Outsourcing Report.

Q3 2010
www.businessmonitor.com
INDIa
information technology Report
INCLUDES 5-YEAR FORECASTS TO 2014
ISSN 1750-5062
Published by Business Monitor International Ltd.
INDIA INFORMATION
TECHNOLOGY REPORT
Q3 2010
INCLUDES 5-YEAR FORECASTS TO 2014
Part of BMIs Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: July 2010
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India Information Technology Report Q3 2010
Business Monitor International Ltd Page 2

CONTENTS
Executive Summary ......................................................................................................................................... 5
SWOT Analysis ................................................................................................................................................. 8

Indian IT Sector SWOT .......................................................................................................................................................................................... 8
Indian Telecoms Industry SWOT ........................................................................................................................................................................... 9
India Political SWOT .......................................................................................................................................................................................... 10
India Economic SWOT........................................................................................................................................................................................ 11
India Business Environment SWOT ..................................................................................................................................................................... 12
IT Business Environment Ratings ................................................................................................................ 13

Asia IT Business Environment Ratings ................................................................................................................................................................ 13
Table: Asia Pacific IT Business Environment Ratings ......................................................................................................................................... 13
Asia Regional IT Markets Overview.............................................................................................................. 16
India Market Overview ................................................................................................................................... 23

Government Authority.......................................................................................................................................................................................... 23
Industry Developments ........................................................................................................................................................................................ 33
Table: IT Industry Tax ......................................................................................................................................................................................... 36
Industry Forecast Scenario ........................................................................................................................... 38

Table: India IT Sector US$mn Unless Otherwise Stated ................................................................................................................................... 41
Country Context ................................................................................................................................................................................................... 42
Table: Rural/Urban Breakdown, 2005-2030 ....................................................................................................................................................... 42
Table: Consumer Expenditure, 2000-2012 (US$) ................................................................................................................................................ 42
Internet ..................................................................................................................................................................................................................... 43
Table: Telecoms Sector Internet Historical Data & Forecasts ...................................................................................................................... 43
Macroeconomic Forecast ......................................................................................................................................................................................... 45
Table: India GDP By Expenditure, % Of GDP ................................................................................................................................................. 47
Competitive Landscape ................................................................................................................................. 48

Table: Regional Broadband Penetration Overview ............................................................................................................................................. 54
Company Profiles ........................................................................................................................................... 55

IBM India............................................................................................................................................................................................................. 55
Wipro (India) ....................................................................................................................................................................................................... 57
Microsoft India .................................................................................................................................................................................................... 59
Tata Consultancy Services (TCS)......................................................................................................................................................................... 60
Country Snapshot: India Demographic Data............................................................................................... 61

Section 1: Population........................................................................................................................................................................................... 61
Table: Demographic Indicators, 2005-2030 ........................................................................................................................................................ 61
Table: Rural/Urban Breakdown, 2005-2030 ....................................................................................................................................................... 62
Section 2: Education And Healthcare .................................................................................................................................................................. 62
Table: Education, 2002-2005 .............................................................................................................................................................................. 62
Table: Vital Statistics, 2005-2030 ........................................................................................................................................................................ 62
Section 3: Labour Market And Spending Power .................................................................................................................................................. 63
Table: Employment Indicators, 1996-2001 .......................................................................................................................................................... 63

Table: Consumer Expenditure, 2000-2012 (US$) ................................................................................................................................................ 63

Table: Average Annual Manufacturing Wages, 2000-2012 ................................................................................................................................. 64
BMI Methodology ........................................................................................................................................... 65

How We Generate Our Industry Forecasts .......................................................................................................................................................... 65
IT Industry ........................................................................................................................................................................................................... 65
IT Ratings Methodology .................................................................................................................................................................................... 66
Table: IT Business Environment Indicators ......................................................................................................................................................... 67
Weighting............................................................................................................................................................................................................. 68
Table: Weighting Of Components ........................................................................................................................................................................ 68
Sources ................................................................................................................................................................................................................ 68

