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Indian firms' to slow down IT spending due to cost, global factors: Study

Inflation and currency devaluations make technology investments costlier, it says

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Shivani Shinde Mumbai

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IT spending by Indian enterprises and service providers will grow 7.8 per cent in 2023, slowing down from last year due to a range of factors, said a report on Tuesday.

Indian IT spending (by enterprises, service providers, and consumers) is projected to grow 4.7 per cent in 2023 to $86.7 billion in constant currency, according to the IDC’s 'Worldwide Black Book: Live Edition'. IDC’s October press release projected a spending growth of 5.8 per cent in 2023.

Consumer IT spending (dominated by consumer purchases of devices such as mobiles, tablets, personal computers, wearables, and peripherals) declined drastically in Q4 2022 due to rising prices and pulled down growth to 2.1 per cent in 2023.

Enterprises' making IT budgets are concerned about price increases, staffing shortage, supply chain constraints, especially on the networking side, and the impact of the weakening global economy on business revenues.

"Rising inflation and currency devaluations made technology investments costlier. Enterprises focused on immediate needs by either stretching or prioritizing budgets. But with worries around the weakening global macroeconomic situation, spending growth has moderated," said Vinay Gupta, Research Director, IT Spending Guides, IDC Asia/Pacific.

"Enterprises still face challenges impacting their business and will look at consumption-based models to drive their focus on transformation," he said.

With investments by enterprises and service providers, infrastructure spending (server, storage, and networking equipment) had a banner year in 2022. However, with a moderating economic outlook, spending growth will slow in 2023. Enterprises aim to drive efficiencies, optimize cost using automation tools and prioritise as-a-service consumption model for infrastructure purchases avoiding significant capital expenditure investments, said the report.

IT spending includes spending on hardware, software, and IT services and it excludes telecom spending, business services, and some emerging technologies.

Domestic IT services spending is projected to grow 8.7 per cent in 2023, driven by enterprises' need to increase customer engagement and satisfaction, launch new products/services, and improve operational efficiency to drive revenue growth and profitability. Enterprises' increasing adoption of cloud and co-location services drives the managed services market. The managed services market hence resists immediate impact from adverse economic scenarios. Project-oriented services are guided by the need for system integration and IT consulting services but are susceptible to declines in business confidence.

Software spending is projected to grow 15 per cent in 2023, driven by higher adoption of cloud-based solutions. Automation-related platforms and tools, security, workplace solutions (collaboration, content management, virtual meeting, unified communications), data and analytics initiatives/projects, infrastructure, and IT operation optimization initiatives are still focused areas for enterprises despite the moderating economic growth.

Due to high inflation, dwindling retail consumer demand impacted sales of mobiles, PC, notebooks, hardcopy peripherals, and tablets affecting consumer IT spending. Mobile phones constitute the lion's share by value of consumer technology spending in India. Mobile phone shipments declined in 4Q2022, and 2022 had the lowest shipments since 2019.

Expectations are that concerns around rising prices and higher inventory in the channel will persist until the first half of 2023, with an elongated recovery after that. The sale of traditional PCs (including desktops, notebooks, and workstations) grew marginally by shipment in 2022, with similar challenges and expected recovery in 2023.

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First Published: Apr 25 2023 | 1:43 PM IST

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