Rama Krishna Sangem
Indian IT industry’s growth rate may be falling to a lower 3.8 per cent next year, its overall size will cross 250 billion US dollars in 2024, according to a report by industry’s lobby body, Nasscom on February 16, Friday. However, its target of becoming a $ 350 billion industry by 2026 seems a tough task.
The Indian technology sector is expected to touch $253.9 billion for FY24, growing at a rate of 3.8 per cent year-on-year. The growth has fallen from 8.4 per cent in the previous fiscal year. The slower pace of the growth is evident in the incremental revenue addition. For FY23 the incremental revenue addition was $19 billion, which has come down to $9.3 billion for FY24.
According to the National Association of Software and Services Companies (Nasscom) reports, globally there has been a slide of around 50 per cent in tech spending and 6 per cent decline in tech contracts in 2023 globally.
On the target of $350 billion by 2026, Debjani Ghosh, President of Nasscom said that they are relooking at the numbers. “Based on the 2023 performance and how 2024 pans out we want to redo the modelling and see where we land. There are a lot of opportunities that we see. We are looking into this and we will come back to it sometime this year,” she told the media over a virtual press conference.
India will continue to be a bright spot of the world
India, according to Nasscom’s Strategic Review 2024: Rewiring Growth in the Changing Tech Landscape, continued to be the world’s largest sourcing hub, which added 1 per cent to the country’s gross domestic product (GDP) through digital public infrastructure.
Rajesh Nambiar, Chairperson of Nasscom and CMD of Cognizant, said that the good news is that the industry has continued to grow, but he did agree that FY24 growth is muted. “Even though this particular year has been slightly muted compared to some of the previous years, I still believe that we are a very strong story and our broader outlook is very positive,” he added.
Despite the downturn, the Indian tech industry continues to be a net hirer with significant focus on upskilling. The industry is expected to add 60,000 jobs in FY24. This is a drastic fall from the 290,000 new jobs created in FY23.
The strategic review states that the industry is committed to train 60-100 hours per year per employee on upskilling. When asked if the hiring numbers would continue to be tepid going ahead, Sangeeta Gupta, Senior Vice President and Chief Strategy Officer at Nasscom, said: “The CEO survey poll that we ran shows an improvement in outlook for both revenue and hiring. What the actual numbers will be only time will tell. But the sentiment is better than 2023,” she added.
For FY25 the CEO survey by Nasscom said that the majority expect an uptick to happen in the second half of 2024. According to the CEO survey on technology spending, 66 per cent of CEOs said that client budgets in FY25 will be higher than in FY24. About 20 per cent said that FY25 will be similar to FY24. Meanwhile, the strategic review said that the CEO survey did show improvement in sentiment, but many expect 2024 to be similar to 2023.
However, the industry does have some green shoots and perhaps these could well be the driving force of the future. These include engineering, research and development (ER&D), global capability centres (GCCs) and AI. The ER&D sector alone contributed 48 per cent to the total export revenue addition in FY24.
GCCs continue to invest in India, expanding their service portfolios at the same time new GCCs are setting up operations. The industry saw an addition of 53 new GCCs in 2023.
An interesting aspect of the growth was the domestic revenue grew 5.9 per cent, the fastest growth ever. The review stated that the domestic market grew 1.8 times faster than the exports. This came on the back of continued investments from the government and the enterprise segment.
AI will be the focus of IT industry
When it comes to AI, the review said that the industry is rapidly working on AI capabilities. According to Nasscom BCG AI acceleration analysis, over 70 per cent of players have well-defined frameworks for financing use cases. And over 10 generative AI use cases. When it comes to GenAI, there has been a 9x increase in GenAI activity in CY23.
When asked if the adoption of AI and GenAI will impact hiring in the Indian IT services industry, Ghosh said that as of now there are no job losses due to AI.
“Year 2023 was the peak of AI hype and everyone was talking about it while some companies were building the AI blocks…the large-scale deployment of AI is yet to happen. I think 2024 will be the year when we get into deployment of AI at scale,” she added.
Ghosh further explained that when that happens, like any other technology transformation, there will be some level of job displacement. “The problem we will face is that the pace of technology change and of change in job skill will happen at a rate which is much faster than our ability to skill people, that will be the biggest challenge and how do you bridge this gap will be crucial,” she added.
