Indian IT too big to grow? No, say analysts

CHENNAI: Indian IT industry growth rate is no longer the same. In its heydays of 2002-06 it grew by about 35% which then slowed down to 25% in the period 2007-10. The growth has further gone down to 17% in the period 2010-13 which led many analysts to say that it might be difficult to achieve double digit growth given the huge, and growing, size of the industry. However, industry data shows that off-shoring is still strong and higher revenue base need not necessarily lead to single digit growth, as has been demonstrated by large outsourcing companies like Accenture.

"Indian IT industry has grown in spite of global challenges. It's average rate of growth is higher than that of Indian and world economy," said Kumar Parakala, EMA head of management consulting, KPMG.

According to Ankita Somani, IT analyst at Angel Broking, said that "while global IT spend is currently growing at 3%-4%, the Indian IT revenues are growing at around 9%. The compound annual growth rate (CAGR) has also been 16% which is twice the global average". She also said that larger firms like Tata Consultancy Services (TCS), Infosys and Cognizant are in a position to grow faster than the rest in the industry. In fact, top 5 firms in India (including Cognizant) grew by 22% CAGR. Analysts at Citigroup said that one of the reasons behind this faster growth is the continuing contraction of deal size and duration. As per ISG Outsourcing Index, average contract durations have gone from around 6.4 years in 1999-2000 to around 4.8 years in first half. "This has resulted in a broader shift in the market towards smaller contract sizes - the sweet spot for Indian IT companies," said Citigroup analysts.

The strong growth in off-shoring also tells that its demand continues to remain strong. Capgemini recently announced that it intends to increase offshore headcount by around 18% CAGR over the next 3 years to take it up to around 70,000 employees. Accenture's offshore presence has now increased to 65% and IBM is also expanding. All the three have strong presence in India as an off-shoring destination. "IBM has more than a lakh employees in India. The cost per employee in say, Bangalore and Pune, is still lower than competing global centres like Philippines and China when it comes to IT services," said Somani.

In the last six years, Indian IT's share of global tech spend has grown from 7.7% to 14.3% as per a report by Angel Broking. With the growing size, however, the growth rates have also come down.