Electronics and Information Technology is the fastest growing
segment of Indian industry both in terms of production and exports.
Today, the electronics industry is completely delicensed with the
exception of aerospace and defence electronics, and alongwith the
liberalization in foreign investment and export-import policies
of the entire economy, this sector is attracting considerable interest
not only as a vast market but also as potential production base
by international companies.
In recent times, software development and IT enabled services
have emerged as a niche opportunity for India in the global context.
The Government of India is taking all necessary steps to make India,
a Global Information Technology Superpower and a front-runner in
the age of Information Revolution. The Government of India has announced
promotion of Information Technology as one of the five top priorities
of the country and constituted a National Task Force on Information
Technology and Software Development.
Information Technology Industry in India has the potential of tremendous
growth as a global IT solutions provider. Increasingly, India is
being regarded as the hub and the base for world-wide IT solutions
development. In addition to the global market that the Indian IT
industry is well placed to tap, there is also a huge market within
India to transform conventional brick and mortar industry through
IT solutions. Likely economic and industrial growth and a large
consumer base are the additional and significant growth drivers
for Indian IT industry.
Convergence of Information Technology, Communication, Entertainment,
Content and Consumer Electronics and the increasing penetration
of internet, PC, desktop sets, mobile phones, cable TV etc. should
result in a massive surge in world-wide demand for IT solutions
for internet based activities and e-commerce. India today is well
placed to offer quality and competitive IT products and services.
India's IT industry ranks among the fastest growing sectors within
the country's economy. Driven primarily by software exports, the
industry has been logging in extremely impressive year on year growth.
The software industry in fact has been growing well with a CAGR
exceeding 50% over the last five years, and only in the last year,
impacted by the worldwide economic downturn, has the momentum reduced
marginally. The Government of India projects an export of US $ 50
billion by the year 2008 for the Indian software industry.
India's international-class manpower, that creates high quality
software and services solutions is finding favor among overseas
customers. The success story being played out by the IT industry
at the global level is also being reflected on Indian soil, with
more and more organizations embracing IT. The Government too is
getting IT enabled and using state-of-the-art technology solutions
to bring greater benefits to Indian citizens and improve its internal
The software and services industry continues to play a dominant
role in the overall growth of the Indian industry. The Indian IT
Enabled Services - Business Process Outsourcing (ITES-BPO) sector
has emerged as a key driver of growth for the Indian software and
services industry. The ITES-BPO industry is estimated to have grown
by about 54 per cent with export revenue of $ 3.6 billion during
India has become one of the most preferred destinations for sourcing
software and IT enabled services. In comparison to other low cost
locations, India ranks high in several critical parameters, such
as, level of government support, quality of the labour pool, English
language skills, cost advantage, project management skills, entrepreneurial
culture, strong customer relationships and exposure to new technologies.
India's strength has been enhanced by the industry's strong focus
on quality software and processes.
Indian IT software and services industry is expected to account
for about 2.64 per cent of India's GDP and 21.3 per cent of exports
during 2003-04 and is projected to grow to 7 per cent of India's
GDP and 35 per cent of exports by 2008.
The number of professionals employed in India by IT and ITES sectors
is estimated at 813,500 as of March 2004. This work force comprises
260,000 professionals in the IT software and services export industry;
nearly 245,500 in ITES-BPO sector; 28,000 in the domestic software
market and over 280,000 in user organisations.
Major Initiatives in Information Technology Sector
E-Governnance : One of the areas in which Information
and Communication Technologies (ICT) is having a profound impact
is the way Governments function and the manner in which government
services are made available to citizens. This has had a revolutionary
impact on citizen's lives through the computerisation of the Railways
Reservation System at the national level, and through projects like
e-Seva and Bhoomi at the State level. Considering the potential
benefits which can accrue to the cirizens of this country through
the use of ICT, the government has approved the National e-Governance
The plan envisages formulation of certain core policies and strategies
to ensure a coordinated approach, creation of Core Infrastructure
required for the long-term growth of e-Government services and implementation
of a number of identified Mission Mode Projects to bring about a
citizen-centric and business-centric environment within the government.
The initiative also envisages provision of necessary guidance and
assistance to the State Governments for implementing in parallel,
a set of projects of national priority, as well as a set of integrated
services projects, which would help bring these various initiatives
onto a common platform for delivery of services in an integrated
manner to citizens and businesses. The Government has accordingly
identified 22 Mission Mode Projects which would be taken up on a
priority basis by the concerned Line Ministries/Departments and
the State Governments.
Community Information Centres: Based on the experience
of the Community Information Centres (CICs) in North-Eastern States,
it has been decided to set up 139 CICs in all the Block Headquarters
of Jammu and Kashmir at an outlay of over Rs 40 crore.
