The IT-BPM Sector in India

STRATEGIC
REVIEW 2017
The IT-BPM Sector in India

STRATEGIC
REVIEW 2017
The IT-BPM Sector in India: Strategic Review 2017

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NASSCOM is the premier trade body for the IT-BPM sector in India. It is a not-for-profit organisation and has
emerged as the authentic voice of this industry in India. It is also the single reference point for all information
on IT industry in India. NASSCOM publishes an annual edition of its Strategic Review to disseminate the latest
status of the industry performance.

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The IT-BPM Sector in India: Strategic Review 2017

Foreword

Technology disruption and its continued impact was felt in 2016 in even greater measure, brought about by the usual
uspects – IoT, Cloud, AI etc. As if that weren’t enough, we had the Brexit referendum and the American Presidential
Election, the outcomes of which were most unexpected, and threw global markets in a tailspin for some time. Inter-
estingly, these megatrends did nothing to slow down the steady march of digital and allied high-end technologies.
Driverless cars, Artificial Intelligence, intelligent personal assistants and robotics et al are all screaming for greater
visibility, as the din grows louder. This only reiterates that the process of globalisation in an interconnected world,
aided by technology, is not something that can be reversed. It should not even be attempted!

Against the proverbial backdrop of VUCA - arguably two times over - global technology industry saw fairly modest, yet
commendable growth, about 4%, after a couple of years of remaining flat. The global IT-BPM market stood at USD 1.2
trillion in 2016 (excl. hardware) driven by the age of customers, it propelled CIOs to invest in business technologies in
a bid to capture the always-shifting stickiness factor and sustain competitiveness.

The time has come to seriously examine the proposition – is software eating the world? Perhaps a few data points if
cited, may tilt the argument in its favour. Growth was experienced in the following sectors: IT Services (due to cloud);
BPM at 4% (increased adoption of BPaaS & RPA); packaged software at 6.2% was the highest, and Global R&D at a
little over 1%. Interestingly, but not belying expectations, the growth in hardware segment declined in 2016 (USD 971
billion) vis-à-vis 2015 (USD 973 billion) impacted by declining demand for PCs.

Global sourcing market growth continues to outperform IT-BPM spend growth; in 2016, global sourcing grew 1.7
times to reach USD 173-178 billion. India continued as the world’s No.1 sourcing destination with a healthy and
significant share of 55%.

Let us look closer home, geopolitical factors and the resultant headwinds have left its imprint on the Indian IT-BPM
industry as well. It was inevitable. FY2017 will see industry revenue touching USD 154 billion, up from USD 143 billion
in FY2016 and showing a growth of 8 per cent. In addition, eCommerce will fetch USD 33 billion. In its contribution to
the national exchequer, IT-BPM continues to fare favourably on several parameters - share in total service exports is
estimated at 49% and it contributes 7.7% to India’s GDP. Overall, the industry is estimated to employ nearly 3.9 million
people, an addition of 170,000 people (approx.) over FY2016.

In FY2017, IT-BPM exports from India is expected to reach USD 117 billion, a 7.6% Y-o-Y growth. ER&D continues to
be the fastest growing segment at 10.5%, driven by global OEMs increasingly embedding software & services into
their products. IT services growing at 7% is driven by growth in software testing and ISO. BPM exports, at 7.5% Y-o-Y
growth is being driven by cloud (BPaaS), mobility and advanced analytics. The trend and the factors contributing to
growth are similar to global markets, and encouragingly, at a faster rate.

In FY2017, India’s domestic IT-BPM market is likely to grow 8.5% Y-o-Y to reach USD 38 billion (excl. eCommerce).
Rapid digitisation and GST implementation is expected to further catalyse growth. With >375 million Internet
subscribers, India has the 2nd largest user base after China. It is most aggressive in global market shares across
segments, be it the number of internet users, smartphone users, app downloads, and online payments. There is
significant push from the government to go digital and recognised by the global technology giants. The year-end also
witnessed demonetisation of higher value notes, which is giving a significant boost to digital payments – leading to a
cashless, paperless economy.
The IT-BPM Sector in India: Strategic Review 2017

The enterprise imperative for going digital is fuelled by confluence of factors, including an expanding base of
demanding digital-savvy consumers, intensified competition from digital-savvy competitors and disruptive new-en-
trants. The necessity to stay ahead couldn’t have been more overpowering. Nonetheless, India is strongly placed to be
the digital transformation partner for global businesses. The sector comprises over 16,000 firms that span every
technology segment, with over 8,000 firms offering digital solutions. One of the very few large economies that has
been growing at more than 7%, and most commendably, it has sustained the position of being the world’s No. 1
preferred location for setting up technology business. India is also home to 4,750+ start-ups offering a ready ecosys-
tem for collaboration and partnerships in niche technology areas.

