IBM, BSNL-HCL Infosystems, Britannia-HP and Ashok Leyland-HP were few of the other marquee deals emanating from the telecom and manufacturing verticals.

Government, however, started to replace BFSI as the vital cog on the domestic IT wheel. In terms of deals, the Big Four of the domestic service providers (IBM, Wipro Infotech, HP and TCS/CMC) all aggressively courted the government: if TCS bagging the MCA-21 was the mother of all e-Gov deals, Central Board of Direct Taxes and IBM, Government of Karnataka (e-procurement across all departments) and HP and Assam Sales Tax Commission and Wipro Infotech too were some key projects during FY 07.

These were only the tip of the iceberg as far as e-Gov initiatives were concerned and how it started impacting the established domestic IT market. Certain Mission Mode projects identified under the National e-Governance Plan at the central, state and integrated service levels provided a huge boost to the local IT services fraternity. Other than MCA 21 (from Ministry of Company Affairs), Income Tax, Passport, Visa and Immigration, National Citizen Database, Central Excise and Pension were few of the key projects.

The scheme to establish State Wide Area Networks (SWANs) across the country in 29 states and 6 union Territories at a total outlay of Rs 3,334 crore with a central assistance component of Rs 2,005 crore over a period of five years was a big boost to the network integration business. SWAN proposals from 25 states/ UTs were sanctioned till the end of FY 07, with a total outlay in the vicinity of Rs 2,000 crore.

SMBs were the other key driver behind the growth of the local market. And while many of these organizations might not have gone for strategic outsourcing, trends like facilities management (12%) and customized software development (8%) became prevalent. The aggressive tactics of packaged software vendors like SAP, Oracle and Microsoft to venture into upcountry locations to tap SMBs paid off: no wonder, it was these vendors who contributed a large chunk of the good old AMC revenues (16%) and packaged software implementation revenues (8%) to the overall services pie.

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