The IT and ITeS sector comprise of services that are related to information technology, research and development services as well as engineering designs, hardware and BPO.

IT: The application of computers and telecommunication equipment to store, transmit, retrieve, and manipulate data, in context of business or an enterprise.

ITeS: Information technology enabled services (ITES), is a form of outsourced service which has emerged due to involvement of IT in various fields such as banking, finance, telecom, insurance among others. Some of the examples of ITES are medical transcription, back-office accounting, insurance claim, credit card processing and many more.

Thus , Indian IT and ITeS industry is divided into four major segments –

• IT services
• business process management (BPM),
• software products and
• Engineering services and hardware.

Globalisation has had a profound impact in shaping the Indian IT industry with India capturing a sizeable chunk of the global market for technology sourcing and business services.

The information technology (IT) and information technology enabled services (ITeS) industry has been one of the key driving forces fuelling India's economic growth.

It has employed almost 10 million Indians and hence, has contributed a lot to social transformation in the country.

IT is seen as a change enabler and a source of business value for organizations as Indian firms, across all other sectors, largely depend on the IT & ITeS service providers to make their business processes efficient and streamlined.

IT-business process outsourcing (BPO) sector, including the domestic and exports segments are growing strongly, both onshore as well offshore. The companies continue to move up the value-chain to offer higher end research and analytics services to their clients.

Over the years, the growth drivers for this sector have been the verticals of manufacturing, telecommunication, insurance, banking, finance and, of late, the fledgling retail revolution.

The growth in the Indian IT industry is expected to be around 30 per cent and the overall sales are projected to touch US$ 17 billion in FY 15, according to Manufacturers' Association of Information Technology (MAIT).

The Indian IT infrastructure market - comprising server, storage and networking equipment - is expected to grow by four per cent in 2014 to touch US$ 1.9 billion, according to Gartner.

The IT services market in India is expected to grow at the rate of 8.4 per cent in 2014 to Rs 476,356 million (US$ 7.88 billion), according to International Data Corporation (IDC).

Investments

Indian IT's core competencies and strengths have placed it on the international canvas, attracting investments from major countries.

According to data released by the Department of Industrial Policy and Promotion (DIPP), the computer software and hardware sector attracted foreign direct investment (FDI) worth Rs 60,503.21 crore (US$ 10.01 billion) between April 2000 and June 2014.

Some of the major investments in Indian IT and ITeS sector are as follows:

• Tata Consultancy Services (TCS) plans to merge its two units in Japan with Mitsubishi Corp’s IT subsidiary to create a joint venture (JV) company with a revenue base of US$ 600 million in the world’s second-largest market for software services.
• Private equity (PE) firm TPG Growth and India's Smile Group will jointly invest US$ 100 million to help internet and e-commerce companies build and scale their businesses across the Asia–Pacific region and West Asia.
• Synechron plans to invest US$ 30–35 million on the expansion of its Hyderabad and Bengaluru facilities. “We have decided to expand our presence in India by setting up facilities in Hyderabad and Bangalore. The idea is to get closer to the bigger talent pool and clients,” said Mr Faisal Husain, Founder and Global CEO, Synechron.
• Bharti Airtel, India's largest telecom operator, has renewed its technology outsourcing contract with software major IBM for a period of five years.
• Infosys has partnered with telecom company Orange to provide Internet TV to its customers. Infosys will deliver a portfolio of interactive TV apps on the Orange Livebox Play. The TV apps will be powered by Infosys DigitizeEdge, a digital asset and experience platform for TV operators, media companies, advertisers and content publishers.

Government Investments

The Government of India played a key role with public funding of a large, well-trained pool of engineers and management personnel who could forge the Indian IT industry.The Central Government and the respective state governments are expected to collectively spend US$ 6.4 billion on IT products and services in 2014, an increase of 4.3 per cent over 2013, according to a study by Gartner.Demand from emerging countries is expected to show strong growth going forward. Tax holidays are today extended to the IT sector for STPI and SEZs. Further, the country is providing procedural ease and single window clearance for setting up facilities.Some of the major initiatives taken by the government to promote IT and ITeS sector in India are as follows:

The Government of India plans to reduce the requirement of the built up area from 50,000 square metres to 20,000 square metres and capital conditions for FDI from US$ 10 million to US$ 5 million for development of smart cities. It has allocated a sum of Rs 7,060 crore (US$ 1.16 billion) in the current fiscal for the project of developing 'one hundred Smart Cities'. The Government of India also plans to launch a pan India programme 'Digital India' with an outlay of Rs 500 crore (US$ 82.71 million).