Team NASSCOM presents the Strategic Review 2017, which you now hold in your hands. As you read on, you will get
a fine flair of the industry’s current position, its competitive instincts, and also draw comfort that business fundamen-
tals are robust enough to take us to our projected industry revenue of USD 200 – 225 billion by 2020.

It’s yours, to find out how!

R Chandrashekhar
President
NASSCOM
The IT-BPM Sector in India: Strategic Review 2017

ACKNOWLEDGEMENTS

The Strategic Review 2017: The IT-BPM Sector in India report is NASSCOM’s annual publication that analyses the
performance of the industry, traces its continual evolution and highlights key trends that are influencing and driving
this sector forward. The NASSCOM Research team relies heavily on both primary and secondary research, internal
and external research reports, and reaches out to stakeholders across the board – industry, government, research
firms, etc. – for their inputs that add value to the report. We would like to express our sincere gratitude to all these
stakeholders for their contribution to this report.

First, we would like to thank all member organisations of NASSCOM, who went out of their way to provide detailed
statistics for their individual organisations. We would like to thank our executive council for their valuable counsel
and guidance.

We would like to acknowledge the inputs from 451 Research, Accenture, A.T. Kearney, ASSOCHAM, Battelle, BCG,
BMR Advisors, BNP Paribas, Capgemini, CLSA, Constellation Research, Contify, Credit Suisse, Deloitte & Touche,
Dimension Data, Dun & Bradstreet, E&Y, Everest Group, Forrester, Frost & Sullivan, Gartner, Goldman Sachs, Grant
Thornton, Hackett Group, HfS Research, HSBC, IAMR, IBEF, IDC, IESA, IMF, IMRB, ISG, Kotak, KPMG, McKinsey & Co.,
Morgan Stanley, Motilal Oswal, PwC, RateGain, RBI, Strategy&, TechCrunch, Tracxn, TRAI, UBS, ValueNotes Research,
Venture Intelligence, World Bank, World Economic Forum, YourStory, Zinnov Research, etc.

NASSCOM has and continues to work on various reports on the IT-BPM sector and relevant information has been
used from these reports in the Strategic Review 2017.

We are grateful to the officers of MeitY, Ministry of Commerce and Industry, Department of Industrial Policy and
Promotion, STPI and other departments/ministries of Government of India and state governments who, as always,
willingly provided us with relevant information.
The IT-BPM Sector in India: Strategic Review 2017

Table of Content

Executive summary 01
IT-BPM industry segmentation 06

Chapter 1
IT-BPM Performance 07
IT services 33
Business Process Management (BPM) 59
ER&D 81
Software products 107
eCommerce 136

Chapter 2
Measuring India's Digital Journey 149

Chapter 3
Enterprise Digital Transformation 172

Chapter 4
Digital India 190

Appendix
Tables 212
Glossary 217
Abbreviations 221
The IT-BPM Sector in India: Strategic Review 2017

IT-BPM Performance: Executive summary

Worldwide, 2016 has been a year of continued technology disruptions (IoT, cloud, AI, etc.) and political upheavals led
by the UK voting to leave the EU (Brexit) and the US Presidential elections. The year also saw a decline in GDP of key
markets (USA, UK and Japan). While the implications of the political changes are yet to be fully felt, technology
implications are visible everywhere. Driverless cars are now a reality, driverless trucks are being beta-tested in a few
cities around the world; artificial intelligence has enabled intelligent personal assistants and robotics has found its
way into household chores, hospitality industry, media, and medical fields

Global IT-BPM industry

2016 was also the year when global technology industry saw fairly modest rise in growth, about 4%, after a couple of
years of flat growth. Global IT-BPM market stood at USD 1.2 trillion in 2016 (excl. hardware). And the ongoing need
for firms to adapt to the age of the customer is pushing CIOs to invest in the business technology agenda for winning,
serving and retaining customers.

• IT services grew due to investments in cloud

infrastructure and buyer’s acceptance of the
Software & services: ~4% growth
cloud model.
over 2015

• BPM grew 4%; key drivers include increased

USD billion
BPaaS adoption across industries, RPA and
2015 2016
adherence to various government
USD 1.2 trillion* 0.9%
compliances
* 2016
1,498 1,512
• Packaged software: Was the fastest
growth segment (6.2%) in 2016. Growth 3.9%
-0.2%
Investments being done on applications
that facilitate enterprise and IT 973 971
operations, such as enterprise resource 2.5%

management and operations &

633 649 6.2%
manufacturing applications, collaborative
applications, SaaS, etc. 4.0% 388 413

