 |
| |
BMI has downwardly revised its five-year India IT spending projections: the total size of the IT market is now projected to increase from US$14.1bn in 2009 to US$23.8bn by 2013. IT spending growth slowed significantly in H109, which brought a double-digit shipment decline in PC sales, but a recovery is expected to begin in the second half of the year, with a strong festive season.
Going forward, BMI expects the Indian IT market to improve by the last quarter of 2009. Government procurement should grow robustly in H209, after some disruption due to the national elections in H109.
Major IT services vendors reported a reduction in project cancellations by Q209, as clients began to anticipate a recovery in the global and US economies. However, price-sensitive clients often demanded reductions in standard billing rates, placing under pressure margins that are generally lower than in more mature markets.
The long-term potential of India's IT market is plain: less than 3% of people in India own a computer (about one-fifth of the level in China), meaning particular potential in the lower end product range. However, realisation of this long-term growth potential depends on fundamental drivers such as raising India's low computer penetration, rising incomes, falling computer prices and the government's ambitions to connect the vast rural areas to the outside world.
Industry Developments
A key driver of informatisation in the government sector is likely to be the e-ID card programme, which took a step forward in June 2009 when the government announced a new head for the Unique Identity Authority of India. After repeated delays, the project is still at a very early stage. However, it has been estimated that the total cost of the project could be at least INR1.5bn lakh crore. The project received a boost in January when a court suggested that national ID cards should be made mandatory for all citizens.
Faced with a sharp slowdown in global and domestic computer sales, in 2009 the Indian government announced a series of measures to support the market. Service tax was cut from 12% to 10% and excise duty from 10% to 8%.The measures were intended to provide relief to domestic consumers, while also providing some support to IT exporters. However, there were questions about how much effect the measures would have on both scores.
Competitive Landscape
In Q309 leading Indian market PC vendors including Asus, HCL and Dell pursued tie-ups with telecoms companies to bundle mobile data packages with their netbooks. Dell reached an agreement with MTNL to offer Dell's Inspiron Mini 10 netbook with MTNL's 3G wireless mobility solution. Meanwhile, Dell and Asus have announced similar tie-ups with Reliance, which will offer wireless broadband to purchasers of their netbooks. HCL said that it was also in talks with leading telecoms companies. These three vendors planned to launch new models in Q409, following the official release of Microsoft's new Windows 7 operating system.
The official launch of Microsoft's Windows 7 operating system, planned for October 2009, has the potential to boost the software market, but following the release of the enterprise version in August 2009, Microsoft encountered some scepticism from businesses. Mindful of perceived problems with Microsoft's previous operating system, Windows Vista, many companies seemed likely to wait and see how the new system performed before making the decision to switch. Microsoft argued that the new system would bring cost benefits and pointed to features like in-built software for data encryption.
In 2009 IBM embarked on a new strategy of moving beyond India's leading city markets to focus on expansion in tier-2 and tier-3 cities. The company has announced its first partnerships with two companies in Uttar Pradesh, which will offer a wide range of solutions and consulting services to clients.
This year IBM has launched an overhaul of its Indian channel structure, planning to move from an open to a closed distribution model from October 1 2009.
Computer Sales
The report has downwardly revised its computer hardware sales projections for 2009, following steep declines in shipments in H109 due to the economic slowdown. BMI now forecasts that computer sales (including notebooks and accessories) in India's hardware market will be worth around US$5.9bn in 2009, with annual growth flat compared with 2009. Shipments were down by a double-digit factor in both Q1 and Q2 as consumers and businesses retrenched, but BMI expects growth to pick up in the fourth quarter of this year.
One factor that has affected the Indian computer market during the current economic slowdown has been the weaker than expected demand for netbooks. However, BMI predicts that the compound annual growth rate (CAGR) for the hardware sector as a whole will be 13% between 2009 and 2013, with unit sales expected to resume strong growth. Only nine out of 1,000 people in India own a computer, one-fifth the level of China. The government's ultimate goal is for 1bn internet-connected computers in India - equivalent to the total estimated number of PCs in the world today.
Software
The software segment should continue to grow, with combined software and service CAGR for 2009- 2013 projected at 13%. The tax-free status of software firms, which did much to fuel local sector performance, was due to end in 2010. However, the IT industry lobbied for an extension of the exemption to be included in the 2009 budget. The local software industry is significant, with exports worth around US$50bn annually.
In recent years, the small and medium-sized enterprise (SME) market in India for hardware deployment has grown, and this has resulted in an increasing opportunity for applications. More demand for solutions and hardware now comes from second- and third-tier cities. Industry reforms and privatisations, government regulations and new global competition have encouraged SMEs to use more technology. A second major software demand driver is the emergence of India as a global centre for outsourcing, with the global recession encouraging large US and European companies to focus on offshore software development to lower costs.
Services
India's IT services market is estimated at around US$5.1bn in 2009. The Indian market has traditionally been low margin, with India's IT majors such as Infosys, Wipro and TCS focusing most of their attention outside their domestic market. Particularly with the US and global economic downturn, however, vendors are now more attuned to the growing size of the Indian IT services market opportunity.
In Q109 there were vendor reports of IT managers in various sectors reviewing spending and focusing on immediate needs. However, by Q209 there were signs that fewer projects were being cancelled, although there was increased price sensitivity. In H209 there should continue to be opportunities in key IT verticals such as finance, telecoms, retail and government, and major projects such as ID cards, egovernment and railways modernisation.
E-Readiness
Broadband subscriber numbers have consistently fallen behind target in India. The main reason for the slow uptake is thought to be insufficient demand, although the government has taken some measures to reduce tariffs and encourage alternative forms of service provision. One brake on PC penetration is a poor dial-up internet home-user experience, even in cities. If this is to change, the government must take the initiative in improving bandwidth availability. Government plans to encourage WiMAX network deployment may have some impact on penetration.
Key Issues for Investors Despite a cheap and well-educated workforce, India's business environment is impeded by excessive government regulation. Foreign equity holdings remain restricted in many sectors. Hiring-and-firing procedures, meanwhile, are governed by rigid labour laws, under the terms of which companies employing more than 100 people need the permission of the local chief minister to lay off workers. Other concerns include the 670-odd industries reserved for small-scale producers; high import tariffs levied on foreign-made goods; failing infrastructure and, above all, poor power supplies; and a corrupt bureaucracy needed to approve 'permits' for even the most routine tasks. India is now fast-tracking the creation of South East Asian-style 'special economic zones' (SEZs) aimed at tackling some of these bottlenecks.
India Information Technology Report Q4 2009: http://www.companiesandmarkets.com/r.ashx?id=W3T5N71JT169563
|
—