Executive Summary
Indias potentially vast IT market appears to be positioned for a strong recovery in 2010 thanks to an
improving economy. Computer shipments were up by as much as one-third in the first quarter of 2010,
compared with the same period of 2009, although shipments have yet to return to the high-water mark
recorded before the global economic crisis.
The Indian addressable market for IT products and services is now projected to increase from US$16.0bn
in 2010 to US$32.7bn by 2014. IT spending was down significantly in H109, which brought a double-
digit annualised shipment decline in PC sales, but growth had resumed by the fourth quarter. Stronger
growth in enterprise spending is expected in 2010, and government procurement should also grow
robustly, along with opportunities in healthcare, education, telecoms and financial services.
The long-term potential of Indias IT market is plain: less than 3% of people in India own a computer
(about one-fifth of the level in China), meaning particular potential in the lower end product
range. However, realisation of this long-term growth potential depends on fundamental drivers such as
raising Indias low computer penetration, rising incomes, falling computer prices and the governments
ambitions to connect the vast rural areas to the outside world.
Industry Developments
According to latest figures from Indian IT association Nasscom, Indias technology and business services
revenues accounted for 6.1% of GDP in 2010, up from 1.2% in 1998. This was despite the fact that
earlier Nasscom had downgraded its growth projections for the domestic IT sector as a result of the global
economic crisis. IT and business process outsourcing (BPO) exports grew only 5.5% in 2010, due mainly
to IT budget cutbacks by clients in Western countries.
The governments five-year e-government plan, unveiled in 2006, was assigned a nominal budget of
INR23,000 crore through 2011. The budget covered 26 core projects including agriculture, income tax,
pensions, land records and passports. However, as of the end of 2009, many of these projects had yet to
be awarded, or even tendered.
A key driver of informatisation in the government sector is likely to be the e-ID card programme, which
took a step forward in June 2009 when the government announced a new head for the Unique Identity
Authority of India. After repeated delays, the project is still at a very early stage. However, it has been
estimated that the total cost of the project could be at least INR1.5bn lakh crore. The project received a
boost in January when a court suggested that national ID cards should be made mandatory for all
citizens.

Competitive Landscape
In 2010 PC vendors were positioning themselves to take advantage of expected strong growth in the
Indian market in 2010. HP is estimated to be the current leader in the brand PC market, ahead of rivals
Dell and Acer. In H110 Acer claimed to be selling around 35,000-37,000 notebooks a month, of which
around 15-18% were netbooks. The company has forecast that it will achieve 30% volume growth in the
Indian market in 2010, growing faster than BMIs estimate for the market as a whole.
Korean consumer electronics company Samsung is relying on the netbook segment to spearhead its
assault on the Indian PC market in 2010, and is targeting a 20% segment share. Relatively disappointing
netbook sales in H109 were attributed in part to a lack of bundling offers by telecoms operators, but in
H209, leading Indian market PC vendors including Asus, HCL and Dell pursued tie-ups with telecoms
companies to bundle mobile data packages with their netbooks.
Software and IT services vendors are eyeing opportunities to profit from growing interest in cloud
computing. Microsoft announced in May 2010 that IT firms NIIT, Cognizant and CDC Software would
partner with the Indian Institute of Science (IISc) to build solutions and conduct training based on
Microsofts cloud computing platform Windows Azure. Meanwhile, Indian IT companies like Wipro,
Infosys, TCS, HCL and Mahindra Satyam are developing cloud computing applications and solutions
for verticals ranging from financial services and banking to manufacturing.
Computer Sales
BMI now estimates that the Indian market for PCs (including notebooks and accessories) will be worth
around US$6.4bn in 2010, up from US$5.3bn the previous year. Shipments were up by as much as one-
third in Q110, showing continued improvement as the rate of growth exceeded that recorded in Q409.
The main driver was once again the consumer PC segment.
BMI predicts that the market will grow at a compound annual growth rate (CAGR) of 15% between 2010
and 2014, with unit sales resuming strong growth. Despite the economic headwinds of 2009, the market
has a number of potential strong growth drivers. Business demand could receive a lift in 2010 from
tenders deferred from 2009. The business segment also saw growth in Q110, and sales of Microsofts new
Windows 7 operating system and new Intel core technology could also help to trigger a new cycle of
hardware upgrades.
Software
The Indian software market should continue to record healthy growth, with software spending CAGR for
2010-2014 projected at 16%. In H110, vendors reported that enterprise IT spending was trending
upwards, with stronger demand for technology from the small and medium-sized enterprise (SME)
segment. Despite the recent economic headwinds, the local market is likely to grow strongly in 2010, with
more projects from key IT-spending verticals such as financial services, telecoms and consumer goods.

In recent years, the SME market in India for hardware deployment has grown, and this has resulted in an
increasing opportunity in this segment for applications. More demand for solutions and hardware now
comes from second- and third-tier cities. Industry reforms and privatisations, government regulations and
new global competition have encouraged SMEs to use more technology. Recently, there has been an
increased enthusiasm for hosted applications and software-as-a-service (SaaS), which improved telecoms
infrastructure makes more feasible.
Services
Indias IT services market is estimated at around US$6.2bn in 2010 and is projected to grow to
US$13.6bn in 2014.The Indian market has traditionally been low margin, with Indias IT majors such as
Infosys, Wipro and TCS focusing most of their attention outside the domestic market.
Particularly following the US and global economic downturn, however, vendors are now more attuned to
the growing size of the Indian IT services market opportunity.
Over the next one to two years, vendors are expected to compete for a share of significant spending on
major public sector IT projects such as ID cards, e-government and railway modernisation. There is an
increasing number of large projects, particularly from the government, but also from key verticals such as
banks, telecoms, defence, manufacturing and retail. A significant opportunity will be created by demand
from Indian businesses and government agencies for help to utilise cloud computing, which is driving
data-centre investments.
E-Readiness
Broadband subscriber numbers have consistently fallen behind target in India. The main reason for the
slow uptake is thought to be insufficient demand, although the government has taken some measures to
reduce tariffs and encourage alternative forms of service provision. One brake on PC penetration is a poor
dial-up internet home-user experience, even in cities. If this is to change, the government must take the
initiative in improving bandwidth availability. Government plans to encourage WiMAX network
deployment may have some impact on penetration.
Key Issues For Investors

