State of IT industry: The Indian IT services sector is projected to witness slow growth in the financial year 2024-25. According to a report by ICRA, the sector is expected to post revenue growth in the mid-single digits, estimated at 4-6%, slightly higher than the 3.8% growth recorded in FY24. This modest improvement reflects persistent headwinds, including lower demand and its subsequent impact on hiring. The report predicts that job openings in the sector will see a significant uptick only by the end of the first half of FY26.
Supporting these projections, UnearthInsight, a market intelligence firm, estimates the industry will achieve growth of 5-6% in FY25, surpassing the $265 billion milestone. The IT industry is expected to post a compound annual growth rate of 7-8% until 2030.
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Challenges facing the IT industry
Geopolitical uncertainty: The recovery seen in the second quarter of FY25 could face volatility due to the political change in the United States. The return of Donald Trump to power may result in stricter work visa policies, given his firm stance on immigration. This could challenge India’s position as a global outsourcing hub, as anti-outsourcing policies gain traction in the US. Indian IT firms have taken steps to mitigate these risks, including increasing local hiring in onsite markets, relying more on subcontractors, and establishing near-shore delivery centres.
Global competition and economic slowdown: Growth in developed economies has slowed, and India’s IT/ITES sector faces rising competition from countries like the Philippines, China, and Costa Rica. Additionally, the industry grapples with a shortage of skilled professionals and limited venture capital funding.
Technological and cybersecurity challenges: While companies worldwide race to pioneer technologies like generative artificial intelligence (GenAI), its adoption remains nascent. According to ICRA, GenAI as a service generates revenue of $5 million to $10 million per project, constrained by the low modernisation levels of enterprise resource planning (ERP) platforms among Fortune 2000 firms. Cybersecurity threats in cloud computing, e-commerce, and digital payments also loom large.
Lagging innovation: India lags significantly in patent filings and grants compared to global leaders like China and the US. In 2020, India accounted for only 4% of China’s patent filings and 9.5% of those in the US. This gap underscores India’s neglect of research and development in emerging technologies, which could erode its global competitiveness.
The global IT industry is experiencing a transformative phase, with artificial intelligence (AI) at the forefront of this evolution. AI has become a pivotal driver of innovation across various sectors, enhancing efficiency and enabling new capabilities. Gartner’s Top 10 Strategic Technology Trends for 2024 highlight the increasing integration of AI into business processes, emphasising its role in decision-making and operational optimisation. This global shift towards AI and other emerging technologies underscores the imperative for industries worldwide to adapt and invest in digital transformation to maintain competitiveness.
Strategies for revitalising the IT industry
IT companies, heavily reliant on human capital, must prioritise upskilling their workforce in areas like AI, machine learning, and data science. Failing to adapt could lead to significant job losses and diminished competitiveness.
The government should invest in education and training, aligning school and university curricula with the evolving needs of employers and the global technology landscape. Collaborations between IT firms and academic institutions can ensure that curricula remain relevant. Policymakers must address the reasons behind India’s lag in innovation and patent filings. Incentivising research and development through funding and policy support can catalyse progress in emerging technologies.
India’s IT exports remain concentrated in a few regions and heavily dependent on the US and European markets. Andhra Pradesh, Karnataka, Maharashtra, and Tamil Nadu account for 80% of total exports from Software Technology Parks of India (STPIs). Expanding to new markets can help mitigate regional volatility and foster resilience.
Since 2021-22, the global economic slowdown has significantly impacted the IT industry, with clients curtailing discretionary spending and project pipelines shrinking. However, projections of global economic stabilisation in 2025 offer renewed hope. By addressing domestic challenges and leveraging emerging opportunities, the Indian IT industry can position itself for a brighter future, maintaining its status as a global leader in technology services.