IT Parks

Why India?

  • The IT industry as a whole in India comprises of:
    Hardware: This includes computing and networking hardware and peripherals (IT infrastructure). (It does not include consumer electronics.)
    Software and IT Services: This includes custom and packaged software, IT services, and IT training services.
    IT-Enabled Services (ITES): This includes all business and knowledge processes being outsourced or off shored by companies facilitated by internet, telecom and similar means.
  • The global IT service market is in excess of US $700 billion and growing. IT services and software continue to be the mainstay of Indian IT-ITES, accounting for nearly 60 percent of industry revenues. Exports account for a majority share of the segment revenue with the US and Western Europe as the key markets. There has also been a steady growth in domestic demand, which further contributes to this segment’s standing in the Indian IT-ITES industry.
  • A report released jointly by NASSCOM and McKinsey states that exports alone by the Indian IT/ITES and BPO sectors would touch US$ 60 billion by March, 2010. However, what is significant here is that the report also suggests that this next growth wave would require at least 12 alternative locations to the metros and Tier-I cities, to come up quickly.
  • The infrastructure situation in metros and big cities by way of “power shortages, poor public transport and limited international connectivity” would make it difficult to absorb an additional burden of 1.6 million (16 lakh) people that will be required by the industry to fuel the growth. Of this number, 1 million (or 10 lakh) jobs are expected to be generated near Tier-I cities like Delhi, Bangalore, Chennai, Hyderabad, and Mumbai, and another 600,000 (6 lakh) in other towns across the country. The report goes on to state that “Thus the IT and BPO industries need at least 5 new `Gurgaon-plus’ and 5 to 7 ‘Pune-Plus’ integrated townships.”
  • Meanwhile, India’s supplies 53 percent of the global offshore market for IT and business services, though the country has only about 27 percent of the pool of suitable talent (that is, people with the appropriate education and cultural orientation, as well as fluency in the necessary languages, usually English). The total value of the services off shored to date is around US $45 billion. Revenues from the Indian ITES sector are expected to double from the current US $8 billion to US $17 billion by 2008. At that level, ITES output would account for roughly 7 percent of the GDP of the country.
  • Captive units continue to dominate the BPO segment, accounting for over 65 percent of the value of work off shored. While independent/third-party vendors outnumber the captive units, the scale of work undertaken by each unit in the captive segment is significantly higher.
  • As India grapples with the shortage of trained and ready talent, many regions (such as Eastern Europe, Latin America, Southeast Asia and China) are emerging as attractive offshore destinations. However, India has an early mover advantage and there are over 400 companies operating in this segment.
  • In addition to the low-cost advantage, the other generic determinants are availability of proper infrastructure and lower country risk. All these factors have made Indian cities hot destinations for off shoring. In 2003, no more than 3 non-metros were linked to foreign cities by direct flights – the number has now gone up to 15 and the country is slated to be 35-market destination in the coming years.
  • The tasks being off shored in the BPO space include: call center work, data entry, and back-office operations. The five priorities common across the range of tasks include: speed and flexibility (5 percent and 28 percent), innovation and productivity (5 percent and 22 percent), risk (20 percent and 10 percent), quality (30 percent and 20 percent), and cost (40 percent and 20 percent). [Numbers in brackets reflect the change in the expectation of business customers from vendors in years 1 and in years 3 to 5 about business priorities].
  • Companies are also rethinking the value proposition of off shoring: executives who once regarded it only as a way to cut labor costs, essentially by replicating current onshore activities, now see it as a chance to raise revenues or capital productivity. In fact it’s almost no longer possible to talk about off shoring simply as a lever for labor cost arbitrage. Offshore costs have simply become the new baseline on which to build scalability and continue to improve productivity and revenues year after year.
  • With the income tax concessions for software companies coming to an end by March 2009 for units registered with STPI (Software Technology Parks of India) the demand for space in SEZs is likely to intensify further from such units seeking to continue enjoying the extensive fiscal benefits.
  • Cumulative office space demand over the next three years is projected to be in excess of 80 million square feet. IT software-BPO-KPO segments are expected to account for 70 percent of net absorption.
  • To fund this huge expansion, capital flows into corporate real estate is estimated at over US $5 billion over the next 3 years.
  • Potentially high occupancy levels combined with extensive fiscal benefits provided to developers make IT and ITES SEZs an attractive business proposition.
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