The government has pledged to support the growth of domestic information technology capabilities in both hardware and software focused on enabling the timely delivery of citizen services and creating new jobs opportunities, especially in rural areas.

India plans to set up industrial parks in the pharmaceutical and information technology (IT) sectors in China to strengthen India-China trade and investment ties.

The Government of India will develop new manufacturing clusters for electronic goods in eight cities as part of its agenda to boost manufacturing

More than 20 small and medium enterprises (SMEs) in the IT sector have recently received land allotment letters from the Government of Punjab to set up their units with an investment of Rs 500 crore (US$ 82.71 million).

In the twelfth Five Year Plan (2012-17), the Department of Information Technology proposes to strengthen and extend the existing core infrastructure projects to provide more horizontal connectivity, build redundancy connectivity, undertake energy audits of State Data Centers (SDCs) etc. The core infrastructure including fibre optic based connectivity will be leveraged and additional 150,000 Common Service Centres (CSCs) will be setup to create the right Governance and service delivery ecosystem at the Panchayats.

Some of the major initiatives taken by the Government to promote IT and ITeS sector in India are as follows:

• The Government of Bihar has unveiled 20 km free Wi-Fi zone in Patna, the longest across the planet, making a strong impression on the world's infotech map.
• The Government of India has given an in-principle approval for setting up of the first electronic system design and manufacturing (ESDM) cluster development in Electronics City, Bengaluru. The ESDM project will come up on a 1.16 acre of land at an investment of approximately Rs 85 crore (US$ 14.16 million).
• More than 20 small and medium enterprises (SMEs) in the IT sector have recently received land allotment letters from the Government of Punjab to set up their units with an investment of Rs 500 crore (US$ 83.24 million).
• The Government of India is planning to announce a national policy on cloud computing
• The Governments of Maharashtra and Tamil Nadu are in talks with NASSCOM to set up ‘start-up warehouses’ for incubation of start-ups. The centres are expected to come up in Mumbai and Chennai and are likely to be operational by December 2014.

Why is the sector growing?

•  Rapid industrialization and growth of IT parks in the country
•  Partial privatization of telecommunication
•  Development of SEZ; which also help IT companies get tax benefits
•  A large number of resource readily available in the country
•  Low operating costs
•  Tax breaks and sops offered by the government

 Employment Trends

• The IT and ITeS sector has generated massive employment in the past and continues the trend of providing jobs. With online shopping, social media and cloud computing flourishing more than ever before, there is great demand for IT professionals in e-commerce and business to consumer firms.
• With the immense opportunities that the government has to offer to the IT/ITeS companies a number of MNC’s are investing in India. Companies like HCL Technologies, Cognizant Technology Solutions, Tata Consultancy Services, Accenture, Capgemini, Amazon, Delloitte Consultancy and Microsoft Corporation among others are highly investing in Indian lands. Cities like Hyderabad, Trivandrum, Chennai, Delhi-NCR, Bangalore, Mumbai and Pune together are providing jobs to a huge number of people.
• Internet and Mobile Association (IAMAI) reported that the estimated users of internet in India by June 2014 is 243 million and is expected to overtake the USA as the second largest Internet base in the world. In October 2013, India had 20.5 crore and is on a 40 percent growth per year.

Challenges faced by IT Sector

• Expensive & Unskilled Manpower :IT industries have become expensive due to rapid increase in the cost for the manpower. There has been regular increase of salaries by 10-20% every year. This increase in the salaries without correspondent increase in output levels per person is eating into the profit levels of the Indian IT companies.
• Management : Questions are raised about the quality of management in IT sectors due to relatively low levels of skills in manpower and overall business performance. Managers must possess a combination of specific competences and softer skills and attributes to manage and motivate employees.
• Security :The failure to address security problems today is by and large caused by organizational issues, not technological limitation. The major organizational obstacles to an effective security program are- when many companies aren’t even aware of the attack, whether internal or external. Political battles, turf wars etc, destroy the effectiveness of more security programs than the lack of any product or technology.
• Customer service: One of the challenges faced by IT sector in India is to improve customer service by listening to and meeting the client’s need. IT has been suffering from bad reputation when it comes to satisfying customer needs. Many a times, the work is done incorrectly or not upto the customer’s satisfaction and requirements and it is  at the end the customer who ultimately determines what is good and what not.
• Human Resources: There is a high need to develop creative ways to minimize stress, satisfy employee needs, and match corporate needs to employee goals. Being in the developing country, workload is increasing day by day, a relaxing break is must- anything that can give IT professionals a break should be considered to retain valued employees leading towards growth of the nation.
• Others: There are many more challenges which are somewhere the other side, hampering as well as boosting up the spirits of techies. Increasing productivity, Maintaining and accomplishing tasks at a time, managing budgets, creating good public relations/marketing, multinational operations etc, such challenges have been at times difficult to overcome but they have encouraged the IT-techies to work harder and harder to setup and enhance the growth of the country’s IT sector.