Rural Connectivity: An integrated approach for
universal rural connectivity is being worked out by dovetailing
the initiatives of Community Information Centres, Public Tele-information
Centres (PTICs) of the Universal Service Obligation Fund (USO) and
the scheme for Providing Urban Amenities in Rural Areas (PURA).
Indian Computer Emergency Response Team: Internet
has emerged as the preferred medium of communication. This open
system of sharing information needs a secure environment that prevents
prowlers from taking away or compromising digital assets. It is
essential to raise the confidence level of our own public so that
they can use the network with absolute faith for commerce, communication,
entertainment, software development and governnance and esnure the
safety of the government network. The Indian Computer Emergency
Response Team (CERT) has been set up at Delhi with a mirror location
at Bangalore to ensure that India's IT assets are appropriately
and adequately protected.
High performance Computing: C-DAC has established
a Terascale Supercomputing Facility (CTSF) at its Knowlege Park
at Bangalore using an indigenously developed high performance interconnect
switch and system software tools to extract maximum performance
from the supercomputing cluster of nodes. The applications, which
run on this system, are in the areas of Weather Forecasting, Seismic
Data Processing, Evolutionary Computing, Structural Mechanics, Computational
Fluid Dynamics and Bioinformatics. This system, PARAM Padma, figures
at serial number 171 in the list of World's Top 500 supercomputers,
announced by the International Consortium of Top 500 Supercomputers
at the International Supercomputing Conference (ISC-2003) held at
Braille Transcription: A computerized Braille
transcription and embossing system has been developed. This system
operates in English and all major Indian languages and enables blind
persons to read the files from a computer, using an indigenously
developed Tactile Braille Reader.
Task Force on Human Resource Development in IT:
A Task Force on human resource development in IT was constituted
in August 2003 to prepare a long-term strategy for significantly
increasing the number of trained IT professionals in the country.
The Task Force finalised its key findings and recommendations and
submitted its report in December 2003.
On-line Election Results, Budget and Examination Results:
On-line transmission of Election results for the States are being
facilitated through NICNET. The election feedback from the NIC was
used by Doordarshan and other channels for providing live transmission
of election results to the viewers. On-line transmission of the
Union Railway Budget and the Genral Budget was facilitated through
NICNET all over the country and was widely used by the media, industry
and other agencies. NIC also published the results of various examinations
on its web server (http://results.nic.in). The network also provided
the facility of downloading admit cards for certain examinations
directly from the net.
The Indian IT industry has the following constituents:
• Software and Services
• IT Enabled Services
• Internet Services
• IT Hardware
• IT Applications
IT Software and Services
The Indian software and services industry is responsible for placing
India on the global map. The world is today looking towards Indian
companies for outsourcing their software requirements and Indian
software majors are gradually moving up the value chain in terms
of capabilities and breadth of solutions offered.
The software and services sector is expected to employ around 522,000
professionals by March 2002. It is estimated that out of these 522,000
knowledge workers, almost 170,000 are working in the IT software
and services export industry, nearly 106,000 are working in the
IT-enabled services segment and over 220,000 in user organizations.
Apart from the high growth export segment, the domestic software
market also continued on its growth path, albeit gradually.
The domestic software and services market registered revenues of
Rs. 9,891 crore during 2000-01, up from Rs. 7,138 crore in the previous
year. For the year 2001-02, the domestic software sector is estimated
to gross Rs. 11,634 crore (US$ 2,449 million).
IT Enabled Services
India is now globally well established as an IT services destination.
In fact it is this success in the IT services sector that has empowered
the country to take its initial steps into the IT-enabled outsourcing
The Indian IT-enabled outsourcing market has its roots in the mid-1990s
when companies such as American Express, British Airways and GE
Capital set up captive units for customer support and transaction
processing services. Independent BPO vendors began emerging 3-4
years ago, though some healthcare BPO and CRM services companies
existed earlier. In the recent months, IT services companies have
also made a foray into the IT- enabled outsourcing realm.
Over the past decade then, India has emerged as a preferred location
for organizations planning to outsource a variety of services ranging
from call centers and other customer interaction services, insurance
claims processing, payroll processing, medical transcription, e-CRM,
SCM to back-office operations such as accounting, data processing,
and data mining.
This phenomenon is reflected in the fact that the ITES sector logged
in the highest growth among segments in India's burgeoning software
and services marketplace. Recording year on year momentum, the ITES
segment had a phenomenal growth of 70 percent during 2001-02, touching
Rs. 7,100 crore according to a study conducted by Nasscom. The survey
indicates that this growth is in line with overall global industry
trends, and is likely to continue over the next few years.
- The ITES segment is also attracting the attention of Venture
Capitalists, and around 40 percent of VC investments are expected
to go into this market by the end of 2002.