Despite a cheap and well educated workforce, Indias business environment is impeded by excessive
government regulation. Foreign equity holdings remain restricted in many sectors. Hiring and firing
procedures, meanwhile, are governed by rigid labour laws, under the terms of which companies
employing more than 100 people need the permission of the local chief minister to lay off workers. Other
concerns include: the 670-odd industries reserved for small-scale producers; high import tariffs levied on
foreign-made goods; failing infrastructure and, above all, poor power supplies; and a corrupt bureaucracy
needed to approve permits for even the most routine tasks. India is now fast-tracking the creation of
South East Asian-style special economic zones aimed at tackling some of these bottlenecks.

SWOT Analysis
Indian IT Sector SWOT
Strengths ! Abundant availability of skilled and technically qualified manpower with English-
language proficiency.
! A major global centre for outsourcing, including business process outsourcing (BPO).
! Domestic IT project sizes increasing.
Weaknesses ! Weak IT patent protection and high piracy rates.

! Ministry of Communications and Information Technology often slow to bring forward
regulations and guidelines for IT sector.
! Low incomes and regional disparities.
! Multinationals dominate; still no global Indian IT software or hardware brands.
! Red tape and rigid labour laws.
Opportunities ! Hardware sector growth set to accelerate after a number of government measures to
encourage domestic manufacturing and new investment incentives under
consideration.
! Government creating framework to meet ambitious targets for IT investment in regions
such as Chennai.
! Recovery in demand for research and development services.
Threats ! Global economic slowdown and rising costs will impact on consumer and business
sentiment.
! The financial crisis will hit key financial sector outsourcing clients.
! Competition from China and other Asian countries for global BPO market share.
! Moves to stimulate the hardware sector are having mixed results.

Indian Telecoms Industry SWOT
Strengths ! Mobile subscriber growth continues to be strong.

! The market benefits from a healthy degree of competition.
! The mobile market plays host to a large number of strategic investors including
Singapores SingTel, Vodafone of the UK, Telekom Malaysia, Norways Telenor,
Etisalat of the UAE, Japans NTT DoCoMo and Russias Sistema.
! Regulatory framework is generally seen as having helped to facilitate competition and
an attractive business environment for telecoms sector investors; government
continues to loosen the restrictions on foreign participation in the telecoms market.
! Demand for mobile value-added services is strong and expected to grow.
Weaknesses ! Mobile market is still highly skewed towards prepaid users; inactivity levels are thought
to be high.
! The dominance of prepaid services has contributed to declining mobile average
revenue per user (ARPU) levels.
! Disagreements between the telecoms regulator and various government ministries has
led to delayed policy implementation in a number of areas, most notably in 3G
licensing.
! Despite major ongoing investments, mobile network infrastructures in rural areas
remain limited.
Opportunities ! The regulator has recommended that foreign operators should be allowed to
participate in the upcoming auction for 3G spectrum without a local partner.
! The government is currently considering recommendations made by the telecoms
regulator to allow the operation of mobile virtual network operators (MVNOs) in the
mobile market.
! The government will cut licence fees by up to 33% for operators whose services cover
more than 95% of the residential areas in a circle.
! Deployment of next generation network infrastructures and the launch of new
multimedia mobile handsets should have a positive impact on data service usage.
! All leading operators have been actively deploying multimedia content services,
providing opportunities for content providers.
! The proportion of prepaid users relative to postpaid subscribers remains high this
provides the operators with opportunities to migrate prepaid users to contract tariffs.
Threats ! Danger that the current slowdown in domestic consumption will impact negatively on
mobile market.
! Uncertainty as to whether spectrum allocations for 3G services will be sufficient;
severe lack of spectrum in nine of the 22 calling circles.
! Government plans to increase spectrum usage charges for telecoms companies
planning to offer 3G services could negatively affect the 3G licensing process.
! Network capacity, particularly in mobile market, could struggle to keep up with
demand.
! Mobile number portability will make migration between operators easier, thus adding
pressure on operators to retain existing customers.

India Political SWOT
Strengths ! India is the worlds largest democracy. A secular constitution, framed in 1950,
officially guarantees justice, liberty and equality while aiming to promote fraternity
among the citizenry. More than 1,000 political parties registered for the April-May
2009 general elections, competing for the preference of Indias 714mn eligible
voters.
! Despite its multitude of problems, India has generally managed to avoid hard
authoritarian rule or military coups, which have happened in many other developing
countries, including Indias neighbours Bangladesh, Myanmar and Pakistan.
Weaknesses ! Large coalition governments complicate policy-making at the centre, as coalition