• The growth in hardware segment 176 183

declined in 2016 (USD 971 billion)
vis-à-vis 2015 (USD 973 billion) impacted
by declining demand for PCs.
IT services

BPM

Packaged
software

Hardware

ER&D

• Global ER&D spend grew a little less than

1% to USD 1.5 trillion, impacted by the
strengthening of the US dollar against
other major currencies

Global sourcing market growth continues to outperform IT-BPM spend growth; in 2016, global sourcing grew 1.7X to
reach USD 173-178 billion. India continued as the world’s No.1 sourcing destination with a share of 55 per cent. New
delivery centres set up worldwide in 2016 grew ~32% to 258 centres with 15% being set up in India and over 53% in
Europe and Latin America a testament of the growing nearshore model.

1
The IT-BPM Sector in India: Strategic Review 2017

Indian IT-BPM industry

India’s IT-BPM industry is feeling the impact of the global
slowdown and global political uncertainties as clients go
Revenue1: Exports - 73% of
slow on their decision-making and investment processes.
incremental addition
The industry is projected to grow nearly 8% in FY2017 –
USD billion
from USD 143 billion in FY2016 to USD 154 billion (excl. Exports
eCommerce), an addition of over USD 11 billion.
Growth 7.8%
Domestic
eCommerce
Share in total service exports is estimated at >49% and the 154
industry’s contribution relative to India’s GDP is >7.7%. 143
38
Overall, the industry is estimated to employ nearly 3.9
35
million people, an addition of ~170,000 people over
FY2016.

IT services segment has a 52% share, followed by BPM and

108 117
ER&D and packaged software (19% each) and hardware
(9%). eCommerce market is estimated at USD 33 billion, a
~28 33
19% growth over FY2016.
FY2016 FY2017E
The industry comprises 16,000+ firms that offer the
complete range of services. With a presence of over
4,750 start-ups –India is the 3rd largest start-up
ecosystem in the world.

Indian IT-BPM exports

In FY2017, IT-BPM exports from India is expected to
reach USD 117 billion, a 7.6% growth over the previous
FY2017E: Exports to grow 7.6%
year and an addition of USD 8.2 billion. ER&D and product
over FY2016
development continues to be the fastest growing
USD billion
segment at 10.5% driven by global OEMs increasingly
embedding software & services into their products. IT 65 26 25 0.4 117
services growing at 7% driven by growth in software
testing and ISO. BPM exports, at 7.5% y-o-y growth, are
being driven by cloud (BPaaS), mobility and advanced
analytics.
On an average, all regions expected to see growth of
7.5%; however, USA and Asia, the fastest growing at 7.8%.
Between them, USA and Europe (incl. UK) account for
about 90% share of exports. Emerging verticals including
ER&D
IT services

BPM

Hardware

Total

retail, healthcare, travel & transportation, etc. are expect-

ed to grow at nearly 8%, faster than industry average.
BFSI, hi-tech/telecom continue to be the mainstay with
over 58% share.

2
The IT-BPM Sector in India: Strategic Review 2017

India as a Digital Solutions Partner

As technology continues to evolve rapidly and permeate
more layers of business operations, digital solutions
India IT-BPM exports share by
have become an integral component of the growth
segments
roadmaps for most enterprises. The enterprise
USD billion
imperative for going digital is fuelled by confluence of
factors including an expanding base of demanding Digital spend >3X growth
digital-savvy consumers, intensified competition from
Exports 87 117
digital-savvy competitors including disruptive
4%
new-entrants, and the necessity to stay ahead of them in 14%
the market. This has been aided by ubiquitous access to
enabling technologies at rapidly increasing efficiencies
96%
in terms of cost and performance and their successful 86%
application towards improving customer experience.

Technology service providers have responded to these

FY2014 FY2017E
evolving priorities by ramping up their digital services
portfolio through a variety of internal (organic capability
Traditional spend Digital spend
development, reorganisation and resource;’rebalancing)
and external (partnerships, strategic investments and
acquisitions) measures. The key drivers for this change
are enhanced customer engagement, business model innovation, application portfolio consolidation, and data based
personalization initiatives across industries in order to further improve operational efficiencies.

Industry Digital Maturity

Criteria Ranking Remarks

Firms actively exploring new

Business Model Evolution
engagement models

Target size in digital ecosystem being

Investments/M&As
niche, Indian players making investments

Organisational/Operating Growing trend to reorganise among

Model Redesign firms to address digital opportunities

Capability Development/Skills Focus on organic capability

Training development and reskilling

Digital IP Developing their own IP/platforms

(platforms/automation) and automation solutions

Expanding capabilities into new

Partnerships
segments/markets by building partnerships

High High to Medium Medium Medium to Low Low

3
The IT-BPM Sector in India: Strategic Review 2017

The Indian IT-BPM industry is adapting to and in many ways shaping, the digital transformation of the global
technology and business services environment. The phenomenon is pervasive – potentially disruptive impact across
business segments (traditional and new), relatively location independent and highly contingent on skill/ capability
supply, and is redefining engagement and business models – creating opportunities for various types players (MNC /
Indian and large / SME / new ventures).

