1. Describe the growth and challenges of Indian IT industry.

Answer: Comprising of three major sectors, viz.; business process outsourcing, IT services
and consultancy services, the Indian IT industry started out by providing business process
outsourcing (BPO) services to its clients that comprised of knowledge process outsourcing
(KPO); legal process outsourcing (LPO); back office outsourcing; front-office outsourcing;
etc. The IT industry in India evolved from application development and management services
to infrastructure management services, testing services, analytics, Six Sigma, etc. The new
services offered by IT companies in India viz.; cloud computing, mobility, social media, and
data analytics offered new opportunities for growth for companies in the IT industry. IT
services was the fastest growing segment in the domestic Indian market with a growth rate of
18 percent. The Indian IT industry generated more than $100 billion in revenues in the fiscal
year 2011-2012, and nearly two-thirds of the total revenues comprised of exports. The sector
contributed to 25 percent of India’s total exports and 11 percent of total service revenues of
the economy. The industry registered an annual growth rate of more than 9 percent in fiscal
year 2011-2012, and employed more than 2.8 million knowledge workers. Consulting
services were highest in the value chain of IT services.

However, the BPO sector were not able to generate revenue as expected, mainly
because of the emergence of alternative sites such as Philippines and Malaysia, which were
registering high growth rates. Also, the global economic slowdown, particularly in the USA
and Europe, had adversely affected the Indian IT industry, mainly because the Indian IT
industry was largely dependent on the outsourcing or off-shoring businesses from its clients
based in USA. Moreover, since the US economy, and the financial services sector was
adversely affected by the global economic slowdown, it had simultaneous effect on the Indian
IT Industry as it was reliant on both of them. As a result, clients were forced to reduce their
spending on new IT contracts, and higher spending on existing contracts were eyed with lot
of caution. Thus, there was a slowdown in revenue growth and IT companies faced severe
pricing pressure as clients were negotiating prices even to renew existing contracts. Many
companies froze hiring in the process of reducing cost pressures. Also, clients now sought IT
companies that provided them complete solutions for their businesses and the Indian IT
companies had increasing pressure of diversifying their businesses to include a complete
range of IT services including new services such as cloud, and consulting solutions. This
implied a movement along the value chain as IT companies move towards providing higher
value solutions for their clients.