ack in 1974, Tata Consultancy Services created the first ripple in the Indian IT industry. The project was small - to export programmers to the USA for systems software installation for Burroughs, a mainframe manufacturer. That first step snowballed into a full-fledged IT industry in the next 30 years, bolstering the Indian economy growth wave and helping India cement its status as the world's biggest IT services exporter.
But this transformation, from an ascent project into India's most in-demand sector was not free of its challenges. For starters, the Indian government, back in the 70s, wasn't very supportive of the software industry. It wasn't even recognised as an industry, rendering software companies ineligible for loans, grants, and subsidies. The license raj shackled this sector with import tariffs bordering on 135%.
It was Rajiv Gandhi, the incumbent Prime Minister of the country, who finally delicensed the sector in 1984 under his New Computer Policy. Tariffs were slashed, grants distributed, and infrastructure was provided to support the fast-growing sector.
The last domino to fall was the liberalisation of the economy. With the license raj over, the industry flourished, multiplying in value within just a few years. From a measly $150 million in 1991, the IT sector grew at an average of over 30% every year to touch $5.7 billion in the year 2000.
Some other crucial factors that boosted the industry was rapidly growing global demand for cheap software, an expanding body of talented software engineers in the country, and ongoing government support in the form of IT parks, subsidies, tax breaks, and business-conducive laws.
While Bangalore is the hub of IndianIT, centres have also developed in Mumbai, Pune, Chennai, Delhi, Gurgaon, Noida, and Hyderabad.
- Bangalore - Also known as the Silicon Valley of India, it has the highest concentration of software companies as well as startups in India.
- Hyderabad - Cyberabad in Hyderabad is the second largest IT export hub in India. Microsoft built its first Indian R&D centre here.
- Chennai - Due to extensive government infrastructural support, Chennai has become the dark horse leader of the Indian IT scenario.
- Mumbai - The most populated city of India, Mumbai, is home to notable IT services companies such as TCS, Mastek, and 3i Infotech.
- Delhi NCR - Companies such as Infosys, Mphasis, Accenture, Cognizant, Oracle, SAP, and HCL are headquartered here.
- Pune - Pune houses India's biggest IT park, the Rajiv Gandhi IT Park, amongst several other dedicated tech regions such as Magarpatta, Hinjewadi, and Business Bay.
How big is the IT sector today?
The global IT sector is on pace to touch $5.2 trillion in revenue this year. It's estimated to expand at a healthy 3.7% annual rate. America and Canada combined, constitute 34% of the total $5.2 trillion industry. Europe and China take up 23% and 14% respectively. India, on the other hand, is responsible for barely 1% of the total industry revenue.
While India is much smaller in size, at $191 billion, it is growing at double the international industry pace. Housing around 75% of the global digital talent, India possesses the potential to outperform market leaders such as the USA and the EU, by 2050. Conservative estimates suggest that the Indian IT sector will balloon to $350 billion by 2025 itself.
India also continues to be the leading destination for software outsourcing, accounting for nearly 55% of the $250 billion pie.
In terms of employment, India has generated a total of 4.36 million jobs in the IT sector, with a million being employed by the top four IT companies alone. Every year, hundreds of thousands of software grads are hired and absorbed into the industry from a pool of over 1.5 million engineers that graduate from India's 8000+ engineering colleges every year.
India's biggest companies shaping the IT landscape
During the early boom in the 1990s, several software firms were instituted. While most of them didn't survive the dot com bubble burst, a few turned against the tide. These five companies, namely, Tata Consultancy Services, Infosys, Wipro, HCL, and Tech Mahindra are not only leading India's charge but also competing head to head with theWestern giants. In fact, TCS recently became the world's most valuable IT services company, beating Accenture to the crown.
- TCS - Currently valued at $144.73 billion and employing over 400,000 people across 46 countries, TCS is by far India's biggest IT giant. Incorporated in 1968, TCS was India's first IT company. Under the banner of the Tata conglomerate, TCS has grown into a global corporation with offices in 149 locations. It provides a wide range of products and services in application development, business process outsourcing, capacity planning, consulting, enterprise software, hardware sizing, payment processing, software management, and technology education.
- Infosys - Headquartered in Bangalore, Infosys was founded by Narayan Murthy and 6 other engineers in 1981. It was one of the first Indian IT companies to go public on the share market. Today, it is valued at over $40 billion and employs more than 240,000 people in its ranks. It is also a market leader in investments in new technology. Its R&D centres have been developing new AI, ML, and NLP solutions to service the new market requirements.
- Wipro - Wipro was started as a consumer products company back in 1945. It was under Azim Premji's leadership that the company pivoted into software development and IT services. Since then, it has grown rapidly into India's third-largest IT company. With revenues exceeding $9 billion, Wipro now employs 175,000+ people in every continent (except Antarctica, of course). It has invested heavily in data science and analytics, ML, and blockchain technologies to help steer the company towards future growth.