partners and outside parties pursue their own agendas. The competence of state
government varies enormously across Indias 35 states and union territories.
! Indias tense relationship with Pakistan still weighs on regional stability. The two
countries have gone to war three times since they were partitioned on
independence from British rule in 1947.
Opportunities ! India has in recent years edged closer to the US in foreign policy. The fact that
both the US and India are democracies, facing threats from militant Islamists, plus
the presence of a 2mn-strong affluent Indian diaspora in the US, is bringing the two
countries closer together.
! Thawing relations with Pakistan, following the earthquake crisis in October 2005
and a tentative peace process initiated in 2004, has made it easier for the parties to
defuse potentially explosive situations, such as the Mumbai attacks in November
2008, which Islamabad acknowledges were planned and launched from its
territory.
Threats ! Hindu nationalism presents a growing threat to Indias constitutionally enshrined

secularism. Communal skirmishes between the Hindu majority and minority groups
have sometimes erupted into violence, such as the Gujarat riots in 2002.
! India has experienced a series of serious terrorist attacks over the past two years,
perpetrated by radical Islamist and rural Maoist groups. The Naxalite attacks of
April 2010 have raised the spectre of further violence.

India Economic SWOT
Strengths ! India has a very large domestic market, and rising domestic demand is a major
driver of economic growth.
! A vast supply of inexpensive but skilled labour has turned India into the back office
of the world. Around half of the population is under the age of 25.
! Booming exports of IT-enabled services, from call centres to software developers,
are a valuable source of foreign exchange.
Weaknesses ! Despite rapid economic growth, India remains a very poor country. According to
BMI estimates, Indias GDP per capita was roughly US$1,100 in 2009, a third of
the size of Chinas.
! Agriculture remains inefficient and poor monsoon rains can slash rural incomes
and consumption. Two-thirds of the population depend on farming for its livelihood.
! India has chronic trade and fiscal deficits, the latter of which is ballooning due to
fiscal stimulus measures. The government spends a significant part of its revenue
on interest payments, salaries and pensions. This limits the amount of money
available on infrastructure improvements.
Opportunities ! Indias emerging middle class will continue to drive demand for new goods and
services. A wealthier society, combined with tax reforms, would serve to boost
revenue receipts, relieving fiscal pressures.
! The government has implemented some tax reforms, and a uniform goods and
services tax to be implemented in FY2010/11 should help boost compliance,
thereby raising government revenue.
Threats ! Indias dependency on oil imports is problematic. This undermines the trade
balance and makes India vulnerable to energy price-driven inflation.
! India is at risk of severe environmental problems. Many of its cities air and rivers
are heavily polluted, raising questions about the sustainability of the economys
rapid growth.

India Business Environment SWOT
Strengths ! India is now one of the biggest recipients of foreign direct investment (FDI) among
emerging markets, having attracted US$36.7bn of inflows in 2008, according to the
United Nations Conference on Trade and Development (UNCTAD) a 60%
increase from the previous year.
! An inexpensive but skilled English-speaking labour force can do the jobs of
Western workers for a fraction of the wages paid in North America or Europe.
Weaknesses ! Despite pockets of excellence, such as the IT sector, overall literacy rates in India
remain far lower than in Asian and other key emerging-market nations.
! Indias infrastructure is notoriously inadequate. A 500km road journey can take as
much as 24 hours, owing to poor road conditions, congestion and toll booths.
! The competitiveness of local firms is undermined by reams of official red tape, from
foreign investment restrictions to inflexible labour laws.
! Intellectual property rights are poorly protected in India. India is one of 11 countries
on the priority watch list for 2009 compiled by the Office of the US Trade
Representative.
Opportunities ! India could enhance the competitiveness of local industry through further
liberalisation and deregulation.
! Ongoing infrastructure projects ranging from roads, railways and airports should
provide opportunities for foreign investors for many years to come.
! Indian Prime Minister Manmohan Singh is eager to reform the banking sector in
order to increase the availability of long-term financing, particularly for large
infrastructure projects.
Threats ! The arrival of Western players, including management consultants Accenture and
technology giant IBM, is bidding up local wages in the outsourcing sector. India
faces growing challenges from countries such as Vietnam and potentially
Bangladesh in a variety of sectors.
! China still remains a major competitor for FDI flows into India. India has excessive
bureaucracy and poor infrastructure in comparison with China.
! The November 2008 Mumbai terror attacks demonstrated that security issues will
increasingly be in investors considerations.

IT Business Environment Ratings

Asia IT Business Environment Ratings
Table: Asia Pacific IT Business Environment Ratings
Risks To Realisation Of
Limits Of Potential Returns Returns
IT Country Market Country IT BE Regional