- While projecting an overall growth of 30 percent for the Indian
software and services sector during 2002-03, Nasscom has indicated
that this will include a blended growth of 22 percent in the IT
services space and 60-65 percent in the Itenabled outsourcing
segment. The ITES market, which grew at a hefty 71 percent during
2001-02, accounted for around 20 percent of the total software
and services export revenues in that period. Over the next 12
months, this revenue contribution is expected to rise to 24 percent,
according to the Nasscom study.
- The current trends also indicate that within the ITES segment,
insurance, banking and automotive are the key verticals opting
for these services. In terms of service lines, according to Nasscom,
telesales, benefits administration, credit/debit card services
are the major services lines.
- The indications are also there that the ITES market is growing
beyond the traditional metropolitan geographies of Gurgaon, Mumbai
and expanding to cities such as Chennai, Bangalore and Kolkata.
- In terms of the popular ITES/BPO models being followed in India,
captive centers are the most prevalent, accounting for about a
third of all employees in this market.
ITES: MARKET SEGMENTATION
The Indian ITES is currently segmented along the following lines:
- Customer interaction services (including call centers).
- Back office operations/revenue accounting/ data entry/data conversion
(including finance and accounting/HR services.
- Transcription/ translation services.
- Content development/ animation /engineering and design/GIS.
- Other services including remote education, data search, market
research and network consultancy and management.
According to a Nasscom analysis, the ITES market grew to Rs. 7,100
crore during 2001-02, the above table specifies the break-up of
the various ITES segments and their revenue.
ITES SEGMENTATION IN TERMS OF OWNERSHIP
According to McKinsey & Co., both the captive and third party
markets are expected to witness growth and market share expansion.
While the existing captive units, bolstered by their success will
scale their operations and move further up the value chain, other
global players, encouraged by the performance of their contemporaries
and the potential of the Indian ITES market will foray the Indian
market through partnerships with third party ITES players. At a
later stage some of these companies may opt for a direct presence,
they are likely to make an entry through third party players.
IT ENABLED SERVICES: SUPPORT FROM GOVERNMENT
Recognizing the growing importance of the IT- enabled outsourcing
sector, the Government of India has introduced various policy concessions
and initiatives to accelerate the growth of the market. The Indian
software and services industry, spearheaded by associations such
as Nasscom has also taken various steps to ensure that India becomes
the global hub for IT-enabled outsourcing in the future. Some of
the steps take by the Government and industry for the ITES/BPO sectors
are as follows:
In the month of May 2002, the Government of India has accepted
Nasscom's recommendations and removed certain procedural bottlenecks
that were hampering the growth of the Indian call center industry.
- Highlight of Telecom Recommendations
- Allow sharing of bandwidth for disaster recovery and mission
critical applications between multiple entities
- Permit sharing of bandwidth between multiple locations of
a single entity and also within the same group of companies
- Call Center approval should not to be customer-specific
- Allow Internet & IPLC connectivity on same LAN
- Allow connectivity of a LAN in an international call center
to a domestic ISP
- ITES companies be allowed to set up their own gateways
- The Government of India has allowed total income tax exemption
on the export of IT initiative enabled outsourcing services under
Sections 10A/10B of the Income Tax Act. They are:
- Customer interaction Services
- BPO / Back office operations
- Medical Transcription
- Legal databases
- Digital Content development
- Engineering & Design services
- Support Centres
- Payroll/ HR services
- Web-site services
- Data Digitization/ GIS and Online education
- Foreign Direct Investment (FDI) for 100 percent of the equity
has been permitted in BPO companies
- Duty-free imports of capital goods are permitted (under the
Export Promotion of Capital Goods scheme) for BPO companies.
- The Government has promoted several Software Technology Parks
(STPs) which provide ready-to-plug IT and telecom infrastructure.
STPs also allow single-window clearance for all regulatory compliance
issues. Currently, STPs have been established in 20 locations
across India covering most of the major towns/cities.
- Various Indian states have introduced regulatory and infrastructure-related
initiatives to encourage ITES investments within their territories
The Indian Scenario
According to industry estimates, the ITES market globally was of
the order of US$ 13.5 billion during 2000 and is expected to grow
to US $ 142 billion by 2008. The segments within ITES that will
witness tremendous growth include back office operations, remote
education, data search, market research and customer interaction
services. As per Nasscom-McKinsey report 1999, the ITES industry
can attain revenues of US $ 17 billion by 2008 and capture 12% of
India's irresistible and sustainable value proposition
India currently offers a strong value proposition of all IT enabled
services hubs owing to the following reasons:
- India's abundant skilled manpower is drawing corporate hubs
to back end their operations in India. The country's English speaking
manpower rates high in areas such as qualifications, capabilities,
quality of work and work ethics. This places India ahead of competitors
such as Singapore, Hong Kong, China, Philippines, Mexico, Ireland,
Australia and Holland, among others.
