Cover Story

Published: Dec 29, 2021
Updated: Dec 29, 2021

Boomtime Ahead: IT Cocks Snook At Pandemic

While the Covid pandemic has savaged an Indian economy that was already in the doldrums, it has, rather incredibly, turned into a booster for the country’s Information Technology sector as global and domestic demand for, and expenditure, on online services have skyrocketed. With digital being the new IT mantra, India has become the global sourcing hub, and accounted for more than half of the $ 250 billion global services sourcing business in fiscal 2020. Apart from contributing nearly 8 per cent to the country’s GDP, the $ 192- billion IT industry has also been a huge job creator, adding around 100,000 persons to the country’s workforce every year. According to Fitch Ratings, this year (fiscal 2022) will see the Indian IT industry notch up high singledigit revenue growth on the back of huge deal wins by industry leaders like TCS, HCL and Infosys.

As the Bard of Avon said, ‘blessed are the uses of adversity’. Even as the Indian economy has been battered by the twin forces of an economic slowdown and the Covid19 pandemic 2.0, adversely affecting the pace of growth of GDP, some industrial segments have put up a stimulating performance. Leading this charge in defiance of the coronavirus is the $ 192-billion Indian IT industry (comprising IT, ITeS and BPO services). Interestingly, the deadly virus, instead of being a bane, has turned into a boon for the IT industry on account of the demand for online services and growing digital spends. The pandemic notwithstanding, the industry’s contribution to the country’s GDP speaks for itself – from 1.2 per cent in 1998 to around 8 per cent today with job opportunities to around 4.5 million people.

Even though the coronavirus has hit most countries hard, India’s global sourcing market continues to grow rapidly as compared to the domestic market. In fact, India is today a leading sourcing destination globally, accounting for an approximately 55 per cent marketshare of the $ 250 billion global services sourcing business in fiscal 2020. So much is Indian talent in demand that Indian IT companies have set up over 1,000 global delivery centres in about 80 countries worldwide.

It will not be an exaggeration to say that India has become the digital capabilities hub of the world, with around 75 per cent of global digital talent present in the country.

TECH BANDWAGON

The reasons for the IT industry bucking the Indian economic trend are not hard to see. With innovation being a sine qua non for every industry, technology has now become a basic need for survival and growth of business, and even society at large. With growing competition and changing technologies, the IT industry is entering newer and newer segments. A year ago, Artificial Intelligence, Internet of Things, Virtual Reality, Machine Learning and Deep Learning came on the scene. Experts believe that going ahead, we will see a convergence of these across different applications to create an unimagined future for humans. Maintains an expert, “Every industry will look at innovative ways to use technology to further improve customer experience, reduce the time to market significantly and improve operational efficiency, thereby reducing operating costs.”

Says another expert, “Now, business organisations are heading towards becoming digital companies, enabling their customers to perform most functions on their smartphones or on the web without visiting a shop. This change is the result of technology becoming the core of business. For example, Ola, Amazon and Flipkart are technology businesses. The increasing use of technology by businesses has resulted in the rapid growth of the Indian tech services segment. During the last decade and a half, the industry grew to $ 192 billion from $ 28 billion.”

Despite the headwinds from the overall global slowdown, the Indian IT industry is firmly on the growth path, innovating new concepts, expanding business operations and keeping the country’s flag flying high in the global tech world.

The $ 192-billion Indian IT industry contributes around 7.9 per cent to the country’s GDP. It has emerged as a fabulous job creator, adding around a lakh jobs every year. Today, the country’s highly qualified talent pool of technical graduates is one of the largest in the world, facilitating its emergence as a preferred destination for outsourcing. Computer science accounts for the biggest chunk of India’s fresh engineering talent pool, with more than 98 per cent of engineering colleges offering this stream.

UPSCALING BIZ

Increasing competition, pressure on billing rates of traditional services and increasing commoditisation of lowerend services are among the key reasons forcing the Indian software industry to make a fast move up the software value chain. New digital technologies like social media, mobility, analytics and cloud computing (SMAC) have permanently changed the way Indian IT firms do business. Prospects for the industry going ahead are all the more promising. As the pandemic has accelerated digital IT spends, the demand for this digital transformation will shoot up. Most IT companies have reported robust deal wins that would support faster growth in fiscal 2022. According to Fitch Ratings, a leading global rating agency, during fiscal 2022 the Indian IT industry is expected to return to high single-digit revenue growth. The impact of the pandemic is seen to be only moderate and short-term, as customers focus on transforming their businesses digitally, moving from legacy services.