Market Structure Limits Risks Risk Risks Rating Ranking
Australia 56 100 71 80 71 75 72.2 1
Singapore 53 100 69 70 84 78 71.9 2
Hong Kong 48 95 65 70 87 80 69.4 3
South Korea 52 75 60 75 71 73 63.9 4
Malaysia 41 50 44 35 77 60 49.2 5
China 52 35 46 35 68 55 48.7 6
India 49 15 37 45 58 53 41.9 7
Philippines 37 45 40 43 50 47 41.9 8
Thailand 40 20 33 35 73 58 40.5 9
Indonesia 38 35 37 35 52 45 39.2 10
Sri Lanka 30 10 23 35 43 40 28.0 11
Scores out of 100, with 100 highest. The IT BE Rating is the principal rating. It comprises two sub-ratings, Limits Of
Potential Returns and Risks To Realisation Of Returns, which have a 70% and 30% weighting respectively. In turn,
the Limits rating comprises Market and Country Structure, which have a 70% and 30% weighting respectively and
are based upon growth/size/maturity/govt policy of IT industry (Market) and the broader economic/socio-demographic
environment (Country). The Risks rating comprises Market Risks and Country Risk, which have a 40% and 60%
weighting respectively and are based on a subjective evaluation of industry regulatory and IP regulations (Market) and
the industrys broader Country Risk exposure (Country), which is based on BMIs proprietary Country Risk ratings.
The ratings structure is aligned across the 14 industries for which BMI provides Business Environment Ratings
methodology and is designed to enable clients to consider each rating individually or as a composite, which the choice
depending on their exposure to the industry in each particular state. For a list of the data/indicators used, please
consult the appendix at the back of the report. Source: BMI
BMIs Asia IT Business Environment Ratings compare the potential of a selection of the regions
markets over our forecast period through to 2014. Our Q310 ratings reflect our consideration of the
political and economic risks, as well as risks associated specifically with IT intellectual property (IP)
rights protection and the implementation of state spending projects.
Across the Asia Pacific region, the onset of the global economic recovery and an upwards trend in
consumer confidence has led to improved trading conditions for IT vendors. India and Malaysia were the
gained most in our rankings for Q310, but many markets recorded stronger than expected year-on-year
growth in computer shipments in Q110.

Australia retains its top regional rating this quarter. In Q110, a number of IT projects delayed from 2009
were launched across sectors, ranging from telecoms to retail, underlying the opportunities in the market.
Market development will be underpinned by government ICT programmes, such as the National
Broadband Network project, which will drive the development of Australias digital economy and feed
demand for PCs. Government tenders will also generate opportunities in years to come in areas such as
education, e-government, transport and healthcare.
The smaller, but mature, IT markets of Singapore and Hong Kong take second and third spots
respectively in our ratings table, due primarily to their high Country Structure scores. Computer sales
were strong in Hong Kong in Q110, as the economy recorded positive growth following a contraction in
2009. Hong Kong continues to offer investors in the IT field opportunities associated with its growing
links to the vast Chinese market.
Singapore benefits from high broadband penetration and initiatives such as the governments ambitious
Intelligent Nation 2015 plan and the standard operating environment. IT services spending will be
boosted by the continuing boom in IT-enabled services such as call centres and back-office financial
services. Other promising sectors for IT services include healthcare, as the government launches a series
of initiatives to develop health technology.
On the downside, the continued restructuring of both economies to a more service-oriented model may
limit long-term growth prospects, although this also brings opportunities in sectors such as financial
services and banking. Businesses will probably remain cautious and value-focused over the short term.
South Korea, in fourth place in the table, should have a resurgence in business orders in 2010 and BMI
forecasts that per capita IT spending will rise from US$750 in 2010 to US$921 by 2014. Consumers
appear willing to upgrade their PCs and there is also a trend for households to own more than one
computer. There will be a number of key growth areas, including industry-specific software applications
and IT outsourcing, which is expected to show a strong demand trajectory.
In China, factors such as the vast potential rural market, government spending and demand from key
verticals such as telecoms should drive growth. Over the forecast period, expectations about Chinas
long-term economic growth will drive IT investments. Key sectors include telecoms, government, energy,
social security, education and transport. However, there are still risks associated with IP rights protection
and piracy and a lack of business environment transparency. Pressure on hardware prices is also a risk in
the current environment.
Malaysia rose from sixth to fifth in our regional ratings in Q210 and keeps its place. IT spending growth
will be driven by a rise in the PC penetration level from around 35%, rising incomes and a hi-tech-
focused national development plan. The subsidised rollout of a high-speed broadband network will