- India's telecom and physical infrastructure is approaching parity
with other countries
- Indian companies have unique capabilities and systems for setting,
measuring and monitoring quality targets. Nasscom is working with
international certification agencies to set standards.
- In certain ITES categories, Indian centers have achieved higher
productivity levels-for example, the number of transactions per
hour for back office processing, than their Western counterparts.
- Also, India is able to offer a 24x7 service and reduction in
turnaround times by leveraging time zone differences. India's
unique geographic positioning makes this possible.
- The regulatory environment, specially relating to ITS and ITES
is highly progressive and most of the earlier policy recommendations
made to the Government have been accepted and acted upon.
- Incentives such as income tax holiday until 2010 have been provided
for the export of IT enabled services.
- The Government of India has announced a special policy for call
- Many state governments in India are offering incentives and
infrastructure for setting up IT enabled services.
A comparison amongst some countries in Asia Pacific based on these
factors highlights the following: (Ratings are on a scale of 1 to
3, with 1 being the lowest and 3 the highest.)
1 denotes low; 2 denotes average; 3 denotes high
Source: Mckinsey & Co
Customer contact centers
Currently, the hottest growing segment within ITES is the Contact
Center Services activity, which accounts for almost over 80 percent
of the revenues generated by the sector. In this section we take
a detailed look at the Contact Center Services market and the opportunities
it offers to existing and potential players.
• Contact centers
• Medical transcription
• Back office operations, GIS, animation, engineering &
design, on-line training
Contact centers have become catalysts for business transformation,
freeing up businesses to focus on core activities. A contact center
can be any of the following:
- A telemarketing center
- A tele-servicing center
- A help desk, both internal and external
- An outsourced center (also known as a service bureau) that uses
its large capacity to serve multiple companies
- A reservation center for airlines or hotels
- A catalog retailer
- An e-tailing center
- An e-commerce transaction center that handles automated customer
- A fund raising and collection organization
The contact center is traditionally defined as a physical location
where calls are placed or received, in high volume for the purpose
- Customer service
- Technical support
- Specialized business activity
While early descriptions of contact centers called them places
of doing business by phone that combined a centralized database
with an automatic call distribution (ACD) system, today, these centers
have evolved to become sophisticated business enterprises providing
integrated services that are essential to the success of corporations
Staff called "agents" who work in shifts in a typical 24x7 operation
mans the centers. The "seats" in a contact center refer to the number
of people who can work at a given point of time. Contact centers
began as huge establishments managing a large volume of communications,
as only large companies had the financial muscle to invest in technologies
such as the Automatic Call Distribution system that allowed them
to handle huge volumes of calls. Today, however, with the development
of LAN based switches, Internet based transaction processing, and
open phone systems, any contact center can house advanced call handling
and customer management systems, including the smaller facilities.
A contact center can now range in size from a micro center with
5-10 seats to a huge set up with thousands of seats.
High on the latent potential scale
According to CM Insight of the UK, on a Latent Potential Scale
(Source: Political & Economic Risk Consultants), India ranks
the highest with a score of 2.0 in the segment of contact centers.
Countries such as Philippines, China, Australia, Japan,
Korea lag behind, proving India's edge. The study states that there
a is credible opportunity to place business safely in India. The
indications are that India is seen to have amongst the most professional
and capable business operations seen anywhere in the world. The
environment in the country is estimated to be world class, with
India scoring high in the areas of infrastructure, technology &
telecom, management leadership, processes & quality systems
and agent skills & attitude.
The medical transcription industry has its roots in the US market
where it emerged out of a Tmarket need. Bound by a strict code of
ethics and statutes, medical practices in the US require a high
level of documentation at every stage of the treatment. Owing to
the fact that this is a demanding and time consuming process, many
doctors/medical institutions in the US are outsourcing this activity
to trained professionals who convert voice files into typed forms.
The current practice is for doctors as to simply record their findings
through a dictaphone or some such device. These sound tracks are
then sent through datacom lines to overseas companies (where costs
are much lower) that employ "medical transcriptionists" who hear
these recordings, transcribe them into reports and send them back
electronically through datacom lines. Initially, it was only being
contracted out to companies that were in close proximity to these
hospitals. Increasingly, however to take advantage of lower costs,
this work is being sent abroad to countries such as India, Ireland,
Mexico, West Indies etc. Improving telecom infrastructure including
the high speed satellite links, is now making it possible to outsource
Medical transcription is the process whereby one accurately and
swiftly transcribes medical records dictated by doctors and other
medical professionals. The material transcribed includes, amongst
others, patient history and physical reports, clinic notes, office
notes, operative reports, consultation notes, discharge summaries,
letters, psychiatric evaluations, laboratory reports, X-ray reports
and pathology reports and other similar kinds of medical records.