As the pandemic has led to accelerated digital IT spends, Fitch Ratings points out that most companies have started reporting robust deal wins and this should support growth going ahead. Over a year ago, several IT leaders had entered into mega deals which will lead to revenue and profit visibility for several quarters ahead. Industry leader Tata Consultancy Services had entered into a five-year contract worth $ 600-700 million with General Motors – one of the largest deals for TCS in the automotive vertical. HCL Technologies has renewed its multimillion-dollar IT operations and transformation agreement with oil and gas major Equinor. Besides, it has inked a large deal with speciality steel maker Aperam. Tech Mahindra expanded its strategic collaboration with telecom major AT&T by entering into a multi-year, billion-dollar deal to accelerate AT&T’s IT network applications, shared systems modernisation and movement to the cloud.

Another marquee name, Infosys Technologies, had entered into a $ 2.8 billion deal – its biggest-ever – in Q2 FY20. During the same quarter, Wipro added two $ 5 million customers and three other customers. Larsen & Toubro Infotech has won seven multi-million dollar deals across all major industry segments. Oracle Financial Services Software has entered into a new deal with Palo Alto-based VMware Inc. Oracle will design a system to allow joint customers to move VMware-based computing work to its cloud.

December 2020 has turned out to be an eventual month for the Indian IT sector. During that month Tata Consultancy Services (TCS) expanded its business operations in Austin, Texas, with the construction of a new facility. By 2022, TCS plans to hire an additional 130 new employees in Austin. Over the next seven years, TCS plans to invest more than US$ 100 million in Austin. Again in that month, TCS expanded its strategic partnership with Star Alliance (airline alliance) to provide predictive and real-time business analytics, improve customer experience and accelerate digital transformation. In the same month, Infosys partnered with Rolls-Royce for aerospace engineering in India and Wipro collaborated with Verifone for a multi-year contract to drive agility across its (Verifone) cloud service offerings.

NEW MOMENTUM

The robust deal wave continues this year. As Thierry Delaporte, new CEO of Wipro, points out, at the beginning of fiscal 2022 “the Indian IT sector is witnessing a new wave of business momentum. This momentum is driven by increased focus on digital as enterprises invest in new age technologies such as cloud and accelerate their digital transformation, which has resulted in increased large deals, which have become the order of the day.” For example, Wipro has added 12 large deals with a total contract value of $ 1.4 billion in Q4FY21. TCS clocked deals worth a record $ 9.2 billion in the same quarter and a total of over $ 31.5 billion over the last fiscal. Infosys Technologies won $ 14 billion in total with over 60 per cent in net new deals. HCL Technologies is also on the verge of winning a few robust deals. And this is not all. More opportunities are in store for Indian IT majors after Accenture reported a 1.4 times book-to-bill for outsourcing. To be specific, Accenture reported a $ 6.8 billion book-to-bill for outsourcing while the revenue for the quarter was $ 4.9 billion. (Book-tobill refers to the value of booked orders over revenue in any particular quarter).

During fiscal 2021, when the first wave of the pandemic had hit the country hard, the IT industry gave an excellent account of itself. According to the Nasscom report for FY21, overall IT revenues grew to $ 194 billion while IT exports grew 1.9% to $ 150 billion. Domestic IT demand also saw a 3.4 per cent uptick in demand, led by hardware.

BOOM TIME

According to Nasscom's annual summation report of the Indian IT industry's performance, despite a global pandemic and initial uncertainty, the industry registered an overall growth of 2.3 per cent with revenues growing from $ 190 billion in fiscal 2020 to $ 194 billion in FY21. While IT exports now stand at $ 150 billion compared to $ 147 billion last year, domestic demand also grew from $ 43 billion to $ 45 billion. Out of the total revenues of the industry, the hardware segment led the overall year-on-year growth at 4.1 per cent at $ 16 billion. Indian IT services are now just a billion short of reaching $ 100 billion in size -- growing at 2.7 per cent yoy. The BPM industry also registered a growth of 2.3 per cent, contributing $ 38 billion to overall revenues.

Software products grew 2.7 per cent to reach $ 9 billion. "Not only have we emerged more resilient, more relevant from the crisis, but we have also been the bellwether to lead the fight against Covid, and are playing a crucial role in leading the country to recovery," observes Debjani Ghosh, president, Nasscom.

