THE GROWTH DRIVERS: Feeling Good

India Shining might have flopped miserably as an election campaign for the

Bharatiya Janata Party, but for the domestic IT industry it was a different

story. And, to gladden all patriotic hearts this shine was not just from the

usual avenue of software exports. In fact, after several years, the domestic IT

market, which grew at 24%, outgrew pure software exports, which recorded a 17%

upsurge. At Rs 33,374 crore, the domestic market was still only 36% of the

overall Indian IT industry, but increased IT spending by most Indian enterprises

ensured that no one would miss the general feel-good atmosphere pervading the

domestic IT market.

No prizes for guessing the verticals that contributed the lion's share of

this Rs 33,374 crore pie. While BFSI still headed the list, telecom,

manufacturing and government remained the dominant sectors. Further, technology

as a vertical also lived up to the industry's growth levels-the infotech

sector itself grew by 24% in IT spending. Top-dog BFSI's grew at 27%, thanks

to increased spending by PSU banks. The insurance industry witnessed

considerable IT implementation, and by itself, grew at a whopping 147% to reach

Rs 668 crore, while banking and financial services, the remaining portion of the

ubiquitous BFSI segment, was pegged at Rs 7,231 crore, a 21% growth over FY

2002-03's figures of Rs 5953 crore. While manufacturing and government

retained their shares from the previous year, these two sectors (manufacturing

and Government) contributed handsomely to overall growth. Amongst other

verticals, healthcare, pharma, logistics and hospitality showed significant

increase, while FMCG, retail and utilities remained peripheral players.

A large number of PSUs, including BSNL, BHEL, SBI and ONGC amongst others,

witnessed heavy spending on IT during FY 2003-04. However, in calculating the

market shares of different verticals, DQ has considered each of these large

enterprises in their specific domains of expertise. Hence, SBI comes under

banking and BSNL under telecom, while BHEL and ONGC are listed under

manufacturing. If we reckoned it otherwise, the share of the government would

have gone up considerably at the expense of all other verticals. For DQ

purposes, government includes all IT investments by the different state

governments as well as the Union Government in various e-governance projects.

One reason India Shining flopped for the NDA was the perception that

technology advancements had minimal impact on the rural masses. This was true

even for the domestic IT market, despite everybody asserting the imminent need

to bridge the digital divide. The Top 10 cities contributed Rs 20,961 crore,

about 60% of the total IT spending across the country, and this scenario is

unlikely to change much next fiscal. Delhi pipped Mumbai to the numero uno spot

amongst the Top 10 cities (probably with the help of Gurgaon and Noida in NCR),

while the much hyped Hyderabad was relegated to the sixth position.

IT infrastructure outsourcing was one trend that particularly caught the

imagination of India Inc during FY 2003-04. Many enterprises delegated most of

their end-to-end computing activities and also sought strategic consulting

advice on aligning IT with their core businesses. The big-ticket deals included

Bharti TeleVentures awarding IBM a $750 million, 10-year out—sourcing

contract, and Bank of India awarding a 10-year outsourcing contract valued at

$150 million to HP Services. Besides, Accenture bagged a 10-year agreement from

Dabur, and recently, another multi-year contract from Indo Rama Synthetics.

The single biggest driver behind India Inc's increasing proclivity for

outsourcing is its realization that it is both prudent and pragmatic to leave IT

functions to the experts and concentrate instead on core business activities.

Subsequently, the basic model has changed from mere facilities management, which

was focused mostly on body shopping, to device-based outsourcing. The transition

from the earlier model of facilities management, with vendors acquiring their

own manpower, to the current model of asset stripping, where device-based

resources are outsourced, has changed life for most enterprises. IT is now

treated as operational expenditure on most corporate balance sheets where it

once used to be thought a capital expenditure.

The year also saw networks getting increasingly complex, and troubled already

by the shortage of qualified IT staff, Indian businesses have actively started

outsourcing their network management needs to Network Management Service (NMS)

providers. While cost is definitely a strong motivation for Indian businesses

seeking to outsource network management services, there are other compelling

reasons too. For instance, outsourcing provides a significant competitive

advantage to most companies that seek to rapidly expand their network across the

country. These organizations find themselves at the crossroads when they

discover that they neither have the time nor the competence to manage their

networks, and realize that they would be better served by focusing on their core

competency, leaving the management of their networks to outside parties. This

realization resulted in an exponential demand for managing enterprise network

services such as LAN, WAN, VPNs, VoIP, intranets and extranets for deploying

various applications.

Rajneesh De in Mumbai