Medical transcription may be carried out for any medical professional
operating out of a small clinic or a large hospital. These transcribed
records are used for purposes of archives, reference or for serving
as a legal proof of medical advice. The typical process of medical
transcription begins with receiving dictation by tape, digital system
or voice data file. Conventionally, recorded advice was sent through
physical means (i.e. a magnetic media). However, there is steady
emergence of a new practice. Using a toll free telephone line, doctors
can call up a designated number and dictate the message, which is
converted and recorded into a dedicated server on a real time basis.
This helps to save shipping costs and improves productivity manifold.
The parent US Transcription Company connects to this server through
a high speed data link (preferably Internet or ISDN link of 128
kbps or above) and downloads any fresh dictation left by customer
organizations/doctors. The digitalized data is then compressed and
encrypted, for onward transmission via satellite link to India.
The local transcription company can then start to immediately retrieve
the sound files, uncompress the data and route them to different
workstations for transcription. Using earphones and a foot pedal
for start-stop control, transcriptionists are able to hear and control
the speed of audio messages.
Back office operations, GIS, animation, engineering
& design, on-line training
Back office operations refer to the offsite delivery of a range
of non-core service functions, including routine administrative
tasks, customer service and technical support. Back office operations
manage an activity or function on a turnkey basis for their clients.
Any aspect of service operations that involves high volume transactions
is an opportunity for back office delivery.
Over the past 25 years, the types of service activities being outsourced
have changed considerably. Outsourcing, as we know it today, began
in the 1980s, when organizations began contracting out specialized
functions that were not part of their core business. The availability
of more cost efficient telecommunications supported corporate decisions
to scan globally for the technical skills they need and hence optimize
their use of talent.
The growth of the Internet and on-line connectivity made possible
the provision of technical support and problem resolution for customers
from remote locations. Contact center activity began to accelerate.
Finally this was followed by entire support processes getting outsourced
(business process outsourcing), as corporations began to focus primarily
or exclusively on their core business. Some of the earliest examples
were payroll processing and credit card processing.
Business Process Outsourcing
BPO involves turning over an entire function or business process
to a back office supplier (for instance the resource management
of an organization which may involve payroll and finance; information
technology; human resources; inventory management). As corporations
merge and consolidate operations, this trend towards outsourcing
basic business processes is becoming a new business model for international
Back office operations evolution
Initially, back office operations were created as captives of parent
companies and were treated as cost centers. Over the period, these
have evolved from cost centers to profit centers due to:
The emergence of third party back office facilities making it possible
for corporations to avail of their services on a flexible or "as
Corporations are increasingly converting captive back office operations
into profit centers by accepting external clients
Types of back office services
Today, back office services cover the following:
- Tax processing
- Claims processing
- Asset management
- Transcription and translation
- Document management
- Other administration
- Billing services
- Accounting transactions
- General accounting
- Tax consulting and compliance
- Risk management
- Financial reporting
- Financial analysis
- Financial management
- Other finance services
- Benefits administration
- Education and training
- Recruiting and staffing
- Payroll services
- Hiring administration
- Records management
- Other HR services
- Payment services
- Credit/debit card services
- Check processing
- Other transaction processing
Industries such as banks, insurance, airlines, telecom services
require large-scale data processing and data-based decision making
capabilities. Raw data and/or paper documents are sent to locations
where the back office operations (image retrieval, scrutiny of data,
data input, customer reports, internal MIS, reconciliation etc)
are carried out.
Significant potential exists for cost savings through outsourcing
across industry verticals. Hence, customer interest in outsourcing
will not be limited to just a few verticals, but be much more widespread.
Insurance and retail banking generate the bulk of savings because
of the high proportion of processes that they can offshore. As a
result, companies in these two verticals are taking the lead in
sourcing ITES from India and rapidly growing in scale.
For instance: GE has the largest ITES operation in India with more
than 10,000 employees and is growing at the rate of more than 700
people per month HSBC, which started offshore operations about two
years ago, currently employs about 1000 people and plans to double
that number in less than a year Conseco acquired a 350 agent company
and has grown the facility to more than 1700 people in a year.
Outsourcing opportunities vary from standaridised corporate centre
activities such as accounting, payroll, etc. to more niche and vertical
specific opportunities such as clinical trials support for pharmaceutical
companies, claims processing for the insurance sector, account opening
support for the banking sector, etc.
To calibrate the feasibility of outsourcing and the cost saving
potential of any process, a rigorous four step procedure needs to
- Lay out the entire value chain for the process.
- Break down each segment of the value chain into its constituent
- Identify the activities that can be performed remotely.
- Estimate the cost (labour and associated infrastructure) of
activities that can be outsourced to offshore locations.
- For example, in claims processing, most activities in origination
and closing can be offshored, while others require a physical
interface with the claimant and therefore cannot be offshored.
