At the beginning of the pandemic, it was feared that for the first time ever, the Indian IT industry might show negative yearly growth. Even in the 2001 and 2008 crises, the Indian IT industry showed positive growth. But now, things are looking better, especially for major service providers. Though there is still a small chance that at aggregate, the Indian IT industry might show a decline in FY 21, the outlook for 2021 and FY 22 seems bright, even brighter than what we could have predicted a couple of years ago. There are four major reasons for this optimism.
The first reason is that clients are comfortable working virtually now, and their appetite for offshoring work is increasing. In IT services, there is no other country in the world that offers quality talent at such a large scale and at cost-effective price points as India does.The second reason is that every business needs to invest more in virtualisation and digitalisation to adopt to virtual way of working. It may mean more work in the digital, cloud, and cybersecurity areas.
The third reason is the cost takeout by enterprises as they are facing unprecedented challenges in their businesses, and they need to reduce the cost of their operations. In large cost takeout programmes, everything is on the table from vendor consolidation, captive consolidation, location consolidation to service consolidation. It may mean work going to other vendors, and internal teams, including captives, coming to service providers.
The fourth reason is the M&A (merger and acquisition)-driven consolidation. Enterprises are doing M&As to increase their competitiveness in their industry, and it will demand the restructuring and consolidation of IT functions as well.
The IT industry is transforming from a sunrise sector to a mature sector. In mature sectors, a few large players, along with some niche players, survive. I think 2021 will be the year where a few prominent service providers will grow faster and increase their share in this mature market. So, even if the overall market might not increase, it looks like the share of India and Indian service providers will increase, and this is good news for the whole IT ecosystem.
Even if the overall market might not increase, it looks like the share of India and Indian service providers will increase, and this is good news for the whole IT ecosystem