INDIAN SOFTWARE INDUSTRY

Technology import policy of India

Period of liberalization until mid sixties. Period of tight regulations from then until the end of seventies. Period of relaxation of regulations from then until the end of eighties. Regulations were then relaxed and the policy became once again liberal.

Industrial policy resolutions

1.

Government of India adopted Industrial Policy Resolution Act. (April 1948)

Private sector development of Industry. Reserve for development of exclusive industries in public sector. (The manufacture of equipment viz telephones, telegraph
and wireless apparatus excluding radio receiver sets one of the six major areas of industrial activities so reserved)

2.

3.

The Industries (Development and Regulation Act of 1951) In 1956 Parliament adopted Industrial Policy Resolution (IPR 56).

Industrial policy resolutions

4. The Monopolies and Trade Restrictive Practices Act (MRTP Act) 1969.
(The industrial groups with assets of Rs 200 million and above would be allowed to undertake activity only in specific group of industries)

5.

The Foreign Exchange and Regulation Act. (FERA) 1973.

(Restricts the Indian activities of the companies having more than 40% foreign equity to the same group of industries as the MRTP houses. Net payment in foreign exchange increased from Rs 412 million in 1977-78 to Rs 1848 million in 1980-81)

Industrial policy resolutions

6. Industrial policy as a whole was reviewed in 1973, 1977 and 1981
(Industries with the investment of Rs 50 million now dont need the license if their annual requirement of imported raw material does not exceed four million rupees or 15% of the production whichever is less.)

7.
8.

In 1983 government announced certain special tariff and tax concessions for the electronics industry. In March 1984, the IPR 56 was amended.
(The manufacture of Telecommunication equipments such as private automatic branch exchange (PABXs), telephone instruments, teleprinters and data communication equipments for installation. Also jointly with the public sector with 5% investment by the government the private sectors now manufacture switching and transmission equipments).

Why liberalization in 1991

Indias economy grew at the rate of about 5% during 1980s. Domestic inflation gone up to 17% in 1991. Foreign exchange reserves reduced to $ 1.2 billion barely sufficient to pay for two weeks imports. Central government fiscal deficit as a percentage of GDP touched the all time high of 8.4%. Current account deficit widened to $ 8 billion (2.6% of GDP)

Policy changes since 1991

Drastically reduced number of industries reserved for public sector. Abolished industrial licensing except for a short list of industries related to security and strategic concerns, hazardous chemicals. The restrictions imposed by MRTP Act on large firms expansion, merger, amalgamation and take over etc..have been abolished.

Government Incentives
Telecom sector deregulation Sector deregulated in the mid and late 1990s to allow private sector and MNC participation Regulatory reform to allow adoption of new technologies Enable benefits of free market competition Improved service quality and declining tariffs

ECONOMIC LIBERALISATION - 1991 ONWARDS

New measures introduced were:
Virtual abolition of industrial licensing, The dilution of MRTP Act w.r.t. expansions/mergers Relaxation of FERA on foreign companies holding a majority stake in certain Indian operations Abolition of import licenses Lowering of customs duties.

Software exports were also aided by

Decline in disputes over intellectual property rights Lessening of complaints from the international s/w industry Lessening of export of certain technologies after Cold War ended

MAIN FEATURES
INFO INFRASTRUCTURE DRIVE

No license fees for ISP for first 5 years

Promotion of Hi-Tech Habitats Export shipment time for air cargo will be reduced to less than 24 hours FINANCIAL SOPS IT Software shall be entitled for zero customs duty and zero excise duty The definition of software and export turnover changed so as to include IT services exports to get Tax Exemption under Section 80 HHE of the IT Act

 FINANCIAL SOPS (Contd... )

MAIN FEATURES

Banks to give 25 percent of the contract value for 18 months

with the first six months as term loan (without collateral's) From the 7th month onwards annualised Cash Flow Statements shall be accepted instead of collateral's.

