How Indian IT sector has moved from strength to strength

The Nasscom Strategic Review 2022 report has thrown up two interesting statistics about the Indian IT sector, clearly indicating its robustness and the immense contribution it has made to the country’s economy.

First, the sector is expected to grow over 15 per cent in FY22, which is nearly twice the projected national GDP growth of 9.2 per cent during the same period. The industry’s revenue is expected to cross $227 billion in FY22. Second, the industry, which currently employs over 50 lakh people, is set to add over 3.5 lakh more in FY22.

Also read: India’s GDP likely to grow at 5.8% in Q3 of FY22: SBI report

The IT sector’s exports are 51 per cent of the overall services exports of the country, which means this industry alone exports more services than the rest of the other sectors combined.

Working around COVID

Nasscom, an industry lobby group, releases a report on the health of the IT industry every year, and the latest one shows how the sector has managed to perform beyond expectations. When COVID hit the country, it was expected that the IT industry would be one of the first to go down as clients started reducing their budgets. On the other hand, most of the clients found a way to deal with the crisis by moving their businesses to digital. And they found the Indian IT sector willing to help them in this transformational journey.

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Over the past five years, the Indian IT sector has built enough capabilities on the digital front to become the right partners for its international clients. While the big three — TCS, Infosys and Wipro — did not have much exposure to the digital business, they had enough resources to scale it up faster than the others, when the need arose.

On the other hand, the mid-level IT companies were nimble enough to easily scale up their digital businesses, thanks to their smaller size. For example, Bengaluru-based Happiest Minds, a much smaller company than even the mid-sized Mindtree, was set up over 10 years ago basically to cater to a client who was going digital. Today, over 90 per cent of its revenues comes from digital.

The success of the industry stems from the fact that almost every IT company has been able to quickly transform its operations and bring in resources to help its clients in their transformational journeys. Take the case of Infosys, whose revenues from digital were much smaller pre-pandemic; today, the same have crossed the 50 per cent mark. It is pretty obvious that the clients have recognised the value that the Indian IT sector brings to the table.

Start-up boost

But digital revenues are not the only growth drivers for the IT industry. The country’s start-ups, which offer services ranging from booking cabs to delivering food at the doorstep, are fully tech-driven. Entities such as ride-hailing app Ola would rather call themselves technology companies, though their actual services are non-IT. Ola has now entered electric two-wheeler manufacture, and its vehicles have more tech parts than mechanical ones.

These tech start-ups have seen an unprecedented increase in funding, with several of them turning into unicorns (those with a valuation of over $1 billion) within a couple of years of their launch. As of now, India is the third-largest tech start-up country in the world after the US and China.

Nasscom Chairperson Rekha M Menon, during the launch of the report, said she believes that the sector has entered a new era of exponential transformation and this will create massive opportunities, both for the industry and the country.

However, the issue is how long the Indian IT sector will be able to sustain such growth. The 15-20 per cent growth seen now needs far more than one lever to drive rates. There have also been downsides to the huge growth rate the sector has witnessed of late.

The attrition challenge

Once the clients start scaling up the non-digital side of their businesses as the economy opens up, the growth rates are bound to get impacted.  Another issue that is impacting the industry in a big way is the high attribution rate of 20-25 per cent. To handle this crisis, several IT companies have started giving increments almost every quarter, while others are offering big bucks to lure talent from outside.

This is unsustainable in the long run because the industry has largely been built on the back of low manpower costs with no loss in quality of service. Any shift in that balance can result in a situation where the companies may no longer be in demand. The survivors will be a handful of companies that are able to attract talent based on the strength of their brands, and the opportunity they offer in terms of a multitude of clients.