Indian IT industry is expected to touch the $225 billion mark by 2020, and $350 billion by 2025, amid changing dynamics, customer expectations and a challenging macroeconomic environment. The industry will have to re-skill its workforce and focus on digital and disruptive technologies and innovative solutions in order to stay ahead of the game. The startup ecosystem in India, for instance, has contributed immensely to the Indian economy by enhancing citizens' lives, building innovative solutions, and generating growth opportunities for everyone.
B.V.R. Mohan Reddy, Chairman, Nasscom and Founder & Executive Chairman, Cyient shares exclusive insights on the current state of the IT industry including startups and what it needs to do to achieve the projected revenues. Excerpts:
Nasscom has estimated the revenue from the Indian IT industry to clock $225 billion by 2020. Is India on track to achieve this?
The industry is well placed to continue growing in the coming years to clock the $225 billion mark by 2020, and $350 billion by 2025. Even though the base is expanding, the industry has been able to post double-digit growth. The industry has constantly been reinventing and evolving its service offerings into futuristic solutions, trying aggressively to build expertise around these. This pace of growth will have a high impact on the job market, where the industry is expected to create 1.2 to 2 million jobs for every $100 billion revenue addition.
To achieve these goals, the IT-BPM industry in India will have to come out of its comfort zone and start pushing its boundaries to cater to more complex requirements of the customers. Today, clients and their expectations are changing at an accelerated pace, and we need to be a guiding light for them. For this, our industry must invest in digital technologies and embrace changes in this era of disruption. Unless our industry and workforce start living these waves of transformation, we cannot guide our customers to manage these changes.
What would be some of the macroeconomic challenges the Indian IT industry have to tackle with in 2016?
The industry will have to tackle a number of challenges to make sure that it keeps up with the growth expectations. Re-skilling the workforce would be a key challenge on the agenda. The workforce has to be trained on the latest technologies to help organisations transform in this digital age. Most of the IT-BPM organisations have a big layer of middle management, who is playing the role of people management and program management. This layer will need to retrain itself on the latest technology and developments. Innovation is another challenge for a country like India, which has the second-largest population in the world. There is a need for innovation to add value continuously to the changing customer expectations, and at the same time create social impact. Another big threat arising from the interconnected world is cyber security. As the world continues to move online, the threat to digital security, data access and privacy increases. A holistic, integrated, multi-layer security strategy will be critical to mitigating risk and establishing trust between devices, networks, people, and systems. A recent economic survey showed that protectionism is impacting the Indian IT-BPM industry, even as the country is being urged to open up its markets under various trade agreements.
Can we still call India the preferred destination for BPO? Which are the emerging geographies that are challenging India's position?
India still holds the leadership position in the global BPO industry. Recent years have seen many other emerging economies such as China, Philippines, Mexico, Indonesia, and Vietnam becoming favorable destinations for BPO. While there is a concern about the rising costs and shortage of skilled talent in coming years, the BPO industry in India will need to move up the value chain to mitigate these risks. As we see better cost advantages, favorable tax policies, and access to talent in emerging economies, there will be a shift in the type of work being outsourced to these destinations. Mature destinations like India need to address more complex and high-involvement business problems to keep themselves relevant in the outsourcing business. Indian BPO industry has a significant role to play, with its learning and knowledge gained from almost two decades of experience. The industry should provide value-added, domain-centric solutions with process optimisation, process engineering, specialisation and technology-enabled platforms like cloud computing, social media, mobility, and analytics. We will also see Indian firms play a consultant's role for giant multinational companies to program-manage outsourcing engagements with the emerging BPO destinations.
How do you see the startups scenario in India pan out in 2016? Will there be more failures than successes? What are some of the initiatives taken by Nasscom to boost the startup ecosystem?
The last few years have been extremely constructive for the startup ecosystem in India. In 2015, India received more than $5 billion worth of investments. With three to four startups emerging every day, India has now become the third largest startup ecosystem in the world, just after the U.K. and the U.S. (as measured by the number of startups, which stood at 4200+, representing a growth of 40 per cent from the previous year). I think that the trend is here to stay in 2016. One of the biggest differences, when compared with the last decade, is that today we have networks of angel- and early-stage investors who are ready to take the risk of investing in an early stage. While VCs and PEs come only at the later stage, it is the angel investments which are helping startups mushroom in every part of our country. However, overall, the number of angel investors in India is still very less, and we need more successful entrepreneurs and professionals to join this force. As the startup ecosystem matures, we will see more institutionalisation and a systematic approach to angel funding, which might tie up with specific incubators, or sector-specific funds for investments.
Associations like Nasscom have been working relentlessly to create a sustainable ecosystem for startups. A big, ambitious program, named 10,000 Startups, is running already to achieve the set goals. Nasscom has been partnering with the union government to transform India into the digital age, enhance skills of employable population, mobilize businesses to participate in these initiatives, and play an advisory role to translate the country's gigantic vision into reality. A few challenges remain. Nasscom is working closely with the government to ease the tax law around startups, creating a "fund of funds" for seed investments, promoting the Skill India program, and a number of other initiatives. Nasscom strongly supports the Prime Ministers inspiring call: "Startup India, Standup India".
Recently, U.S. presidential candidate Donald Trump has proposed to scrap all H1-B visas. What's your view on this?
U.S. is a big market for the Indian IT-BPM industry. While a large workforce from India works for the top American companies, Indian IT-BPM firms are also creating numerous jobs for the local market in the US. We should look at the holistic picture and not just one side of the coin. As per a report from the Confederation of Indian Industry (CII) and Grand Thornton, India-based companies have created 91,000 jobs and invested more than $15 billion in the U.S. The country receives some of the best talent from India, which contributes to the growth and prosperity of local communities.
Where does the Indian IT industry stand in terms of innovation and IP-led growth compared to the rest of the world?
India is starting to be known for its quality talent rather than a mere cost-arbitrage advantage, as was the case earlier. I see numerous innovations happening in India and China, which are poised to become the next innovation hubs. However, creating sustainable differentiation will continue to remain a challenge for most economies globally.
Start-ups in India have been a hotbed of innovation and are acting as social equalizers. The drivers of innovation may vary significantly by geography. India's advantage lies in its large pool of quality talent and emerging infrastructure. While most of the innovations happening in the western world are for the premium segment, inspired by what is next, innovations in eastern countries like India are inspired by frugal engineering. These innovations are trying to solve problems of providing essential services to the needy, such healthcare, education, skill development, etc. On the macroscopic level, the startup ecosystem has contributed immensely to the Indian economy by enhancing citizens' lives, building innovative solutions, and generating more growth opportunities for everyone.
