IT's Time

Large parts of the global economy are struggling to grow. As a result, information technology, or IT, spending is likely to decline marginally by $17 billion to $3.49 trillion in 2016, according to a forecast by Gartner, a research and advisory firm. However, Indian IT companies, a major player in IT services and business process management markets, might not be hit. They may, in fact, gain, if one sees the current mood of IT customers.

There are four main reasons for this. First, though the overall IT spending is declining, the IT services space, which is key for Indian companies as they mainly operate there, is likely to grow 2.1 per cent to $929 billion. It had contracted 4.7 per cent to $910 billion in 2015.

The National Association of Software and Service Companies (Nasscom) has been cautious in its projections and has said it expects the Indian IT sector to grow exports by 10-12 per cent. Last year, it had exported $108 billion worth of services. The new Nasscom Chairman, C.P. Gurnani, an industry veteran who heads one of Indian's largest IT companies, Tech Mahindra, is also upbeat about the country's prospects. The shift to digital and cloud, the emergence of Internet of Things and investments in artificial intelligence mean Indian IT players can continue to aim for a bigger share of the global market. During tough times, global companies desperately look to become efficient. Gurnani says Indian IT companies are better positioned than competitors to help them in this due to lower costs and a global footprint.

Second, Gartner has projected that the steepest decline is likely to happen in the device segment. Devices include PCs, tablets, mobile phones and printers. Indian IT companies are not significant players in these segments and thus this contraction is unlikely to impact them.

Third, the decline in spends is likely to be the sharpest in Latin America, South Korea, China and, to some extent, in Japan. The Indian companies get most of their revenue from the US (and the larger North American market) and Europe. While they have been trying to expand to Latin America and the broader Asia Pacific markets, the contribution of these regions to their revenues is currently less than 10 per cent.

The fourth reason is the domestic market. This year, Nasscom says, the domestic Indian IT market will grow at 11-13 per cent, which is faster than the export market. With the government aggressively pushing Digital India, the industry might be able to benefit from growth opportunities in its own backyard.