address a relative lack of ICT infrastructure outside the Klang Valley. There are also increasingly
attractive opportunities in the IT services area as the government implements measures to make Malaysia
a growing regional services and outsourcing hub.
In the Philippines, the IT market will be driven by further growth in the local IT and business process
outsourcing (BPO) sector. The Philippines has a lower PC penetration than many other Asian countries
and the IT market offers correspondingly high growth potential over the forecast period. However, there
are challenges such as labour shortages and rising wages.
India was the another country to make gains in our IT market ratings last quarter, following year-on-year
computer sales growth of approximately a third in Q110. Even so, the market has yet to return to the high
growth recorded before the global economic crisis. The potential is obvious, with less than 2% of the
population owning a computer, about a fifth of the level in China. Realisation of this long-term
growth potential depends on fundamental drivers such as increasing Indias low computer penetration,
rising incomes, falling computer prices and the governments ambitions to connect the countrys vast
rural areas to the rest of the world.
Three South East Asian markets occupy the final three positions in the table, with low scores due
primarily to business environment factors, despite considerable growth potential. In Thailand, once an
upturn starts IT spending could drive forward again as customers make good on pent-up demand. The
fundamentals of growing affordability and low PC penetration should keep the market in positive territory
during the forecast period. A number of factors should also support momentum, including the
governments PC for Education programme and 3G mobile and WiMAX broadband service rollouts.
Similarly, with ICT penetration of only about 20% and development restricted to richer areas such as
Java, the Indonesian IT market has much growth potential. BMI expects the Indonesian market to bounce
back strongly from the deceleration in 2009 and become one of the best regional IT market growth
prospects over the five-year forecast period. The SME sector will drive demand for basic hardware and
applications as enterprises look to enhance productivity.
Sri Lankas IT market has felt the effects over the years of the countrys political and economic
instability, from disruption of distribution channels and a flourishing grey market to underdeveloped
telecoms infrastructure. However, the market will feature on IT vendors radars as one of the best
potential growth prospects in South Asia. Computerisation has only just got started in government
services and major public and private sector organisations remain largely underpenetrated in terms of
basic enterprise software.

Asia Regional IT Markets Overview
IT Penetration
Narrowband Penetration
Across Asia, government ICT initiatives
(per 100 population)
and growing affordability will drive
increases in PC penetration during BMIs
five-year forecast period. While some
cities and regions stand out, there is an
unbalanced pattern of regional
development, with PC penetration in
countries like Singapore being above
50%, while in other countries such as
Indonesia, it is less than 2%.
The two Asian giants, China and India,

e/f = estimate/forecast. Source: BMI
embody the regions growth potential, as
computer ownership remains the preserve of a minority in both countries. In China, PC penetration was
only around 18% in 2008 although it was far higher in cities like Shanghai and Beijing and projected
to pass 30% overall by 2014. In India, less than 2% of people own a computer. However, some 45% of
the population is under 25, which provides a promising demographic context for increased PC ownership.
Lower price will help to drive higher PC

Broadband Penetration
penetration in developing markets. The
(per 100 population)
average price of a PC in India has nearly
halved over the past few years, and rising
incomes and greater credit availability
will continue to bring computers within
the reach of lower-income demographics.
Around the region, affordable computer

programmes continue to find favour with
governments. In 2009, China launched a
subsidised PC initiative aimed at rural
e/f = estimate/forecast. Source: BMI
residents. Australias computers for
schools programme had provided almost AUD260mn of computers by the end of 2009. In Indonesia,
penetration of around 2% could double by 2013 if government initiatives are followed through. The
Indonesian government is also rolling out new e-learning initiatives, with a target of raising the current
1:3,200 ratio of PCs to students in public schools to 1:20.

A similarly broad range is found with respect to internet penetration. The highest levels of internet
penetration are found in South Korea, Hong Kong and Australia, with estimated 2010 narrowband
penetration rates of 74.3%, 73% and 67.7% respectively. Singapore has by far the highest rate of
broadband penetration, which was estimated at 134% in 2010. Meanwhile, the Philippines has the lowest
level of internet usage, with just 6.6% narrowband and 8.1% broadband penetration estimated in 2010.
The fastest growth is expected in Indonesia, where narrowband penetration is projected to leap from 30%
in 2010 to 61.2% by 2014. India is now above 20% narrowband penetration despite a lack of fixed-line
infrastructure, and this should reach 30% by 2014. Fast growth is also projected for Sri Lanka, where
penetration is projected to increase from 10.9% to 21.6% by 2014.
Some 48.3% of Malaysians had internet access in 2010. Across the region, government programmes are
an important driver of ICT penetration. The Chinese government has a five-year plan to make the internet
available in every administrative village in central and eastern China and every township in the west.
Dial-up technology is still the dominant access method in many states. However, even in developing
markets, the number of broadband subscribers continues to gain ground steadily. In China, broadband
penetration is on course to reach 43.4% by 2014, surpassing narrowband penetration of 33.6%. In India,
where the government designated 2007 as the year of broadband, penetration should increase eightfold
to reach 8% by 2013 from around 1% currently. This is far below government targets, however.
Singapore will also see continued strong growth in broadband penetration, which is projected to reach
174% by 2014.
Meanwhile, the growth of Wi-Fi coverage will be one driver of notebook sales in places like Hong Kong,
where the government has committed another HKD200mn to the deployment of a Wi-Fi network
covering more than 200 public venues.

IT Growth And Drivers

2010 IT Market Sizes
Most Asian IT markets are expected to
US$mn, est.
report stronger growth in 2010. Across
the region, 2010 should see IT spending a
boost from systems upgrades deferred
from the previous year, although much
will depend on business confidence. In
some cases, companies had IT budgets
that were not spent due to economic
uncertainty, and in H110 vendors
reported a pick-up in project flows.
Strong fundamental demand drivers of IT Source: BMI
spending meant that there will be continued opportunities. Key factors common to most markets include
cheaper PCs and reform in sectors such as telecommunications and finance, as well as government
initiatives.
In the largest market, China, an IT Market Sizes As % Of National GDPs

expansion in consumer credit, as well as 2010-2014
a commitment to modernisation in
sectors like education, healthcare and
manufacturing, will help to sustain
market growth. BMI expects Chinas IT
market growth to be maintained by an
expansion into the western region, rural
areas and lower-tier cities, as well as
growing demand from SMEs. IT
spending will also receive a boost from
government spending and IT projects
Source: BMI
associated with the Shanghai World Expo
in 2010.