The current offshoring activity in insurance also suggests that
claims and servicing are the focus processes. Most companies that
offshore insurance processes to India started with simple low-complexity
claims and policy servicing processes. Now, the set-ups have also
started offshoring more complex claims, risk analysis and underwriting
Like insurance, there is tremendous opportunity in retail banking
too. For example, in loan processing, there are several activities
from origination to servicing which can be offshored. In application
entry to closing stages, the entire data entry, underwriting/credit
decisioning, communication and upsell to applicant and final document
preparation can be offshored.
Similarly, in fund disbursement to coupon delivery stages, the
review of closing documentation, booking of document to system and
general ledger reconciliation can be performed remotely. Several
service activities, e.g., handling internal and customer inquiries,
file management can also be outlocated. Several global financial
services are already taking advantage of this opportunity. For example,
HSBC provides supports for origination process among several others
from India. Similarly, Citibank uses its subsidiary eServe to support
cheque processing, customer service and trade finance processes.
Setting up a back office business
- The first step in setting up a back office business is arriving
at a mission statement, answering questions such as the strategic
objective to be achieved; benefits that will be offered to clients
and benefits that will accrue to the company.
- The competitive niche positioning will need to be identified.
This process will consist of analyzing the competition, defining
the type of service operations being planned, selecting the type
of ownership structure that is desirable and deciding on the type
of customer that will be targeted.
- In analyzing competition, companies will need to look at issues
such as prevailing reputation in back office services, prevailing
labor costs, prevailing telecom support, size of labor pool, regional
coverage, availability of training for labor force, incentives,
- Companies will have to determine their primary competitive niche
by looking at issues such as quality, speed and reliability, value
for money or flexible capacity.
- Players in the market will have to decide on the service offerings
they will introduce, based on the kind of telecom and labor infrastructure
- Companies will have to decide on the type of ownership model
they want to go for, like joint venture, network affiliate, local
Back office service providers will also need to determine the kind
of business and customer they will be going after. Readily available
market analysis and reports can be used to decide on the industries
that offer the most potential.
The Internet was hyped as a tool as revolutionary as the wheel,
the printing press, the telephone and the microchip. It was to enable
businesses and customers to conduct commerce virtually without the
need for intermediaries or physical assets, and hence to generate
significant value for new businesses and incumbents. The hype resulted
in astronomical valuations for dot coms that attempted to transfer
value from established "old economy" players to themselves. In India
too, massive venture capital flows into start-ups fuelled a "land
grab" phase. Leading companies bought into the threat that organizations
that did not aggressively embrace the Internet would suffer a competitive
disadvantage and so they aggressively invested in e-commerce applications.
A survey indicates that India's Internet subscribers increased
- from a meagre 0.7 million subscribers in November 1998 to over
1.8 million subscribers by 31 December 2000.
This significant boost to the country's Internet plans can be accounted
to the Government, which has announced several landmark decisions
that have helped increase Internet penetration in India.
Nasscom Internet survey conducted in 68 cities / towns in India
in January 2001 (accounting for over 92 percent of the total Internet
users in the country) on Internet Usage Trends and came up with
some interesting findings:
- More than 200 cities and towns in India have Internet connectivity.
- As of December 2000, there was a PC base of 5 million PCs. Out
of these, there were more than 3.7 million machines that had Pentium
I and above processors (i.e. machines which could be effectively
used for Internet).
- More than 120 private ISPs would be fully operational by June
31, 2001 (out of the projected 500 licenses to be given by that
- At least 12 private international gateways for Internet are
expected in the same period. Seven private international gateways
are already operational by December 2000.
- Over 81 percent of PCs sold during financial year 1999-2000,
were driven by the need to access the Internet.
- More than 86 percent of top 100 corporate companies (who responded
to the survey) have endorsed the Internet and e-commerce as being
an integral part of their corporate strategic framework for next
- 91 percent of India's corporate Web sites are located overseas.
- The capital cities (New Delhi and other state capitals) today
account for 79 percent of Internet connections across the country.
The Indian Scenario
The Net has virtually become a household name in India. The sudden
splurge in the Internet front is in a large way owed to the increasing
number of private ISP market mushrooming all over the country, offering
the cyber voyage for more and more competitive prices. In a splash
of time, Internet in India has come to be viewed as the most vital
medium for information, entertainment, communication and the sole
means for electronic commerce.
Today, everywhere one looks, the signs of Internet's arrival and
adoption loom large. And as the Internet proliferates, so will e-commerce
and e-business - this is now a universally recognized fact. Therefore
a boost in the expansion of the Internet in the country will not
only help India become a vital part of the emerging global e-conomy,
it will also enable its citizens to avail the benefits of the web
Though we still lag behind stalwarts like China, Japan and Taiwan
in terms of Internet usage yet the gradual quickening in the pace
of India's Internet growth can be judged by the India Internet Log
Book 2000, which reports over 1.8 million subscribers (and more
than 5.5 million users). And the estimated figure by 31 December
2003 is a whopping 50 million!