Standing at 8 per cent of the GDP and with a 52 per cent share in services exports, the IT industry added 138,000 net new hires in fiscal 2021, taking the overall industry workforce to 4.47 million. Digital revenues now form nearly a third of industry revenues at $ 50-53 billion, growing at five times the overall services growth rate. The pandemic year also saw a greater shift (10%) to outcome-based pricing. Offshoring also increased by 4 per cent in 2020 compared to 2019. Attributing increased offshoring to a combination of factors, UB Pravin Rao, chairman of Nasscom, says, "Irrespective of location, we have been able to deliver during the pandemic without a drop in productivity or compromising on quality, which has given confidence to clients." He adds, "The industry has successfully demonstrated remote delivery amid travel restrictions." He further notes that "clients will be much more open to different hybrid models which could potentially result in even higher offshoring."

In the coming year, Nasscom aims to not just prioritise strengthening the talent pool and deepening its engagements with the government to enhance market opportunities, but to also work towards strengthening the adoption of deep-tech. The Indian IT industry is expected to touch the $ 300- 350 billion revenue mark over the next five years, growing at 10% a year. This will mean that the $ 194 billion Indian tech industry will be growing at a much faster clip than the 7.5% growth rate registered over the last five years, according to McKinsey & Company.

IT industry heading for talent war

With newer technologies like Cloud computing, Artificial Intelligence and Machine Learning ruling the roost in the Indian IT industry, the demand for skilled professionals has shot up, outstripping the supply side. The situation has been vitiated by a growing attrition rate. Experts believe that thanks to a sharp spurt in demand for Indian IT services, the requirement for professionals has got a further boost. In these circumstances, a growing attrition rate has further vitiated the environment. The day is not far off when the industry will face a serious internal talent war.

Demand for professionals is on the rise as IT companies have started grabbing big deals. The digital transformation has injected fresh vigour in the industry, pushing up this demand. In fact, the present phase is a golden period for IT employees. As competition is increasing, companies have been resorting to higher wages and liberal bonuses. Job opportunities are also climbing. Over a year ago, the total number of employees had reached the 4.5 million mark. In fiscal 2021, TCS, Infosys and Wipro added 45 per cent more employees as compared to the previous year, and TCS, Infosys, Wipro and HCL Tech together will employ around 1 lakh freshers this year. TCS has said that it will hire 40,000 freshers in FY 2022, taking its overall headcount above 5 lakh. Infosys and HCL have said that they will hire 26,000 and 12,000 more respectively this fiscal. Accenture has over 20,000 vacancies in India for various roles to fill up this year.

ATTRITION CLIMBING

Needless to say, this rising demand for professionals has pushed up the rate of attrition. In the case of a giant company like Infosys, the attrition rate jumped to cross 15 per cent in Q4FY21 (against 10 per cent in the previous quarter) and the management expects this rate to continue.

According to a top official of Accenture, “the company is hiring for in-demand skills in areas such as digital, cloud, security, data and Artificial Intelligence as well as platform and other core skills. We see an increased demand for professionals with Cloud skills, including those required for Cloud migration, native Cloud development and data reengineering, deployment and maintenance across mutli-Cloud environments.” With thousands of jobs up for grabs, the IT sector is bracing for high attrition rates and wage inflation. Now, the key risk for the IT sector is a potential war for talent as companies seek digital talent to grow. Experts maintain that large companies like TCS and Infosys have strong training infrastructure and depth to create a talent pool. They may be able to contain the impact from wage revisions. But mid-tier companies may be vulnerable and will have to face the brunt of the impending talent war. In fact, the rising voluntary attrition rate suggests that a talent war has already started.

DIGITAL POWER

This growth of the Indian IT industry will come primarily on the back of digital services, which currently accounts for 30% of the industry's revenue, but its share is expected to go up to 50% over the next five years to around $ 170- 200 billion.

India is the topmost offshoring destination for IT companies across the world. Having proven its capabilities in delivering both onshore and offshore services to global clients, emerging technologies now offer an entire new gamut of opportunities for top IT firms in India.

Indian IT's core competencies and strengths have attracted significant investments from major countries. Leading Indian IT firms are diversifying their offerings and showcasing leading ideas in blockchain, artificial intelligence, etc., to clients using innovation hubs and R&D centres in order to create differentiated offerings.

According to McKinsey, the industry is expected to grow to $ 350 billion by 2025 and BPM is expected to account for $ 50-55 billion of the total revenues.

Leading IT Companies : Performance Indicators