Factors Driving India’s Potential As A Global Hub For IT Services: Opportunities And Challenges

An enduring image of India is parts of the rocket for the country’s first sounding rocket launch in 1963 being transported to the launch site on bicycles. From that contrasting image to becoming the first country to land a satellite, Chandrayaan-3, near the moon’s South Pole, India’s space exploration journey has been a huge success. A similar journey has been India’s journey to become a global hub for IT services.

India’s IT Boom Journey

It was in 1973-74 that the first software, an inventory control software solution, was exported from India by Tata Consulting Services (TCS). TCS also developed a hospital information system in UK along with Burroughs Corporation, the second-largest hardware company in the world at the time. TCS became a role model for other Indian IT companies to follow in the 1980s. The early 1980s saw 30 companies beginning to export software with India as the only developing nation with significant software exports. The main competitive advantage for Indian companies then was the cost, value proposition and the ability to communicate in English.

The industry then began to grow by leaps and bounds with the advent of personal computers, the beginning of IT courses and computer training by institutes such as NIIT, and IT companies like Infosys, Mastek and Polaris being set up. Indian IT services began to move up the value chain from mere supply of programming services to design/analysis services to complete turnkey projects.  The 'Y2K problem', the Internet-Telecom boom and the Dot.com boom followed in quick succession and led to the Indian software industry growing to an all-time high. Since then, there has been no looking back. The last two decades have seen an intense rise in digitalisation, increasing the demand manifold. Developments in AI/ML and IoT have set the IT industry on the runway to growth.

India as a Global Hub for IT Services

Today, India is one of the largest exporters of IT and BPO services to the world, with IT and BPO services constituting the largest share, over 60%, of India’s service exports.  In the last fiscal (2023-24), India exported software services, including those by foreign affiliates of Indian companies, of $205.2 billion, a far cry from the $4.4 million in 1979! With a technology sector that contributed a relative share to India’s GDP of around 7% in 2023-24, India has emerged as a formidable global hub for Information Technology (IT) services.

With its vast talent pool, supportive government policies, and robust digital infrastructure, India is on track to maintain its dominance in IT and IT-enabled services (ITES). The increased adoption of innovative technologies in sectors such as healthcare, education, and agriculture will give a push to the sector as also the launch of next-gen communication technologies like 6G and satellite hi-speed internet. Over the next two decades, as India moves towards its aim of “Viksit Bharat” by 2047, solidifying its position as a global hub for technology and innovation, it will require an increasing focus on transformational and expertise-driven services to continue this accelerated growth of the Indian IT services sector. What are the opportunities and challenges that can impact this?

A Growing Talent Pool

India’s demographic dividend with 59% of the population of working age in 2041 is a big advantage. 25% is in the 20-34 age group. This large working population is a huge economic advantage that can be leveraged to fuel growth in the IT and software industry. At present, India has around 5.4 million people working in the tech sector of whom 2 million are digitally skilled. In addition, there are over 2 million STEM graduates joining the talent pool every year. This vast pool of skilled and readily available tech talent, particularly in areas like software development, data analysis, and digital services is what will enable us to cater to global digital and IT demands.

However, the challenge is the increasing requirement for skilled professionals with advanced skills and expertise in emerging technologies like AI, cloud computing, and data analytics to cater to the new economy and Industry 4.0. This will need increased investment in education and training, and a focus on research and development to ensure the workforce has the necessary technical skills and expertise to meet industry demands.

A Mature and Diverse Tech Ecosystem

India's IT services have evolved from traditional BPO offerings to high-end services like engineering, research, and development (ER&D), consulting, and product design for Industry 4.0. The industry is also witnessing a rise in Software-as-a-Service (SaaS) and platform-based business models. Contributing to this growth is the strength and diversity of the tech ecosystem. India has the third-largest tech ecosystem with over 31,000 active tech start-ups. It is ranked fourth globally for R&D with an eight-fold growth in number of patents granted between 2014-15 to 2023-24.

However, the challenge is to build and sustain the pipeline which will require innovative strategies to continuously adapt to optimise value delivery and maintain operational efficiency despite increasing costs. One will also have to create an enduring talent advantage with innovation and enhanced value focus.

Digital Infrastructure and Government Initiatives

Government’s initiatives like Software Technology parks of India (STPI) Scheme, Digital India, the India Stack, and robust policies on 5G adoption have been instrumental in creating a conducive environment for IT services. The government is also supporting start-ups through Startup India Seed Fund Scheme, India BPO Promotion Scheme, North East BPO Promotion Scheme, etc. Moreover, the rise of smart cities and tier-2 technology hubs is helping to decentralize IT operations and expand opportunities across the country.

Emerging Technologies

The global market for emerging technologies in AI, IoT, and quantum computing is expanding rapidly, presenting Indian IT firms with opportunities to innovate and lead. Developments in AI technologies are creating demand for powerful and scalable computing capabilities and massive storage and computing resources. This will create a boom in the need for cloud services and data centres and also generate huge employment opportunities.

The global focus on sustainability is also opening avenues for India to lead in green IT solutions targeting energy efficiency in data centres and sustainable hardware development. This is giving opportunities to become a leader in environmentally conscious technology solutions.

Rising Challenges

Rising protectionism and geopolitical tensions, such as those between the US and China, may affect outsourcing trends. Diversification of markets will be key to mitigating these risks. India must also brace and prepare from increasing competition from countries like the Philippines, Vietnam, and Eastern European nations, who are emerging as strong contenders for IT outsourcing, driven by similar cost advantages and focused investments. Ensuring compliance with global data protection norms will be mandatory with companies requiring to align themselves with regulations like GDPR and India’s Personal Data Protection Bill.

The country’s roadmap towards becoming the “Digital Talent Nation” and contributing to the target of Viksit Bharat by 2047 is not just an opportunity for economic growth but also a blueprint for global leadership in IT services. By addressing challenges like skill gaps, infrastructure bottlenecks, and global competition, India can sustain its leadership and explore new frontiers in technology innovation! The time to begin is NOW!
 

(The article above has been exclusively for BW People publication by Sandeep Kumar Jain, Managing Director, CDK Global)