E-commerce in India
India is currently in the midst of an e-commerce revolution. The
arrival of the Internet followed by the escalating growth of Web-based
businesses is leading to e-commerce both on the B2B and the B2C
sides. The e-commerce trends in India are in perfect accordance
with the sweeping changes taking place in the global markets. Even
the Government has proved itself to be IT friendly and has taken
significant strides in the past few months to ensure that the economic
climate is ripe for e-business.
As per a Nasscom - McKinsey study 1999, India has the potential
to earn revenues worth US$ 10 billion by 2008 from e-business solutions.
(Both the domestic and export markets put together).
And the Indian players can achieve this goal by:
- Increasing their reach
- Establishing deep relationships
- And expanding the scope of businesses covered
As part of its survey on e-commerce, Nasscom also conducted a study
on the plans and capabilities of software companies in India. Some
of the preliminary findings on e-commerce / e-business software
exports potential are as follows:
- The study revealed that Supply Chain Management optimisation
and Customer Relation Management are going to be one of the strongest
drivers of the global e-commerce solutions market. And more than
72 percent of Indian software houses were found to possess strong
expertise in Supply Chain Management and CRM.
- Some of the areas of e-commerce services available are:
- Legacy application integration
- Internet application integration
- Migration to Web-based models
- New IT frameworks
- Integration with business strategies
- E-commerce training services
- The projections of revenues from Internet and e-commerce related
software and services exports were revealed as follows:
United States has already provided a three-year moratorium to not
levy any tax on e-commerce transactions. While our Finance Minister
has also announced that there will be no tax on e-commerce transactions
in the fiscal year of 2000-01, it is imperative that a clear-cut
policy of Government of India is formulated. The India government
has formed a high-powered committee on electronic commerce and taxation
under the Central Board of Direct Taxes. This committee is reviewing
the various aspects of e-commerce transactions and technology transfer
and evaluating whether these should be subject to income tax.
Nasscom has recommended a five-year moratorium on e-commerce transactions
and also suggested a comprehensive study on the various issues involved,
before a decision is taken to tax e-commerce. In fact, due to the
global nature of e-commerce, it is suggested that India should support
a permanent ban on taxes on Internet access, a permanent ban on
custom duties on electronic transmissions, international tax rules
that are neutral, simple and certain; and simplification of state
and local sales taxes.
The total volume of e-commerce transactions in India was about
Rs. 450 crore in 1999-2000. The Nasscom survey revealed that e-business
transactions in India are expected to exceed Rs. 2,300 crore in
2000-01 and go up to a whopping Rs. 40,000 crore in 2003-04.
The survey revealed that during the year 2000-01:
- E-commerce transactions did not grow to the level, as was initially
- The B2C segment was the biggest hit.
- E-tail segment is projected to earn only Rs. 50-60 crore.
- Whereas stock traded online are projected to have transactions
worth Rs. 1,200 crore.
- The total projections of e-commerce transactions during 2000-01
are at Rs. 2,300-2,500 crore.
A firm regulatory framework, improvements in telecom infrastructure
and enhanced PC penetrations are expected to spur this trend during
The user side: E-commerce means business! Some of the highlights
of the domestic e-commerce scenario based on the findings of Nasscom's
survey include the following:
- Among user organizations, more than 85 percent expressed keen
awareness about the increasing adoption of e-commerce and its
- More than 43 percent of corporate respondents said that e-commerce
transactions were integral to their corporate plans. Of these
nearly 85 percent were industries, which did not have direct or
frequent contact with end consumption.
- About 21 percent of companies already have some form of e-commerce
infrastructure in place. These have been facilitated through the
upgradation of existing IT systems or fresh installations or e-commerce
- More than 90 percent of the respondent cited perceived efficiency
in Supply Chain Management as a motive for business-to-business
e-commerce and enhanced customer service (Customer Relationship
Management) for business-to-consumer transactions. The other cited
benefits included moving towards Just-in-Time management.
- About 49 percent of the respondents said that given the right
framework and cost effective infrastructure, they would like to
move towards adopting e-commerce at the earliest.
- Some of the key industries that have high potential for early
adoption of e-commerce are financial (stock exchanges and banks),
automobiles, retail, travel, IT and manufacturing.
The IT Industry revolution in India rests on four pillars i.e.,
hardware, software, service and training. It is imperative that
there is uniform growth in all these sectors.
