Nasscom lowers FY17 growth outlook

IT-BPM industry set to grow by 10-12% for FY17 as against 12-14% growth forecast it had made earliler

Information technology (IT) industry body Nasscom on Thursday projected a 10-12 per cent growth for the Indian software services segment for the financial year 2017, lagging the 12-14 per cent growth forecast it had made for the current financial year.

A volatile global economy and currency fluctuations, especially the weakening of the rupee against the US dollar, continued to impact India’s information technology and business process management (BPM) services segments.

The industry barely managed to meet the lower end of the Nasscom forecast. For FY16, the segment’s export revenue grew by 12.3 per cent to reach $108 billion. The earlier forecast was 12-14 per cent growth. For FY15, export revenue grew 13.1 per cent in constant currency.

Nasscom, however, said that despite all the volatility, the industry managed to maintain double digit growth. “The need of the hour for the industry is to fundamentally transform its business models, solution offerings, organisation structure and capabilities to strengthen its market leadership position,” said R Chandrashekhar, president, Nasscom. “Further, going forward, revenue growth alone may not be an adequate indicator of the growing capability and capacity of India’s technology industry. Factors such as investment, valuations, digital solutions portfolio, impact etc. would also need to be considered in assessing the industry performance and contribution to the economy.”

When asked, why Nasscom has downgraded the growth numbers, Chandrashekhar said, “We had estimated that the domestic segment will grow at a certain pace on the back of the announcements made by the government and trends that we saw. However, many of those have not taken off. As and when they do, we will see a larger impact.”

Apart from domestic business, there are signs of growth in export of digital solutions. Domestic revenues are expected to grow at 11-13 per cent in FY17. At the same time, digital solutions business is likely to expand by one-and-a-half times.

In FY16, IT-BPM domestic revenues grew at 10 per cent, reaching Rs 1.41 lakh crore . E-commerce, start-ups and technology-focused government growth agenda were among the growth drivers. The e-commerce segment added estimated revenues of Rs 1.08 lakh crore in FY16.

Analysts were expecting the industry’s growth numbers to further come down as companies prepared to meet clients’ demand in the adoption of newer technologies such as cloud, software as a service (SaaS) and mobility. Though digital spending is surging, the deal sizes are getting smaller. “Start-ups and e-commerce are the new champions of the industry and I expect these segments to increase their contribution to industry growth in the years to come,” said BVR Mohan Reddy, chairman, Nasscom. “Digital contributed about 13 per cent for the leading technology companies. Also, the industry employed over 250,000 digitally skilled employees. Digital M&A deals also witnessed a spike in volume and value crossing $2 billion in 2015-16 growing three times over last year.”

With automation, digitisation and other technology interventions, hiring also took some beating. The industry added 200,000 employees in FY16, compared with 230,000 in FY15. The employee base of the industry touched 3.7 million.

Nasscom also said India’s start-up landscape is now a global success story with young companies and unicorns making a difference in high-impact areas. With over 4,200 start-ups, India is now the third largest start-up base globally with over 1,200 start-ups being created every year aided by $4.9 billion funding, over 150 active VC/PEs and over 110 incubators and accelerators.