IT industry to touch $350 bn in revenue by 2025: Nasscom

New Delhi: The Indian information technology (IT) and services industry is set to more than double its revenue to touch $350 billion by 2025, riding on the global digital disruption due to rise of SMAC (social, mobility, analytics, cloud), the Internet of Things (IoT) and robotics, among other things, according to the new projection released by software lobby Nasscom based on research conducted by McKinsey and Co. on Monday.

The government’s flagship programme Digital India, which aims to put all government services online, is expected to act as catalyst for the industry’s growth, says the report.

The Indian IT industry, which includes IT services, products, business processes management (BPM) and engineering, research and development, is estimated at $132 billion in 2014-15, a sixfold increase in the last decade.

India’s IT industry is “well on track” to achieve $225 billion in revenues by 2020 and $350 billion industry by 2025 with digital emerging as one of the biggest opportunities, the report said.

While digital technologies include everything from SMAC, IoT, robotics, automation and artificial intelligence, enterprises look at it as services that help them connect with customers, automate, analyse and innovate, said Vikash Daga, director, McKinsey and Co. Inc., the knowledge partner for the report.

“Digital is the new extent to which digitization of processes is becoming pervasive,” said James Manyika, director, McKinsey Global Institute.

According to the projection, global spending on digital technology, which stands at 10% of the total expenditure at present, is projected to increase to 35% by 2020 and 60% of the total spend by 2025.

“This is an exciting as well as a terrifying time. Exciting because there is a tremendous potential for growth, and terrifying because we don’t know what the implications will be (of the digital disruption),” said Noshir Kaka, managing director, McKinsey and Co., India.

Driven by the adoption of digital technology, the total addressable market for global technology and business services is likely to expand to $4 trillion by 2025 from $2.8 trillion in 2014, the report said.

This presents a huge opportunity for Indian IT firms, but challenges are galore. “There is a tremendous churn happening in the sector. There are challenges that Indian IT sector need to be overcome before that can happen,” said R. Chandrashekhar, president, Nasscom.

The challenges, he said, range from regulatory hurdles such as difficulties in starting and exiting businesses in India, taxation issues and data security. But the major concern remains the projected 15-25% drop in the legacy expenditure—spendings on infrastructure, traditional application development and packaged software—over the next five years. The situation has been complicated by the fact that technology service providers will have to adjust and reposition themselves to grab the digital opportunity.

“Given the amount of churn, success will go to those who read the messages right and are able to adapt, adjust and reposition themselves to the continuously changing reality,” said Chandrashekhar. “So it is a wake-up call.”

Of the $350 billion projected revenues, domestic sector is expected to contribute about $70 billion in 2025. The domestic IT industry, estimated to be $34 billion in 2014-15, is poised to grow at a compounded annual growth rate of 10-11% over the next decade to reach $70 billion as Indian government and Indian enterprises focus on bringing digital technologies mainstream.

The government has committed more than $16 billion on projects, including smart cities and Bharat Net, said the report.

Nasscom has also laid out the five-point action plan needed to overcome these challenges—fostering innovation. creating ecosystem for start-ups, reskilling people, rebranding Nasscom to position India as a innovation hub. and regulatory support to protect intellectual property and strengthen cyber security laws among other things.

To promote innovation, Nasscom in partnership with the IT ministry has opened up centre of excellence for IoT in Bengaluru and will be replicating the same across the country, said B.V.R Mohan Reddy, chairman, Nasscom. For rebranding and positioning India as an innovation hub, Nasscom has roped in Vijay Shekhar Sharma, founder and chief executive officer (CEO), PayTm; Naveen Tewari, CEO of InMobi, and Rohit Bansal, co-founder of Snapdeal, among others.

While India’s IT sector is increasingly relying on non-linear growth models that require fewer people on projects by automating many tasks that previously required the presence of engineers, employment within the industry has become more or less stagnant.

“In 2013-14, the hiring was at about 230,000-240,000 fresh jobs. Though the industry is growing at about 12%, hiring will continue to be at the same number,” said Chandrashekhar. “We are seeing a gentle decline in the proportion between growth and revenue and growth and employment”

“Employment directly within the sector is slowing down, but the impact and multiplier effect outside the sector which has been caused by IT industry is growing,” he added.

On the forthcoming US elections where one of the common agenda is to cut down on jobs outsourcing and its impact of India’s IT sector, Chandrashekhar said: “No action on legislative front is likely before the election, but plenty of action is likely on the rhetoric front in the run up to the election.”

“What we need to be careful about is that the rhetoric does not present a distorted picture of what the Indian IT industry,” he said.