THE GROWTH DRIVERS: The Good Life

We had called 2003-04 the year of Growth. While exports continued with their

northward movement, the domestic market grew 26% to touch Rs 33,896 crore after

slow growth for previous two years. As we watched with bated breath to see if

the domestic market growth was an anomaly to the trends in the past few years,

the results have been more than good. Fiscal 2004-05 reiterated that this was no

fluke; the domestic IT market, like Shahrukh Khan, now charts out blockbusters

year-on-year. In absolute terms, the 27% growth, at Rs 43,026 crore, accounted

for 33% of the total IT industry-a point less than what it had done in

2003-04. But there was no cause for despair since it only proved the healthy

state of the Indian IT industry overall-after a relative blip of three years,

exports also did remarkably well this year and that explains the one point drop

for the domestic sector in the overall sweepstakes.

So which were the sectors that spurred the growth of the domestic market in

2004-05? You do not really need to be on the KBC hot seat to answer that. BFSI

and telecom again led the way, followed by government and manufacturing. At Rs

10,543 crore, BFSI grew by 46% to account for 25% of the overall pie-the

drivers facilitating the growth included the RTGS network, the trend of

infrastructure outsourcing, the growing competitiveness of private insurance

players, as well as the continued deployment of core banking in rural far-flung

branches of the PSU banks. Even the two national stock depositories and the two

large bourses played an important role in spurring the adoption of IT in the

financial sector. With Basel II finally looming on the horizon, the scope of IT

is expected to further widen here.

The 27% growth this fiscal reiterated the fact that the domestic IT market is now charting out blockbusters y-o-y

Telecom continued to be a high growth sector- another stupendous climb by

53 basis points took it to Rs 6,665 crore, thereby contributing 15% of the total

IT spend in the country. While the consolidation in this sector led to the

shrinking in number of players, it, in a way, ensured increasing adoption of IT.

Lesser number of service providers meant each of them having to manage even more

subscriber data-no wonder sophisticated storage deployment was a norm in this

sector. There were other IT catalysts too-broadband finally becoming

mainstream, WLAN becoming commonplace following removal of some government

restrictions, datacenters and NOCs becoming an important source of revenues for

telcos, CRM with BI along with launch of value-added services to retain

customers, the list goes on. Bharti's example of total IT outsourcing,

however, did not catch on, as was earlier expected. Notwithstanding all this

technology adoption by service providers one question still remains-their

efficacy was really exposed during the recent Mumbai deluge and this ought to

ensure a lot of soul-searching for all telcos in the coming year.

The Domestic IT Market: Over the Years The growth of the domestic IT market, over the years, has been primarily led by BFSI, telecom, manufacturing and the government verticals

Government was another conundrum-at Rs 5,334 crore it grew by 30%

accounting for 12% of the total IT spend in the country. This, however, included

only the e-government spending by the Union and State Ministries and excludes

all spends by PSU banks, incumbent telcos or large PSUs in the manufacturing,

energy and utilities sector. And for all those swadesi votaries who had derided

IT bypassing the rural milieu till now, 2004-05 was a fitting reply. With

large-scale automation by the government on rural e-governance projects, finally

it seemed that steps are being taken to close the digital divide. And though it

was a year when peaceful overtures were actively extended towards Pakistan with

cricket diplomacy, IT spending by the defense sector showed no signs of waning.

In total, government was an important constituent for the domestic IT market in

2004-05, and Dataquest predicts that IT spend by the government will increase in

the foreseeable future.

Not to be left behind, the other star segment, manufacturing, also

contributed its might to the overall growth. At Rs 3,969 crore, the segment grew

by 22% and accounted for 9% of the total pie. Heavy engineering behemoths like

BHEL, L&T and BEL were some of the heaviest users of IT, but it was perhaps

the automobile sector, along with auto ancillaries, that drew the maximum IT

traction. Tata Motors, Maruti, Hero Honda, TVS Motors all competed to bring

their new models to the road while all MNCs like GM, Ford, Daimler Chrysler,

Mercedes and Hyundai set up their back-end design centers in the country-all

leading to an explosion of IT adoption in the city. Core sectors like steel,

coal, aluminum and other heavy minerals also made a hefty contribution to the IT

kitty. Other sectors that took great strides during the year included

healthcare, IT/ITeS, energy and services.

The SOHO market moved down from 14% to 9.5%. Dataquest predicts that the SOHO

market will continue to be at this level in the future, as the SOHO market is

largely product centric and is moving toward a larger services gameplan.

Rajneesh De