The Indian information technology and software services industry is at an inflection point. The stress facing it can be gauged from the way leading players have repeatedly revised downward their guidance and how the export revenue growth rate has fallen and is expected to continue to do so. Nasscom, the industry body, has revised its forecast for growth in exports in the current year to 8-10 per cent from the earlier 10-12 per cent. The previous financial year (2015-16) began with expectations of 12-14 per cent growth but eventually recorded total exports of $107.8 billion, which were up a mere 9.4 per cent. In 2014-15, this growth rate was 13 per cent and a far cry from the stellar top-line growth of 20 per cent or more that the industry leaders achieved in the four years between 2010-11 and 2013-14, albeit on a smaller base after the blip in 2009 caused by the global financial crisis. The only silver lining is that technology advisory firms such as Gartner expect a 1 percentage point rise in global spending in 2017 on both software and IT services.
The declining growth rate of this export-led sector can be explained partly by the depressed state of global growth and trade. And two uncertainties have added to this. The first has been unleashed by Brexit and the second looms over the known views of the incoming US President, Donald Trump, on the need to protect American jobs and curbing the use of H-1B visas. While these threats are exogenous, Indian firms have an internal challenge to confront as well. The stellar Indian IT effort from the end of the last century, which made the country the world’s leading outsourcing location, was based on delivering undifferentiated volume with a price advantage, making it a sort of bulk commodity exporter. But now the world has changed. In the age of automation, Internet of Things, cloud computing and the overall move to digital, client firms expect their IT vendors to offer solutions not just for these but also overarching ones embracing all of them. Competition comes not just from legacy global IT vendors but also from leading firms such as GE in manufacturing and Amazon in retail, both of which are developing their own IT capabilities in such a way that they also have full-fledged top-end IT operations along with whatever else they do.
India’s software leaders are not just aware of all this but have over the past few years taken steps to acquire the solution skills through specialised acquisitions and by reorganising their internal structures to focus on innovation and growing their domain skills. This enables them to offer customised solutions to their clients. Infosys under Vishal Sikka has created platforms for innovation and his approach is that the “sooner we embrace automation the better”. TCS under N Chandrasekaran has paid particular attention to growing the digital part of the business since “digital” no longer means just “computers” but “everything”. However, for the industry to be a digital personal assistant to its clients, firm-specific strategies, including retraining existing staff, are not enough. Firms have to join hands and align with academia and government to address a key need — improving the knowledge base of new intakes.