India’s computer and related services industry is expected to surpass that of China in 2014 and double over 013-2017, exceeding US$200 billion by the end of the period. This will firmly
put India among the three largest IT service providers in the world, together with the US and Japan. Indian and foreign companies benefit from an abundance of well-educated, English-speaking IT professionals on relatively low wages, coupled with tax incentives provided by the government.
Some of the tax benefits given to companies in the country’s Software Technology Parks (STPs) expired in March 2011 and they now have to pay profit tax on export revenue. However, the
industry remains highly profitable and the increase in taxation is unlikely to force a rethink among global IT giants as to the best location for their outsourcing operations. India’s computer and related services industry had a profit margin of 44% of turnover in 2011. This was significantly higher than 14% in the US, 21% in China or 22% in Germany.
Production value in selected countries
Source: Euromonitor International
Export revenues fuel growth
Despite having computer and related services industries of a comparable size, China and India are developing in very different ways. Whereas China is heavily focused on its domestic market and the development of local IT capacity to facilitate growth and military capability, its global IT presence is limited and so its computer and related services industry is no match for that of India when it comes to exports.
India’s position as a major computer and related services outsourcing hub is illustrated by the fact that the local industry exported 74% of its output in 2011. It stands out in a global context as the next largest exporter of computer and related services in relative terms was Germany, with just 22% of output exported. Software development will continue to generate more than two-thirds of the industry’s revenue as global IT giants expand their presence in India.
The Indian government and private enterprises have invested heavily in establishing technology clusters such as STPs in cities across the country, aimed at boosting export revenues. These are home to some of the largest international IT companies such as Microsoft, Google and IBM as well as Indian corporations Mahindra Satyam, Infosys and iGATE Patni (formerly Patni Computer Systems), among others. Entities established in STPs have benefited from tax exemptions, duty free imports and other incentives.
Bangalore is by far the largest IT hub in India and accounts for approximately one-third of total computer and related services exports. Other key centres are Chennai, Hyderabad and Pune. These cities have been named by the World Bank Group as being among the fastest growing and the best in which to do business in India, in no small part thanks to their computer and related services industries.