Indian tech sector to hit $245 bn in FY23; headwinds seen in FY24: Nasscom

The Indian tech industry has remained resilient despite an uncertain macroeconomic environment and is expected to hit $245 billion in revenue terms in FY23, said a Nasscom report. Chief executive officers (CEOs), however, are “cautiously optimistic” about FY24 because of headwinds such as demand contraction, emerging tech regulations, skilling gaps, and delayed decision-making.

These headwinds are already weighing on FY23 numbers: The incremental increase in net revenue is estimated at $19 billion this financial year, against $30 billion in FY22.

Given the challenges, Nasscom, the industry body representing the Indian tech industry, in its Strategic Review 2023, has defined the year as “Priming for a no normal future”. Still, it expects industry revenue to touch $500 billion by 2030.

The review noted growth in FY23 has been across segments.  

These include IT services, BPM (business process management), software products, ER&D (engineering research & development), and domestic market.

Mirroring the trend, the Indian services export revenue is expected to touch $194 billion in reported currency, growth of 9.4 per cent year-on-year.

But the industry has a guarded response to any prediction on its future growth. “The mood and sentiment, based on what we are hearing from CEOs, are cautiously optimistic. We know that tech spending will grow but we also know that the headwinds are very strong,” said Debjani Ghosh, president, Nasscom.

Outlook for FY24
 

Headwinds

• Delayed decision making; economic uncertainty and inflation
• Employability gap in emerging tech roles
• Demand contraction in some markets

Tailwinds

• Robust deal pipeline of over $18 bn announced by top 5 tech firms
• About 10% growth in clients base in 2022 over 2021
• 6-7% utilisation headroom, lower attrition

Krishnan Ramanujam, chairperson, Nasscom said “storm clouds are gathering”. “While they do not seem to rain yet, the fear that they would rain is very palpable and very visible across the board.”

A silver lining amid news of mass layoffs is that the IT industry remains a net employer with over 5.4 million in the workforce; it created 290,000 new jobs in FY23, Nasscom said.

With a 36 per cent digitally skilled workforce, the industry remains on the top in terms of AI skills penetration, second-largest globally in terms of AI/ML BDA talent pool, third in the world in terms of installed supply of cloud professionals.

Global captive centers (GCCs) continue to expand into India, the report said. About 40 per cent of global GCCs are present in the country and this demonstrates a tremendous opportunity for the country to scale up. India added 65+ new GCCs in the year, taking total beyond 1570. Sub-sectors, such as ER&D, also witnessed accelerated double growth at 11.1 per cent.

The proportion of digital tech in the overall technology services revenue has been increasing. From only around 26-28 per cent in FY20, it leapfrogged to over 32-34 per cent in FY23.

The Indian tech start-ups in FY23E focused on strengthening business fundamentals & governance. India added over 1,300 new start-ups and 23 unicorns in 2022. The country has also emerged as the hotbed for deep tech start-ups in India, reaching a total of over 3,000 in FY23 wherein 485+ inventive deep tech start-ups are developing innovative solutions.