(about one-fifth of the level in China), meaning particular potential in the lower-end product range.
Indias IT market appears to be positioned for a strong recovery in 2010 thanks to improving an economy
and stronger consumer sentiment as well as government support for modernisation in lagging sectors. It is
estimated that around 5% of Indias 7.5mn SMEs could implement a technology solution in 2010.
Meanwhile, Indias business process outsourcing industry is growing at around 40% per annum and will
continue to generate opportunities for vendors of IT products and services.
The Philippines is one of the countries

IT Markets Compound Growth
currently benefiting from low-priced PC
programmes (PC4ALL), which provide
2010f-2014f (%)
opportunities for vendors to penetrate the
low-income segments. Other regional
computer sale drivers over the forecast
period include education, lower prices, IP
telephony, cheaper processors as well as
notebook entertainment and wireless
networking features. Meanwhile, in
Indonesia, the basic demographics of
rising computer penetration and growing
affordability should drive growth. SMEs f = forecast. Source: BMI
represent a growth opportunity, as currently only around 20% of Indonesian SMEs are estimated to make
use of IT. Compliance with government and international regulations will be a driver in financial,
manufacturing and other sectors.
In more developed markets such as Hong Kong and Singapore, robust retail sales led the way in early
2010 as spending recorded positive growth following a contraction in 2009. In Hong Kong, consumer
spending is expected to remain strong in 2010, as evidenced by the positive early reception for Apples
iPad. IT market growth will be driven by government IT spending as well as cross-border trade and
cooperation.
The largest IT market in the region is, unsurprisingly, China, estimated at US$86.9bn in 2010, trailed
distantly by Australia (US$19.1bn), South Korea (US$16.1bn) and India (US$16.0bn). Singapores IT
market (including communications) is the largest as a proportion of national GDP (2.66%), followed by
Hong Kong (2.07%.)
The fastest-growing IT markets over the forecast period look set to be Sri Lanka and India, with 2010-
2014 compound growth of 109% and 104% respectively, driven by increasing PC penetration. China is
third, with the IT market growing by an estimated 64% over BMIs five-year forecast period.

Sectors And Verticals

Regional IT markets remain hardware-centric, with hardware accounting for 42-71% of total spending in
all markets in 2010. However, spending on software and services will grow faster. Notebook sales are
growing much faster than the PC market as a whole, with growth driven by falling prices and more
features.
BMI expects a trend of rising hardware investment to establish itself over the next few quarters. The PC
market contracted in many markets in H109, following a slowdown towards the end of 2008. However,
growth had returned in most markets by the end of 2009. Sales of Microsofts Windows 7 operating
system and new Intel core technology also have the potential to help trigger a new cycle of hardware
upgrades in 2010, although much will depend on business confidence.
In mature markets like Australia and Singapore, PC sales are dominated by replacement sales. In the
former, upgrades are estimated to account for at least 80% of business purchases and more than 50% in
the case of households. More than 90% of Australian households now have a PC, but consumers have
appeared willing to spend on upgrading their notebook computers and it is also becoming more popular to
purchase a second household PC. Indeed, around 30% of households have more than one PC.
In less developed markets, demand from under-penetrated rural areas, affordable computer programmes
and growing broadband penetration should generally drive growth. In much of emerging Asia, demand
from smaller towns and rural areas will provide the main source of growth, along with replacement of
desktops with notebooks. SMEs will be one of the strong growth segments over the forecast period, with
SME demand for servers and networking equipment a significant growth opportunity.
In both emerging and more mature markets, the growing popularity of broadband will help to support
computer sales. China Telecom is among regional telecoms companies to have rolled out PC bundling
offers as part of its broadband packages. The Australian governments National Broadband Network plan
should drive development of Australias digital economy and services such as online banking and
shopping.
Meanwhile, a wave of 3G launches across the region should also provide a stimulus to sales of notebooks,
with Vodafone Hong Kong among service providers offering 3G/HSPA USB modems bundled with
their 3G services. However netbooks and notebooks face competition from other form factors such as
smartphones from Palm, Research in Motion, Apple and other vendors and tablet notebooks,
spearheaded by Apples iPad.
Due in part to high levels of piracy, softwares share of IT spending is relatively low, ranging from 11-
25% among countries covered by BMI. Efforts are being made to tackle the issue of piracy, but despite

government crackdowns in China and the Philippines, software piracy remains above 70% in most of
emerging Asia.
Market Structure (% Of Total IT Market)