IT software and services industry shall be treated as a Priority Sector by banks for period of five years Working Capital amount increased from 400 Crores to 1200 Crores Banks shall be allowed to participate in Venture Capital funds Banks shall setup JVs for setting up of at least four different venture capital of a corpus not less than Rs. 50 crores

MAIN FEATURES
GLOBAL THRUST
A blanket approval for acquisition of software/IT companies across the board for software exporters Combating Visa regulations of the recipient countries through a planned diplomatic strategy Enabling Indian Marketing companies to set up wholesale companies abroad. 'India Pavilions' shall be set up in several major IT exhibitions 'Mega Web sites' shall be created on INTERNET for promoting marketing

MAIN FEATURES
MANPOWER ISSUES
The seven national level institutions (IITs, IISc.) shall be encouraged to triple their output of students in IT IT Course Module shall be made a compulsory component of all Degree Courses

The setting up of Indian Institutes of Information Technology (IIIT) shall be implemented with urgency
Promote pairing of our Universities with centres of excellence in IT in developed countries Specific courses in association with the Software Industry and top management institutes to provide Project Management skills and Software Marketing

India: Flagship IT Outsourcing

Size of circle indicates quantity of knowledge workers

Location Attractiveness Infrastructure - Communications - Other basic infrastructure Country risks/FDI incentives - Attractive incentives - Political Environment Time Zone attractiveness

High
Ireland Singapore Australia UK

India
China

Philippines Mexico

Low Low
People Attractiveness Quality Cost Type of skills English Language

High

Source: McKinsey

LOW END AND LOW RISK JOB

Japanese IT services market at USD 108 Bn is the second largest in the world. Indias share in the market is between USD 1 to 1.5 Bn Offshoring is limited to 8-10% of the total market China is the biggest offshoring partner

Size of the offshoring market

WHY INDIA ???

India Outsourcing Value Proposition

40-60% cost reduction for offshored process Labor cost arbitrage, the reason for cost savings, likely to exist for the next 20-30 years Established methodologies and processes Well defined quantifiable quality and process metrics Qualified skill pool ISO9001, Six Sigma

Indias Value Proposition

IT Optimization Faster turnaround time Time zone difference 24 x 7 service Learning effect/ specialization

Ease of ramp-up & down to reflect business volumes Flexible, resultsdriven engagement models

Cost, quality and productivity gains are driving the offshoring wave to India

INDIAN SOFTWARE INDUSTRY

NASSCOM

STPI

STPI

Q3 AND Q4 FORECAST : FY 10-11

FICCI : EXECUTICE SUMMARY

FICCI : EXECUTICE SUMMARY

NASSCOMs strategic review 2011

IT-BPO industry registered a growth of 19.2 per cent in FY2011. Exports estimated to grow by about 18.5 per cent in FY2011 and reach USD 59 billion Domestic segment (including hardware), grew by 21 per cent in FY2011, to reach USD 28.8 billion.

GLOBAL SOURCING TRENDS

Worldwide technology products and related services spend is estimated to

cross USD 1.6 trillion in 2008, a growth of 5.6 per cent over 2007.
Worldwide BPO spending in 2008 grew by 12 per cent, which was the highest among all the segments. BPO today is an integral part of the global delivery chain and is increasingly involved in mission critical applications.

Global sourcing market size has increased threefold since 2004, to reach USD
89-93 billion in 2008. Offshore IT-BPO service providers continued to build their global delivery footprint, expanding service lines and also growing inorganically by acquiring

firms in the US and Europe to build skills and nearshore delivery

capabilities. Therefore, though the established players dominated the market, Indian heritage service providers gained ground and market share.

IT-BPO SECTOR-OVERVIEW
Total IT-BPO industry to reach USD 71.7 billion accounting for 5.8% of Indias GDP; software and services revenues aggregated to about USD 60 billion

Software and Services export revenues estimated to grow over 16-17% to reach USD 47 billion
Direct employment expected to reach nearly 2.23 million, an addition of 226,000 employees, while indirect job creation estimated at ~8 million

Indias fundamental advantagesabundant talent and costare sustainable over the long term. With a young demographic profile and over 3.5 million graduates and postgraduates that are added annually to the talent base, no other country offers a similar mix and scale of human resources
Seven Indian cities account for 95 per cent of export revenues, focus on developing 43 new locations to emerge as IT-BPO hubs Higher growth in European/Asian market

IT SERVICES
IT Services involves a full range of engagement types that include consulting, systems integration, IT outsourcing/managed services/hosting services, training and support/maintenance. IT services (excluding BPO, Engineering Services, R&D and Software products), contributing to 57 per cent of the total software and services exports, remains the dominant segment and is estimated at USD 26.9 billion, a growth of nearly 16.5 per cent in FY2009. Domestic IT services spends grew at over 43 per cent in FY2008, showing strong signs of increasing sophistication as building enterprise IT infrastructures and applications, networking and communication became key priorities for India Inc.

