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IT industry has built new pillars for future growth

By Ganesh Natarajan

Predicting the Indian IT outlook for 2019 in this column a year ago, I had written that the industry would continue to grow by converting digital challenges for customers into revenue opportunities and areas such as offshore engineering services and product development would continue to grow while traditional application and infrastructure support, once the mainstay of Indian companies' revenues, would be static with automation chipping away at manpower needs. Our industry CEOs have not only withstood the global economic turbulence, they have grown their companies near double digits in spite of all the odds. We have built new pillars for future growth and we can see a great "Vision 2020" for our industry.

I am confidently predicting a return to double digit growth for three reasons-the ongoing success of the sector, particularly business process management (BPM) and re-engineering specialists in digital transformation, rapid expansion for global captive centres in India and the accelerating growth of deep tech and business to business entrepreneurial firms. Let's look at real data to support this hypothesis. To take the global companies first, we are seeing major capacity increases in product development, engineering, tech support and offshore processing work in all the seven IT cities of the country. The delight of global CEOs and CIOs at the calibre of talent in India continues although there are some concerns that real design and architecture skills are still in scarcity in India.

The traditional service providers, led by TCS in IT, WNS in BPM and Cyient in engineering, are making steady progress. Annual contract value growth in IT services, led by software and infrastructure as a service) deals has grown at over 20% in 2019 over 2018, with telecom and media spends growing fastest at nearly 35%, while financial services remain the biggest spender. In the most recent quarter, the digital deals were nearly 48% of all deals, up ten percentage points from 2018. While the overall outsourcing business is growing annually at just under 9%, the BPM industry has reported growth which is double that, with healthcare becoming one of the fastest growing segments. With TCS taking the lead in refusing to call out digital numbers, one can expect that digital platforms and processes and "everything as a service" will rule the roost in 2020 and continue to drive greater opportunities and higher growth.

While all this optimism from global and Indian industry about the usage of Indian facilities and people can push growth in 2020 in double digits, the real kicker is the coming of age of B2B and deep tech startups. Nasscom reports that the number of billion-dollar valuation unicorns has reached 24 with 57% of the 2019 success stories coming from nascent areas and 71% focused on B2B solutions. Our own B2B investees at 5F World -Skills Alpha, Farm Guru and Yoryo-have shown growth in revenues and profitable deals coming in every quarter, a sure sign that entrepreneurs are hitting a rich vein of success. Nasscom's strong focus on Future Skills and Deep Tech has been commendable, with the number of entrepreneurial firms growing 33% in 2019 to touch 1600 firms, serving the economy through value propositions in precision agriculture, precision diagnostics, aerial mapping, fraud detection and digital twinning for smart manufacturing.

Opportunities in the country are expanding, the recently announced Centre of Excellence for Autonomous and Electric Vehicles and the Software Technology Parks of India being an example. As the economy pivots towards smart cities, smart transportation, smart agriculture and smart healthcare, there will be opportunities to build companies of stature and scale and in the next 10 years; these can be expected to contribute half the market value and at least 10% of the revenues of the industry. There is a need for aggressive ecosystem development with active participation of new investors and corporate support, but we are well on our way.

Expect 2020 to be a new year of hope, new promise and demonstrated success for the Indian industry! Our time has surely come to show the world the new capabilities that the Indian firms have built and become true partners to global firms in all continents!

The author is Founder and chairman of 5F World and a keen investor in the digital ecosystem in India