Indian software product industry to enter hyper-growth phase: Nasscom

Nasscom says software products to play vital role in Indian IT growth in future; Estimates India churning 2,000 software startups a year by 2020 vs 800 now

The Indian software products sector is poised to enter a hyper-growth phase, with a likely minimum of 2,000 start-ups a year by 2020, as against a little over 800 expected in 2014, said the industry body, Nasscom, on Wednesday.

It did so on the basis of a study conducted in partnership with management consulting firm Zinnov.  Reflecting the strong growth the sector has seen in recent years, the study said India churned a little over 480 software product start-ups in 2010, rising to about 680 in 2013.

With the anticipated hyper-growth, the software product start-up segment is estimated to generate 250,000-300,000 jobs by 2020, as against the current 65,000-75,000.

Calling India the “fastest growing” software product country, Nasscom product council chairman Ravi Gururaj said the country could have about 11,500 product start-ups by 2020, as against around 3,100 now. India's software product system is currently the third largest in the world, following America and Britain, respectively. Israel, Germany, Russia and Singapore follow India in the space (in no particular order).

“We believe software product start-ups will play a vital role in the growth of the entire information technology industry in India,” said Nasscom president R Chandrashekhar. “Indian start-ups are now innovating for the world, which is leading a lot of global players to look at India as a hub. Also, there are huge opportunities within India for software product start-ups, in view of initiatives like Digital India.”

The Indian Software Products Industry Roundtable (iSpirt), a think tank, had earlier said it estimated India to have a potential to build a $100-billion software products sector by 2025, as against around $2 bn currently, if the government and the industry “act purposefully”. In a report published this February, it has said the domestic market, expected to grow at about 14 per cent annually in the coming times (three times the global rate), will aid the growth of Indian software product companies in a big way.

It also said a good part of the demand for software products is likely to come from the small and medium enterprises sector, and from health care and education.

By Nasscom's estimates, Indian software product start-ups have attracted funding worth $2.3 bn in India since 2010. There are currently a little over 70 active venture capital companies and private equity investors in the sector. Additionally, the sector is attracting funds from 62 active angel investors.

“We are seeing almost one new start-up incubator or accelerator being set up in the country every day,” said Rajat Tandon, senior director for Nasscom's 10,000 Start-Ups initiative. He said the country now had a little over 80 start-up incubators.

Six locations in India make for nearly 90 per cent of the overall software product start-up activity, the study showed. These are Bangalore, Delhi (along with the National Capital Region), Mumbai, Hyderabad, Pune and Chennai. And, Kolkata, Ahmedabad, Kochi, Jaipur and Thiruvananthapuram are fast emerging as other hot locations.

At A Glance

* 53% of startup founders are in the 26-35 years age group

* Average age of startup founders 32 years

* 6% of startup founders are women

* 52% of startup founders are postgraduate

* 35% of founders have worked with multinational IT companies

* 27% have worked with Indian IT companies

* 13% of startup founders are freshers

* 5 MNC accelerators, 25 private incubators, 50 public incubators in India now

* 31% of hiring in startups is through employee referrals

* 82% of start-ups pay more than the market median

* 83% of start-ups use stock options for long term incentives

Top focus areas for startups in 2014:

* Consumer Internet

* Big Data & Analytics

* Productivity

* Unified Communication

* GIS Location