Indian IT exports amidst global recession

The global IT spending is projected to reach USD 4.5 trillion in 2022, an increase of 3 per cent from 2021, according to the latest forecast by Gartner. It will be much slower than the pace of FY22

Fears of recession in the US and other developed economies are looming large. Yet, India remains the bright spot with economic growth expected to remain the fastest in comparison to other major economies. While the consumption story remains robust in India, the worry is on the global front. It is believed in many quarters that export revenues of Indian companies might take a hit.

Or, will it not?

One of the sectors that might get impacted, at least in the medium term, is the domestic IT industry. This is because in the event of global recession, there could be a cut-down in IT and software related spending in private and government organizations in the developed and emerging countries.

According to some reports, Indian companies including their offshore foreign affiliates exported software and IT services worth over USD 200 billion in FY 2021-22 (April-March).

India has been a hub for software and IT services to the world for decades. The industry has moved from strength-to-strength over this period. Over the past two and half years, since the time the pandemic hit, the Indian IT industry has served the domestic and international enterprises immensely in India and abroad.

Even during the complete lockdown phases, the industries could work and sustain, thanks to the sector that stood up to be counted. Work-from-home and from remote locations were possible because of the endeavour, innovation and resilience of the IT industry.

While it helped functioning of the economy in a smooth manner, it also gained immensely in terms of growth leading to higher revenues and profits. According to a Nasscom report, India’s technology industry recorded a 15.5 per cent growth in FY22, its highest ever, to reach USD 227 bn in revenue. It has been a spectacular year for the sector. If one accounts the gains in Rupee terms, it becomes all the more significant as USD has been only strengthening.

IT is one of the most dynamic sectors and has done innovations at a fast pace keeping in view the demands of the times and quite often ahead of times. What created the difference was its ability to create platformisation and XaaS (Anything as a service) which accelerated technology adoption.

Another remarkable thing that happened was the adoption of technological solutions by governments. The Digital India push has been a very refreshing approach from government organizations, which had traditionally been slow starters, but until then.

While, big fishes and established IT players have played a key role in the transformation, Indian startups have also been instrumental in doing their bit. India is now home to over 100 unicorns. “It was also the year of the start-ups – when tech start-ups leapfrogging into scale-up mode. The industry doubled down on operational excellence to manage margin pressures; and the eCommerce sector saw the deeper penetration of the O+O model (Offline+Online),” the Nasscom report noted.

The Indian IT companies collectively employ over five million people with the highest-ever net addition of 445,000 jobs during this time. While most sectors have asked its employees to work from office now, IT companies are still maintaining a hybrid model.

Today, the share of digital to total revenue stands at 30-32 per cent with 1 in 3 employees being digitally skilled stamping India’s position as the Global Digital Talent Nation, according to Nasscom. India’s share in global sourcing market now stands at 59 per cent – a testament to India’s new tech value proposition.

But will the momentum continue over the current financial year?

NASSCOM conducted ‘NASSCOM Enterprise CXO Survey 2022’where 60 per cent of the CXOs indicated a six per cent higher tech spending in 2022 over 2021, with focus areas around customer service, supply chain and sales and marketing. It said that the end-user enterprises are emerging as technology job creators and about 30 per cent of respondents intend to increase their technology team by over 15 per cent.

This is much slower than the IT spending by companies during the FY gone by. A Business Standard report quoted Gartner and said that IT spending was expected to grow at a much slower pace than in 2021 due to spending cutbacks on PCs, tablets and printers by consumers, causing spending on devices to shrink five per cent worldwide.

The global IT spending is projected to reach USD 4.5 trillion in 2022, an increase of three per cent from 2021, according to the latest forecast by Gartner.

John-David Lovelock, distinguished research Vice-President at Gartner cited inflation to be on top of mind for everyone. “Central banks around the world are focusing on fighting inflation, with overall inflation rates expected to be reduced through the end of 2023,” he said.

Global economic uncertainty continues to be an area of concern for the Indian enterprises. Indian IT companies earn a lion share of their revenues from exports and any hit to this segment will likely impact their overall earnings.

In contrast, the IT spending in India is likely to reach USD 114.9 billion in 2022, growing 7.7 per cent from last year, Gartner report said. However, against a 21 per cent growth in IT spending in 2021, the growth of 7.7 per cent is a sharp decline as well.

The report however claims that the blip is temporary and the critical IT skills shortage being felt across the globe is expected to abate by the end of 2023 when the corporate drive to complete digital transformations slows down and there has been time for upskilling and reskilling of existing staff.

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