Shadow of ITeS contraction over small, medium units: CRISIL SME Tracker

Exports constitute more than 85 per cent of the industry's revenue, and due to Covid-19 induced slowdown around the world, they are at risk

According to FITE, West Bengal has 150,000-200,000 employees in the IT and ITeS sector — The impact of the pandemic on high-value knowledge services, especially in the cloud and analytics sub-segment, is expected to be lower, which will cushion the overall decline

2 min read Last Updated : Sep 14 2020 | 9:17 PM IST

CRISIL Research expects India’s information technology-enabled services (ITeS) exports to contract for the first time in over a decade this fiscal year, shrinking 1-5 per cent year-on-year in constant currency dollar terms to about $36 billion.

Exports constitute more than 85 per cent of the industry’s revenue. And given the Covid-19-induced economic slowdown across the world — especially in the US and EU, which account for about 80 per cent of total export revenue — exports are at risk.

The impact of the pandemic on high-value knowledge services, especially in the cloud and analytics sub-segment, is expected to be lower, which will cushion the overall decline. However, the traditional voice segment — where small and medium enterprises (SMEs) accounting for over 40 per cent of industry revenue are concentrated — is set to witness a severe volume contraction.

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Smaller ITeS players mostly operate in niche segments, based on either services (customer interaction support, knowledge services, finance and accounting, etc) or sectors (health care, BFSI, etc). Very few SMEs have such diversified presence.

To their credit, SMEs are gradually adopting robotic process automation technologies such as chatbots to transition from pure voice-based service providers to non-voice-based ones. The trend is expected to gain traction in the medium term, as these players look to save on cost and boost productivity.

Successful implementation of new technologies, though, will require these SMEs to collaborate with vendors. Also, their growth in the medium term hinges on increased use of solutions based on automation, analytics and artificial intelligence and a focus on knowledge services.

In fiscal year 2022, we expect cancelled/deferred projects to revive and volumes to pick up, lifting the industry up 6-8 per cent year-on-year.