According to the figures of the recently formed Ministry of Information
Technology (MIT), the hardware production during the year 1999-2000
is expected to be Rs. 2000 crores. The PC production is expected
to be around 4 lac units during the year against an estimated demand
of 1.4 millions. The items of manufacture include personal computers,
servers, workstations, super-computers, data processing equipment,
and peripherals like monitors, keyboards, disk drives, printers,
plotters, digitizers, SMPS, modems, networking products and add-on
cards. The bulk production was in PII and PIII based PCs. Amongst
the printers, Ink Jet printers have been most popular.
The Government is projecting a PC penetration from the present
level of 3.43 per thousand to to 20 per thousand by the year 2008.
By the year 2001, the domestic demand of PCs is expected to increase
to 2 million units against 1.4 million units today. The sectors
that are emerging very fast are On-line Transaction Processing (OLTP)
and Small office home office (SOHO) sector.
The figures presented above are based on MIT statistics. It is
not known if these figures include Grey market and assembled computers,
which is fairly well established in India.
Indian Software Industry
Indian software industry has done exceedingly well during the
last few years, recording an annual average growth rate of above
50%. The size of the industry is likely to grow from Rs. 15,890
crores in 1998-99 to Rs. 24,300 crores in 1999-2000. A growth of
over 55 % has been recorded in software exports and is likely to
be Rs. 17,000 crores during 1999-2000. Domestic software business
is also witnessing significant growth from Rs. 4,900 crores in 1998-99
to Rs. 7300 crores in 1999-2000. The Indian software industry has
worldwide recognition for quality IT solutions.
Communication & Broadcasting
The thrust areas covered in this sector non-public network telecom
industry, wireless communication, user specific transmission, switching
and terminal equipment. The broadcasting sector broadly covers digital
broadcasting of audio and video, broadband access, digital compression,
digital storage and retrieval, hard disc based and optical technologies.
The production of communication and broadcasting equipment during
1999-2000 is estimated to be of the order of Rs. 4,800 crores, as
compared to production of Rs. 4,400 crores in 1998-99.
With the announcement of New Telecom Policy'99 (NTP), the opportunities
in the area of communicationand broadcasting are expected to grow
rapidly. Internet Service Providers (ISP) licenses have been given
to private sector, which will boost Internet & IT development
in the country. Private investments in telecom sector in value added
and basic services are being welcomed.
Internet Service Provider (ISP) have been permitted to set up international
gateways and to hire bandwidth on International Satellites. This
will enable the increased availability of Internet bandwidth and
will facilitate Internet expansion in the country.
IT in Power & Infrastructure
IT in association with power electronics is poised to play a key
role in the infrastructure industry. IT has been an integral part
of the power sector. SCADA systems for control rooms and for remote
control of the facilities is one of the established IT applications
in the power sector. Some of the other applications include
data-logging, automated controls and instrumentation and power plant
simulation for training purposes
IT is used in distribution automotion, metering, billing, analysis
and revenue protection in the distribution part of the power sector.
With the privatisation and restructuring underway in the power sector,
the potential for use of IT solutions has expanded immensely. Distribution
Automation projects are being taken up in Andhra Pradesh and WBSEB.
Power electronics in association with accompanying software is being
used in renewable energy projects for frequency, voltage and load
control as well as for the safety of the equipment. High voltage
power electronics is being used for electric supply to AC drives
and the grid.
One of the examples of IT and power electronics in high voltage
is the HVDC link of 200MW/200KV between lower Sileru in Andhra Pradesh.
Amongst the major gains in electronics and IT areas are:
• Power Electronics including Power Semi-Conductor Devices.
• State of the Art digital control system.
• System studies using computer and simulators
In transport, automated vehicle counting and traffic assessment
is an activity which will be on demand with privatization progressing
in the road sector. This activity will be particularly useful in
assessing the viability of any toll based project and also for determining
the toll structure. The system can also be used for Urban Traffic
Control. Global Positioning Systems and other communication devices
that can be placed in vehicles are also areas of IT applications.
Railways has been extensively using IT solutions. An intranet
for northern railways has been established with linkages to all
of its divisions. MIS programs using web technology have been implemented
a) monitoring rakes & wagon positions
b) movement of essential commodities
c) monitoring passenger complaints
d) movement of trains
A "Wireless Tag & Base Station" developed by the National Informatics
Centre (NIC) has potential applications in vehicles monitoring for
traffic control as well as verification in various State Government
Check-posts located through out the country.
There is wide applicability of IT in manufacturing including
process control, machining, assembly and simulation.
IT obviously has wide applicability in various utility related
activities that may include automation and control, analysis, monitoring,
billing etc. With several utilities planning modernization and upgradation
of their systems or with privatisation, restructuring and reforms,
IT is going to play an increasingly important role.
Some of the other areas of IT applications include education,
medicine, networking of universities and academic & research
facilities, high performance computing, multi-lingual applications,
entertainment, media, animation, rural networks, government networks,
regional networks, agriculture, trading and e-commerce, engineering
& material testing, computerisation of records and their analysis.