ENGINEERING SERVICES, R&D AND SOFTWARE PRODUCTS

The engineering, R&D, and software products exports segment is expected to grow by 14.4 per cent in the current fiscal, to touch USD 7.3 billion, which highlights the strong impetus and renewed focus on improving IP driven service capabilities in India. Indian software product companies revenues are expected to account for 21 per cent of total software product revenues in FY2009, up from 20.6 per cent in FY2008. The market is expected to grow exponentially driven by an increasing number of start-up software product businesses as well as a rapid growth of existing businesses.

BPO MARKET
BPO services exports, up 18 per cent, was the fastest growing segment across software and services exports driven by scale as well as scope. BPO service portfolio was strengthened by vertical specialization and global delivery capabilities. Emergence of domestic BPO is the key highlight for FY2009 recording a growth of above 40 per cent in INR terms. The growth is led by the BFSI, Telecom and Airline industries and a greater vendor focus with specific service offering Horizontal BPO, accounting for more than 80 per cent of Indian BPO exports, represents the larger and relatively more established set of services being delivered from India Other aspects of Indian BPO, besides the growing breadth and depth of the service portfolio, that reflect its increasing maturity include the increasing global delivery footprint and continuous emphasis on enhancing service delivery efficiency and productivity.

HARDWARE MARKET
Despite the declining trends in pricing observed across key categories, increasing volumes have ensured that the domestic hardware revenue aggregate continues to grow. While hardware exports remained steady, domestic hardware segment remains the largest segment to grow at 17 per cent in INR terms during FY 2009. PC adoption is growing at more than 30 per cent incase of SMBs

INDIANS IT-BPO VALUE PROPOSITION

Strong fundamentals, a robust enabling environment, and enhanced value delivery capability are the hallmarks of the Indian IT-BPO industry. India enjoys a cost advantage of around 60-70 per cent as compared to source markets. Additional productivity improvements and the development of tier 2/3 cities as future delivery centres, is expected to enhance Indias cost competitiveness. Timely government policies and increased public-private participation have played a key role in developing an enabling business environment for the Indian IT-BPO industry. The Governments focus on education has helped create the large talent base from where the industry draws its workforce. The Governments proactive approach towards the IT-BPO industry was further highlighted in 2008 through actions such as the IT Act Amendment, extension of tax incentives by a year, removal of the SEZ Act anomalies and the introduction of progressive telecom policies that focus on work from home. Indian companies are now trying to adopt a culture that encourages innovation, embrace new trends such as Green IT, and deliver solutions that are focused on re-engineering and transformation. India is emerging as a leading Innovation hub with increasing number of patents being filed and granted from India The silver lining of the economic downturn is the opportunity for the industry to enhance its overall efficiency. Companies are increasingly looking inwards and focusing on process benchmarking, enhanced utilization of infrastructure and talent, increasing productivity and greater customer engagement.

FUTURE OUTLOOK
Despite the unprecedented economic downturn the industry will witness sustainable growth The global technology related spending is expected to grow from 2010 onwards led by growth in outsourcing adoption. Greater focus on cost and operational efficiencies in the recessionary environment is expected to enhance global sourcing India Inc would remain focused on tactical measures to achieve cost savings and greater productivity Services and software segments are estimated to cross USD 1.2 trillion by 2012. This is more than the 5.2 per cent growth expected in the total IT spending The huge potential for global sourcing is further highlighted by an addressable market size of USD 500 billion in 2008, which is more than five times bigger than the current market The industry will continue to diversify in terms of geographies, verticals and service lines SMBs are expected to emerge as a significant opportunity due to lower IT adoption currently Lack of working age population in the developed economies and a significant long term cost arbitrage indicates Indias sustained cost competitiveness Service providers are expected to enhance focus to domestic market to de-risk business and tap into the local growth opportunities

INDIAN SOFTWARE INDUSTRY DEPARTMENT OF INFORMATION TECHNOLOGY (DIT)

DEPT OF ELECTRONICS AND INDUSTRY

Policy matters relating to Information Technology, Electronics and Internet. Initiatives for development of Hardware / Software industry including knowledge based enterprises, measures for promoting IT exports and competitiveness of the industry. Promotion of IT and IT enabled services and Internet. Assistance to other departments in the promotion of E-Governance, EInfrastructure, E-Medicine, E-Commerce, etc. Promotion of Information Technology education and Information Technology-based education. Matters relating to Cyber Laws, administration of the Information Technology Act. 2000 (21 of 2000) and other IT related laws. Matters relating to promotion and manufacturing of Semiconductor Devices in the country. Interaction in IT related matters with International agencies and bodies. Initiative on bridging the Digital Divide, Matters relating to Media Lab Asia. Promotion of Standardization, Testing and Quality in IT and standardization of procedure for IT application and Tasks. Electronics Export and Computer Software Promotion Council (ESC). National Informatics Centre (NIC) All matters relating to personnel under the control of the Department.