- HCL Technologies - HCL is a consulting and servicing company with footprints in BPO, software development management, and hardware. It currently services half the Fortune 500 companies and 600 of the top 2000 companies globally. It is headquartered in Noida but operates a vast network of delivery centres and R&D labs in over 44 countries. With over 147,000 employees, HCL is valued at $19.6 billion.
- Tech Mahindra - Instituted as a subsidiary under the banner of the Mahindra group, this company saw its fortunes turn upwards from the year 2000. Tech Mahindra employs over 125,000 people across 90 countries. With a market cap of $11 billion, it ranks 47 in the Fortune India 500 list. It specialises in IT outsourcing, software maintenance, and engineering design.
How do foreign IT firms in India compare?
India's lucrative labor force, developed infrastructure, and the burgeoning market has enticed several foreign players to set up offices in the country. From IBM and Capgemini to Cognizant and Oracle, many multinationals have steered their way towards Indian shores. Here is a list of the top foreign IT firms with a significant presence in theIndian subcontinent.
- IBM India - IBM India operates as an independent subsidiary of IBM and comes under the banner of IBM global services. It has a 140,000 strong workforce in the country with over eleven offices. IBM has invested billions of dollars ($6 billion coming in 2010-13) into creating the infrastructure necessary to sustain its long term plans for the country. In 2010, $35 billion of IBM's $120 billion revenue came from India alone.
- Cognizant - It began as part of its parent company Dun and Bradstreet's tech unit before spinning off and headquartering in the United States. It has since expanded into a Fortune 500 company. Cognizant boasts of a wide presence pan-India with over 10 offices and 150,000 employees.
- Oracle Financial Services - Unlike the other IT giants mentioned here, Oracle focuses only on the banking sector with its solutions. It works under the banner of Oracle Corporation headquartered in India. It generated $630 million in revenue in 2018. During the same year, its employee base in India was 8,800 strong.
- Accenture - The second-largest IT service provider in the world recently lost its top throne to TCS. It has 150,000 employees in Indian offices. Even though it has its headquarters in Ireland, its Indian offices generate a large chunk of its global $45 billion revenue. It has three primary operational verticals - strategy, consulting, and digital.
While the end goals of both, the Indian IT firms and the foreign IT firms, are the same, there is a cultural difference that separates them. According to Glassdoor, employees rated Accenture better for career opportunities, compensation and benefits, and senior management. While TCS got a better rating for work-life balance and culture. This difference stems from the ideological bedrock of two different companies. Accenture tends to be more employee-centric while TCS prefers a goal-focused culture. The starting pay for a trainee is the same in both the companies. But Accenture provides more opportunities for growth within the company.
Glassdoor also revealed that Accenture (3.9 stars) , IBM (3.9 stars), and Capgemini (3.9 stars) rank ahead of TCS (3.8 stars) and HCL (3.5 stars) in employee ratings. Along the same lines, Indeed ranked IBM ranks five positions ahead of TCS on the list of the best tech companies to work for in India.
Employees continue to prefer foreign IT companies over the Indian giants due to the cultural differences and growth opportunities. On the Indian tech side, TCS has the highest employer branding, followed by HCL and Wipro.
Future trends and challenges for the Indian IT sector
The sector is fraught with challenges amplified by the impact of Covid-19. Credit rating agency ICRA reported that the industry was expected to grow at a pace of 3% compared to an earlier estimate of 6-8%. This slowdown can result in a lack of employment for new graduates as companies reduce their overall employee intake. Moreover, this industry, which accounts for nearly 10% of the Indian GDP, will reduce the economic growth rate of the country.
The pandemic has led to declines in IT and digital spending from companies, especially in the tourism, hospitality, and the aviation sector. Sectors with a more positive outlook are shoring up their savings and delaying any pending IT projects. On the domestic front, the pandemic has simply exacerbated the economic downturn in India. Add to it the development of new technologies such as blockchain, IoT, and AI that are yet to become commonplace in India and you have the perfect recipe for a negative financial outlook for the IT industry.
But all is not lost. The domestic IT market might not have as many opportunities but global outsourcing needs are going to rise once the lockdown is lifted. Even the government has taken multiple steps to promote this sector. The central government has identified 12 ITES (InformationTechnology Enabled Services) fields that will shape the future and created a special fund for them. These fields encompass AI, VR, cloud computing, blockchain, and IoT. Companies that can pivot and expand into these new technologies will continue to grow.
The Indian IT sector has been the golden child of the economy for several decades. Affordable labor, talented engineers, readymade infrastructure, and high global demand have helped this sector develop into the world's largest software outsourcing industry. Companies such as Infosys and TCS continue to dominate the market but thousands of new startups and SMEs have also sprung up, supported by government policies. As long as these companies can revamp their product and service offerings to cater to demands in new technologies, India will continue to dominate this industry.