Information Technology Sector of India: Past, Present and Future

Monoswini Sarmah

The information technology (IT) industry in India comprises information technology services and business process outsourcing. India’s IT sector is a leading global player and a major contributor to the country’s exports and employment.

India’s IT industry and BPOs contribute 51% to India’s service sector. Along with New York, Singapore, Hongkong, London, India also achieved rank in the list of top global IT hub countries. More than 50 lakhs employees work directly in IT industry of India.

Information Technology Sector of India: Past, Present and Future — Image: Powershift

To know the development of IT sector in India today, we need to know about the IT revolution of India. IT revolution of India started when the Bhaba committee of 1963 made a 10 year plan (1966-75) to develop local manufacturing capabilities to make computers. Dr. Fakir Chand Kohli is called the father of IT industry. He formed Tata Consultancy Services (TCS) in 1968 under the direction of JRD Tata. India’s first software export zone (SEEPZ) was formed at Mumbai in 1973.

In 1984, Rajiv Gandhi government adopted ‘New computer policy’ which deregulated the India’s IT sector. The golden period of India’s IT industry started from 1991 LPG (Liberalisation, Privatization, Globalization) policy. The globalization process has helped the India’s IT industry to open up for the world.

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Globalization has helped India’s IT industry in technological progress, FDI inflow and employment generation. Through globalization, India’s IT industry has got the opportunity to represent themselves at global level. BPOs, call centres, IT companies were established after LPG reforms.

The foundation stone of India’s IT industry is Mumbai, but the boom period of IT industry started from Bangalore (also called as Silicon valley of India). Infosys, Wipro etc. companies began to establish in Bangalore from 1980. Now, there are more than 67000 companies present in Bangalore. Google, Hp, Intel, IBM, Infosys, Wipro etc are operated from Bangalore. It is the home of 35% IT employees of India.

After Bangalore, the second IT hub of India is Hyderabad. Branches of Google, Facebook, Microsoft, Yahoo, IBM, Dell etc companies are established here. After this, Chennai is also considered as one of the major IT hubs of India. Almost 14% of the products made by programming organizations are manufactured in Chennai.

After this, in Pune, more than 800 IT companies are registered. In north India, Noida is the highest IT hub. TCS, HCL, Wipro, Infosys, Adobe, Microsoft offices are established here. Four India companies – TCS, Infosys, HCL, Wipro are in the list of world top 10 companies. The fiscal year 2022-23 of India’s IT industry contribution was 7.4% in India’ GDP.

The Indian Information Technology (IT) sector has been a key driver of the country’s economic growth, transforming India into a global tech powerhouse. Its contributions extend beyond direct financial impact to fostering innovation, enhancing global competitiveness, and creating employment.

The IT industry in India contributes significantly to the country’s Gross Domestic Product (GDP). As of 2023, the IT and Business Process Management (BPM) sector is estimated to contribute around 8% of India’s GDP, a remarkable rise from less than 2% in the early 2000s. Major companies such as Tata Consultancy Services (TCS), Infosys, Wipro, and HCL Technologies lead this growth, contributing billions in revenue both domestically and internationally.

India’s software exports have consistently grown over the years, with the sector generating over $200 billion in revenues in 2022. This makes IT one of India’s largest foreign exchange earners, with exports to markets such as the United States, Europe, and Asia driving economic inflows. This has helped stabilize the country’s balance of payments and contributed to national economic resilience.

The IT sector is one of the largest employers in India, offering direct and indirect employment to millions. It employs over 5 million professionals directly and supports several million more through ancillary industries.

The sector has played a significant role in creating job opportunities for India’s youth, providing employment across urban and semi-urban areas. The growth of IT hubs like Bengaluru, Hyderabad, Pune, and Chennai has spurred urbanization and improved standards of living in these cities.

The IT industry has attracted significant Foreign Direct Investment (FDI), enhancing India’s integration into the global economy. With a reputation for providing world-class services at competitive rates, India has become a preferred destination for outsourcing IT services.

The flow of capital has not only strengthened India’s technological capabilities but also facilitated knowledge transfer and innovation. Multinational corporations such as IBM, Microsoft, and Google have established substantial operations in India, further boosting the sector’s growth. India’s IT industry has been a catalyst for the country’s burgeoning start-up ecosystem.

The rise of tech hubs and innovation centers have given birth to numerous start-ups, especially in fintech, health tech, and e-commerce. Bengaluru is often referred to as the “Silicon Valley of India” due to its vibrant tech ecosystem. Government initiatives such as Digital India and Startup India have further incentivized innovation in the sector, contributing to India’s standing as one of the world’s top start-up hubs.

The IT sector has been central to India’s digital transformation, with initiatives like Digital India, Aadhaar, and the Unified Payments Interface (UPI) revolutionizing public services and governance. These initiatives have enhanced access to financial services, education, and healthcare, benefiting millions of Indians and contributing to economic inclusion.

The sector has also played a pivotal role in the automation of industries, making businesses more efficient and globally competitive. The IT sector has contributed to the development of India’s human capital by fostering a culture of education, upskilling, and technical expertise.

Institutions like the Indian Institutes of Technology (IITs) and numerous private training centres have flourished in response to the demand for skilled professionals in the sector. This has not only created employment but also enhanced India’s global reputation as a hub for tech talent.

Beside this contribution, India’s IT sector also face recession in current period due to some several reasons. India’s IT sector experienced downturn due to COVID 19 pendamic, Russia-Ukraine war, sising inflation and interest rate etc.

In the technology industry, the year 2022 was marked by major losses for the largest tech companies, as they saw trillions of dollars in market value disappear. Companies in various sectors, such as semiconductors, social media, and cloud computing, lowered their future projections, reported poor growth, and experienced a decrease in stock prices.

India’s IT sector is heavily dependent on exports, particularly to the U.S., Europe, and other advanced economies. Any global economic slowdown or recession directly impacts IT spending by businesses abroad. During periods of economic uncertainty, companies tend to cut costs, which includes reducing or delaying IT projects and outsourcing contracts.

The rapid pace of technological advancement, particularly in areas like artificial intelligence (AI), automation, and cloud computing, poses a challenge to traditional IT services. Companies in India that haven’t adapted to these shifts may face reduced demand for their services.

The Indian IT sector earns a significant portion of its revenue in foreign currencies, especially U.S. dollars. Currency fluctuations, particularly the depreciation of the U.S. dollar or the strengthening of the Indian rupee, can adversely affect profit margins for IT companies.

India’s IT sector is currently facing significant challenges due to global economic uncertainties, especially with a looming recession in key markets like the US and Europe. Companies are seeing reduced IT budgets, project delays, and increased operational costs, all of which are putting pressure on profit margins. Overcoming the recession in India’s IT sector is possible, but it will require a multi-pronged approach by both the industry and the government.

While short-term challenges from global recessions and increased competition exist, India’s IT sector has strong growth potential due to its adaptability, focus on innovation, and ability to tap into new technologies and markets.

The future outlook is cautiously optimistic, driven by digital demand and government support. The future of India’s IT sector is promising, with the industry expected to grow and contribute significantly to the country’s economy.

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