GUIDELINES : PROPOSALS
The PRIORITY areas are given separately for each division for R&D funding. However, projects with exceptional merit may also be considered, in non thrust areas. Well-defined goals, milestones, targets and deliverables should be specified clearly. In view of rapid rate of obsolescence, the project duration should preferably be small. Projects aimed at developing closely guarded technologies which are of significant economic and strategic advantage to the country would be given preference. The number of implementing agencies should be minimal. Industry relevant projects should have financial participation from the industry. The implementing organizations should normally have the basic infrastructure and capabilities to carry out the project. Creation of new building, air conditioning & other infrastructural facilities etc. are not considered for support by DIT. The components of grant/loan for R&D product development support could include staff salaries for the project duration, equipment, components & consumables, travel overheads, contingencies and other items required for the project. Details of such items should brought out in the project proposal. In case the project is implemented in an established industry/user agency or the project output is of direct benefit to it, the contribution of the industry/user agency should be at least 50% of the project cost. For loan/grant-in-aid support, specific terms & conditions of DIT for Loan/Grant-in-aid will apply. A bank guarantee will have to be furnished if the loan taking agency is a private company/firm. The terms of Transfer of Technology would be decided by DIT. The guidelines and Terms and Conditions may be revised from time to time.

Electronics & IT Industry

The production and growth trend of the Indian Electronics and IT industry since 2004-05 has been as follows:
Year Production ( Crore) 2005-06 2006-07 2007-08 2008-09 190,300 244,000 295,820 372,450 Growth (%) 24.9 28.3 21.2 25.9

2009-10
2010-11(Estimated)

415,520
470,090

11.6
13.1

SOURCE : DEPT OF ELECTRONICS AND IT INDUSTRY(annual report 2011)

500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2005- 2006- 2007- 2008- 2009- 201006 07 08 09 10 11*

30 25 20 15 10 5 0 GROWTH(%) PRODUCTION(CR)

China steadily closing gap with India as top BPO destination

NEW DELHI: China's outsourcing industry is steadily closing the gap with leader India, according to a research done by a Canada based firm. ICT research and advisory firm Canada-based XMG Global said in its study that China is closing 2010 with 35.76 billion US dollars or 28.7 percent share of the global outsourcing industry, while India maintains its lead capturing 54.33 billion US dollars or 43.7 percent of the total. Assessing the industry's achievement, China is gradually narrowing its revenue gap from India with a huge 30 percent growth compared with India's 14 percent, Xinhua quoted XMG chief analyst Lauro Vives, as saying in a statement.

AGENCIES Nov 12, 2010, 07.19pm IST

Indian IT industry to hire 2.25 lakh in 2011: Deloitte

MUMBAI: Indian IT industry will add over 2.25 lakh employees in 2011 and will clock revenues of USD 71.7 billion by the end of the year, consulting firm Deloitte has said. Revenues from the information technology and business process outsourcing industry will reach USD 71.7 billion for 2011 and account for 5.8 per cent of the country's GDP, the firm said in its Technology, Media and Telecommunications Predictions for 2011. The total number of employees working in the IT/ITeS (IT enabled services) sector will grow to 22.3 lakh this year, which translates into the addition of 2.26 lakh personnel, it said, adding that an additional 80 lakh people will get employment indirectly from the sector.

PTI Mar 13, 2011, 02.45pm IST

Union Budget 2011: No extension to STPI

NEW DELHI: The 2011-12 Budget has failed to bring cheer to the Indian IT sector as Finance Minister Pranab Mukherjee did not make any major announcements to boost the segment. IT companies were batting for reduced tax rates and continuation of sops under the STPI to help the industry, which is seeing a recovery in demand after almost two years of slowdown. "I propose to increase the rate of Minimum Alternate Tax (MAT) from the current rate of 18 percent to 18.5 percent of book profits," Finance Minister Pranab Mukherjee said today during his presentation of the Budget 2011-12.
PTI Feb 28, 2011, 04.21pm IST

