Domestic Indian IT services market up 26%

Projected to grow at CAGR of 19.8% through 2009

The domestic Indian IT services market has recorded the strongest growth at 26.7 per cent in 2004-05 for the Asia Pacific region to touch $2.1 billion, according to a new study report issued by Gartner released on Monday.

The Asia Pacific IT services market itself will grow faster than the global market. It will have a compound annual growth rate of 8.9 per cent from 2004 through 2009, outpacing the global growth rate of 6.1 per cent.

The research firm sees emerging markets such as India and China as the main engines of growth across the region in the next few years.

It also forecasts that professional services, led by development and integration, IT management and consulting, will be the region's strongest performing IT services market segment.

While India has established itself as a leading destination for offshore IT and BPO services through the last 10 years, the domestic market demand has started picking up recently, the report said.

However, while India has the strongest growth at 26.7 per cent for 2004-05 it is on a smaller base as compared to the more developed markets.

According to Gartner, some of the key drivers for the increased domestic spending in India are the urgency to fulfill regulatory compliance requirements in the banking and financial services sector and deployment of IT to improve business efficiency, for better competitive capabilities against global competition in domestic and international markets.

In addition to this, the growth is being fuelled by large-scale IT deployment by the Indian central and state governments and public sector enterprises to reduce cost of governance, improve transparency and make the processes more user friendly for the citizens, besides improving infrastructure availability and quality coupled with rapidly dropping costs.

Said Ravindra Datar, principal analyst (Asia-Pacific for IT Services & BPO), Gartner: "Improving business confidence, a robust economy growing stronger, improved availability and quality of infrastructure at a lower cost, increasing MNC presence driving competition and awareness about strategic benefits of IT deployment are some of the key factors driving this growth."

He added that increasing business development activities of global and local service providers in the Indian market is the other factors that drew growth in the Indian IT services market, through a few large deals and many smaller deals.

"A large number of captive and third party offshore services facilities for IT and BPO being set up in the country are also driving demand," added Datar.

Gartner has further forecast that consulting, development and integration are continuing to grow with good demand, while IT management and process management spending is rapidly growing, though over a much smaller base.

"Banking and financial services and the telecommunications sector are the front-runners in IT spending, followed by the manufacturing sector. Government spending is also growing rapidly, due to national and state governments moving ahead with their e-governance plans. This trend will continue during the next four to five years," a statement from Gartner noted.

The statement added that the predicted strong growth across the Asia Pacific region in development and integration services, at 9.7 per cent CAGR, mainly stems from rapid growth in China and India, which need to build up capability to serve their large domestic markets.

Although India's total IT services market will still be one-third smaller than China at $5.3 billion by 2009, its development and integration size will be almost the same as China, at around $3 billion.

"As the Indian economy grows and merges further with the global economy, the focus of demand for IT Services will shift from large deals signed by large enterprises to increasing number of mid-size and small enterprises. They will sign up IT Services and BPO deals, which is expected to drive the next phase of growth in the Indian IT services market," said Datar, explaining the future scenario for the Indian IT Services market.

Gartner has added that IT management is a strong growth trend and key driver for IT services for all markets in Asia Pacific with a CAGR of 9.6 per cent. Consulting follows closely with a 9.5 per cent CAGR through 2009.

The research firm has said that the comeback of consulting shows that companies need to transform their business, not only by cutting costs, but also by learning how to better use IT resources and processes to grow their business.

"Although process management, with a 9.1 per cent CAGR, is an important IT services driver, it still faces cultural obstacles in some Asian markets such as China, South Korea, Hong Kong, Taiwan and New Zealand," the statement added and said that it will be a few years before the Asia/Pacific market fully accepts process management.

Product maintenance and support will continue to have a steady demand, with a CAGR of 6.9 per cent through 2009.

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Key drivers

• The urgency to fulfill regulatory compliance requirements in the banking and financial services sector
• Deployment of IT to improve business efficiency, for better competitive capabilities against global competition in domestic and international markets
• Large scale IT deployment by the Indian central and state governments and public sector enterprises to reduce cost of governance, improve transparency and make the processes more user friendly for the citizens
• Improving infrastructure availability and quality coupled with rapidly dropping costs
• Rub-off effect of global successes of Indian IT Services and BPO companies on the Indian market