IT-BPM firms are focusing significant resources towards developing their digital capabilities and reorganising
themselves to catch the digital opportunity. Market evolution and the service provider responses are likely to lead the
way to a new face of the IT-BPM industry.

Adoption of digital technologies at the enterprise level in India is still at a very nascent stage. Spend on social media
highest; while security, analytics spend is less than 5% of the total IT budget. BFSI, telecom, retail are already on the
digital transformation journey and the progression path is towards becoming a digital enabled organization, while
healthcare is in the early stages of adopting technologies and is yet to define a digital strategy at the organisation level.

Indian IT-BPM domestic market

In FY2017, India’s domestic IT-BPM market is likely to
grow 8.5% y-o-y to reach USD 38 billion (excl.
Domestic market: USD 38 billion
eCommerce). IT services is the largest segment with
in FY2017
close to 40.5% share, followed by hardware (~37%),
USD billion
software products (12.5%) and BPM with 10% share.
IT services is to record the fastest growth of 11.4%;
19%
demand for mobile apps, website development and
consulting services (around customer experience, IoT, FY2016 FY2017E
33

and analytics) are the key growth drivers. Software

products, though, only one-third the size of IT services 28

segment, is to grow 10.4% to USD 4.8 billion due to the

ever growing demand for cloud-based solutions,
11.4%
particularly from SMBs. Rapid digitisation and GST 5.4%
15
implementation is expected to further catalyse growth 14
13 14
as firms would focus on modifying/implementing ERP
solutions to simplify their supply chain and inventory 10.4%
6.9%
management systems. BPM is expected to be a USD 4 5
4 4 4
billion market, 6% y-o-y growth. The growing
eCommerce market and demand from BFSI, retail,
eCommerce Hardware IT services Software BPM
telecom industries as well as government’s ‘Digital products
India’ initiatives are the key growth factors.

Digital India Key Enabler

With 375+ million Internet subscribers, India has the 2nd largest user base after China. India is highjacking global
market shares everywhere, be it the number of internet users, smartphone users, app downloads, and online
payments. There is significant push from the government to go Digital; the global technology giants are supporting
this; and the 1.3+ billion people are embracing it in a manner like never before. The year-end also witnessed
demonetisation of higher value notes, which is giving a significant boost to digital payments – leading to a cashless,
paperless economy. Government of India through its ‘Digital India’ mission has successfully initiated a number of
projects which include the National Digital Literacy Mission, e-kranti mission, wi-fi hotspots, NOFNs being laid, newer
technologies are being tried to bring Internet closer to the masses. Among the proposed 100 smart cities, 60 cities are
already undergoing developments, with a proposed fund allocation of ` 2 billion/city/year. With these initiatives,
coupled with ‘Make in India’, India has embarked upon the journey of becoming a ‘Digital Nation’ in its truest sense.

4
The IT-BPM Sector in India: Strategic Review 2017

India’s value proposition: Partner of the future

India is setting itself up to be the digital transformation partner for global businesses. Over the past 25 years, it has
set up an USD 154 billion business; which comprises over 16,000 firms that span every technology segment, with
over 8,000 firms offering digital solutions. It has continuously been the world’s No. 1 preferred location for setting up
technology business; is one of the world’s fastest growth economies and emerging as the R&D hub for global MNCs
in digital technologies. India is also home to 4,750+ start-ups offering a ready ecosystem for collaboration and
partnerships in niche technology areas. Its global operating model has over 700 ODCs across 80 countries and offers
flexibility in terms of business and pricing models.

Outlook
By 2020, India’s IT-BPM sector total revenue is projected to reach USD 200-225 billion and between USD 350-400
billion by 2025. Digital technologies will continue to define the sector and revenue from these is likely to have a 23
per cent share by 2020 and >38 per cent by 2025. Indian service providers face a significant opportunity as digital
technologies continue to be embedded in an ever widening range of products and services.

To avail this growing opportunity, firms have to develop offerings along new digital service lines, while re-inventing
traditional declining service lines. The need of the hour is to invest in a portfolio with fundamentally different
economics, putting more resources towards transformational and disruptive technologies, re-skill the existing
resource pool, build capabilities and forge partnerships with niche players and platforms to develop an ecosystem to
deliver digital solutions.