Future

As the new scenario unfolds, it is getting clear that the future growth of IT and ITeS will be fuelled by the verticals of climate change, mobile applications, healthcare, energy efficiency and sustainable energy. Traditional business strongholds will make way for new geographies, there would be new customers and more and more of SMEs will go for IT application and services . Innovation needs to be done in three areas that are connected to the information technology industry of India such as business models, ecosystems and knowledge.The Indian information technology industry also needs to co-ordinate with the academic circles as well as other industries in India for better performance and improved productivity..

India is the most preferred location for engineering offshoring; according to a customer poll conducted by Booz and Co. Companies are now off shoring complete product responsibility. Increased focus on R&D by IT firms in India has resulted in rising number of patents filed by them. India’s IT sector is gradually moving from linear models (rising headcount to increase revenue) to non-linear ones. In line with this, IT companies in the country are focusing on new models such as platform-based BPM services and creation of intellectual property.

Tier II and III cities are increasingly gaining traction among IT companies aiming to establish business in India. Cheap labour, affordable real estate, favourable government regulations, tax breaks and special economic zone (SEZ) schemes are facilitating their emergence as new IT destinations.

Indian insurance companies also plan to spend Rs 12,100 crore (US$ 2.01 billion) on IT products and services in 2014, a 12 per cent rise over 2013, according to Gartner. This forecast includes spending by insurers on internal IT (including personnel), software, hardware, external IT services and telecommunications.

Outsourcing

India is a preferred destination for companies looking to offshore their IT and back-office functions. It also retains its low-cost advantage and is a financially attractive location when viewed in combination with the business environment it offers and the availability of skilled people.

Between April 2000 and March 2010, the computer software and hardware sector received cumulative foreign direct investment (FDI) of US$ 9,872.49 million, according to the Department of Industrial Policy and Promotion.

The government has constituted the Technical Advisory Group for Unique Projects (TAGUP) under the chairmanship of Nandan Nilekani. The Group would develop IT infrastructure in five key areas, which includes the New Pension System (NPS) and the Goods and Services Tax (GST)

The government set up the National Taskforce on Information Technology and Software Development with the objective of framing a long term National IT Policy for the country

Enactment of the Information Technology Act, which provides a legal framework to facilitate electronic commerce and electronic transactions

Setting up of Software Technology Parks of India (STPIs) in 1991 for the promotion of software exports from the country, there are currently 51 STPI centres where apart from exemption from customs duty available for capital goods there are also exemptions from service tax, excise duty, and rebate for payment of Central Sales Tax. But the most important incentive available is 100 per cent exemption from Income Tax of export profits, which has been extended till 31st March 2011

Government is also setting up Information Technology Investment Regions (ITIRs). These regions would be endowed with excellent infrastructure and would reap the benefits of co-siting, networking and greater efficiency through use of common infrastructure and support services

Moreover, according to NASSCOM government, IT spend was US$ 3.2 billion in 2009 and is expected to reach US$ 5.4 billion by 2011. Further, according to NASSCOM, there is US$ 9 billion business opportunity in e-governance in India.

Road Ahead

• The Indian information technology sector continues to be one of the sunshine sectors of the Indian economy showing rapid growth and promise.
• According to a report prepared by McKinsey for NASSCOM called 'Perspective 2020: Transform Business, Transform India' released in May 2009, the exports component of the Indian industry is expected to reach US$ 175 billion in revenue by 2020. The domestic component will contribute US$ 50 billion in revenue by 2020. Together, the export and domestic markets are likely to bring in US$ 225 billion in revenue, as new opportunities emerge in areas such as public sector and healthcare and as geographies including Brazil, Russia, China and Japan opt for greater outsourcing.