TAX HOLIDAY END : 2011

The Budget has brought down curtains on the tax holiday of the Software Technology Parks of India (STPI) scheme, which will end by March 2011. Yet it continues to be business as usual for STPI and it continues to attract new units. There have been 88 new registrations in Maharashtra so far, and the number is likely to exceed 100 by the month end, STPI officials said. The number of new registrations was similar last year. Either the industry is optimistic that they will get an extension or they want to continue with their growth plans. I seem to find no signs of change, SK Agarwal, director of STPI Maharashtra, said. I dont think there should be much of an impact, he added. Companies are already paying taxes amounting to nearly 34%. Corporate taxes with educational cess come up to nearly 31%, Sat, 13 Aug 2011Tue, 9 Aug 2011 there is also the service tax and minimum alternate...

NASSCOM
Total revenue of the software and back-office outsourcing sector, including sales from the domestic market, is estimated to have risen to $60 billion in the financial year 2008/09. The sector, which accounts for five per cent of the country's gross domestic product, is projected to earn $175 billion in exports by 2020, according to study by NASSCOM and McKinsey.

AVENUES : 2011
Indian IT industry is expected to add 183,000 jobs in 2011, says the Ma Foi Randstad Employment Survey.

Another dampening factor is that there will not be any attractive compensation package for freshers as the wage bill hike across sectors for 2011 is pegged between 8.82 per cent and 12 per cent, it said.
According to the survey, around 1.6 million new jobs will be created in 2011 on the back of capacity expansion by companies.

650 companies across 13 industry sectors

As per the survey conducted amongst 650 companies across 13 industry sectors in eight major cities, the healthcare sector is expected to create 248,500 new jobs. 46 IT and ITES companies were part of the survey. Sectors like real estate, hospitality and manufacturing of non-machinery products together would create 223,400 new jobs. "The estimated wage bill hike across the sectors will be in the narrow band as most companies are under margin pressure," Ma Foi Randstad's managing director and CEO E.Balaji told reporters here

Friday, April 01, 2011

Government Incentives
Software Technology Parks of India(STPI) are set up to provide: Fiscal benefits like tax holidays to attract Investment into the industry Basic Infrastructure Single-window clearances for setting up.

India Outsourcing Value Proposition

A safe place to do business Pre-eminent destination for cross-border IT Services

Hassle free procedural & regulatory environment

The leading global services sourcing hub

Leading global ITES BPO Hub

Long-term sustainable Competitive advantage people and Infrastructure

Strategic product development and R&D base

ELECTRONICS AND COMPUTER SOFTWARE EXPORT PROMOTION COUNCIL ( ESC)

GEOGRAPHICAL SPREAD SECTORS COVERED
420

696

795

1140

150

280 215

604

108

TOTAL : 2200
WEST SOUTH
CONSUMER INSTRUMENTS COMPONENTS

490

NORTH

EAST

TELECOM HARDWARE SOFTWARE

FUTURE : INDIAN SOFTWARE INDUSTRY ???

Future In Search Engine

15 local search engines have emerged in the last 2 years in the Indian market (Justdial, Guruji, Asklaila, Zatka.com, 123india.com, mapmyindia.com, tolmolbol.com etc)
Yahoo and Microsoft have their R&D centers in India,to get advantage of Indian Talent/Domain Expertise. Percept Knorigin acquired Searchsize in 2008 and ByIndia.com was acquired by Web2.

2008 GLOBAL

2015E DOMESTIC

FUTURE : INDIAN SOFTWARE INDUSTRY ???

Future in BFSI sector BFSI sector specific software products from Indian companies such as TCS, Infosys, i-flex, 3iInfotech, Polaris, Nucleus Software, Omnesys, Lasersoft, Mindmill are preferred by customers globally. Total Funding (Since 2004): USD 71 million. Oracles acquisition of I-flex is one of the key examples to highlight the rising BFSI expertise from India.
2008 GLOBAL 2015E DOMESTIC

BIBLIOGRAPHY

BIBLIOGRAPHY..
Indias R&D policy and the growth of software industry in comparison with China Mohsin U. Khan National Institute of Science Technology and Development Studies, New Delhi-110012

ELECTRONICS AND COMPUTER SOFTWARE EXPORT PROMOTION COUNCIL ( ESC)

Industry Analysis COMPUTER SOFTWARE INDUSTRY IN INDIA A PRESENTATION BY Dr. Rana Singh www.ranasingh.org