2010f 2014f
f = forecast. Scores out of 100. Source: BMI
Across the region, there is a growing trend for smaller companies to seek greater efficiency by using IT to
improve productivity and reduce costs (including labour costs). In general, enterprise resource planning
(ERP) and other e-business products still dominate the enterprise software market, but vendors are also
looking to other areas such as customer relationship management (CRM) and business intelligence, where
faster growth is possible.
The economic slowdown may have encouraged companies to consider cloud computing solutions such as
software-as-a-service (SaaS). The hosted application model may already account for between one-fifth
and one-quarter of Chinas software revenues. SaaS has also enjoyed steady growth in the Hong Kong
market over the past three years with, according to vendor estimates, around 8% of local enterprises now
use an SaaS security solution. Improved broadband infrastructure will assist the popularisation of the
rented software model in markets such as Indonesia.
New platforms and services in the telecoms field is a driver for that key IT spending segment, where an
industry restructuring with the advent of 3G mobile services has led to more competition. Meanwhile,
expanding technology adoption in the logistics industry and public transport will be a source of IT
services projects. Sectors such as hospitals and real estate will also provide opportunities.
The IT services segment accounts for 17-40% of spending in the Asian markets covered by BMI. The
global economic slowdown and credit tightening had an impact on projects in some verticals, but in 2010,

a brightening business climate should mean more opportunities in key IT-spending verticals like financial
services, telecoms, government, healthcare and logistics.
Government spending will account for a larger share of spending in many markets. In China, government
stimulus packages have helped to drive IT-related investments, while in Singapore, government ICT
projects such as SOE2 provide significant opportunities, with the government planning to invest around
SGD1.73bn in ICT projects in its last fiscal year through March 2010. Australias National E-Health
Transition Authority has targeted the creation of a paperless environment for the health sector and was
also expected to launch a standardised reporting system scheme in 2010. Meanwhile, the Hong Kong
governments Digital 21 initiative will continue to generate spending.
Regionally, hardware deployment services remain the largest IT services category, with other
fundamental services including system integration, support systems, training, professional services,
outsourcing and internet services. Main spenders across the region include banks and financial institutions
as well as governments. Even in emerging markets like India, IT vendors are having to pay more attention
to value-added services such as technical support and product troubleshooting, or basic IT and hardware
consulting.
In many countries, the number and size of local outsourcing deals are increasing. Outsourcing could
account for as much as 30% of Chinas IT services spending by 2013, while in India there have been
some large contracts such as that awarded by Idea Cellular to IBM. Singapore where the government
was to tender a major outsourcing contract in 2008 and Hong Kong have both seen a trend towards
larger outsourcing projects in the public and private sectors.

India Market Overview

Government Authority
Government authority Ministry of Communications and Information Technology (MCIT)
Minister A Raja
The governments current 10-point agenda for IT has acted as a catalyst for a new phase of IT market
development. Different vendors fought to bring out PCs in the under INR10,000 range, open source
computing received a boost, broadband finally put in an appearance and state governments have been
competing on the e-governance front.
The responsibilities of the MCIT with regard to the IT sector include:
! Policy matters relating to IT, electronics and internet (all matters other than licensing of internet
service providers);
! Promotion of internet, IT and IT-enabled services;
! Assistance to other departments in the promotion of e-governance, e-commerce, e-medicine and

e-infrastructure;
! Promotion of IT education and IT-based education;
! Matters relating to cyber laws, administration of the Information Technology Act 2000 (21 of
2000) and other IT-related laws;
! Matters relating to promotion and manufacturing of semiconductor devices in the country

including all matters relating to Semiconductor Complex Limited and the Semiconductor
Integrated Circuits Layout Design Act 2000 (37 of 2000);
! Interaction in IT-related matters with international agencies and bodies, eg, Internet for Business,
Institute for Education in Information Society and International Code Council;
! Initiative on bridging the digital divide: matters relating to Media Lab Asia;
! Promotion of standardisation, testing and quality in IT and standardisation of procedure for IT

application and tasks;

! Electronics Export and Computer Software Promotion Council;
! National Informatics Centre; and
! Initiatives for the development of the hardware and software industries, including knowledge-
based enterprises, measures for promoting IT exports and competitiveness of the industry.
Background
The Indian IT industry plays a major role in the Indian economy. During the Eighth and Ninth Plan
(1992-1997 and 1997-2002), the electronics sector achieved double-digit growth in production and
exports. The Indian software and services industry continued to grow significantly during the slow global
IT market environment of the early 2000s and remains one of the fastest growing sectors in the Indian
economy, with a turnover of US$12.7bn (INR599mn) and exports of US$10bn (INR47,500 crore) during
FY03 (ended March 31 2003). The Indian IT software and services industry was estimated to account for
7% of Indias GDP and 35% of exports in 2008.
The software and services industry continues to dominate. The total value of software and related services
exports was estimated at US$12.2bn (INR55,510 crore) in FY04. A favourable time zone difference with
North America and Europe helps organisations achieve 24/7 internal operations and customer service.
The hardware sector has been hampered by high government duties, but following a relaxation in 2004,
signs of renewed growth are apparent and many foreign companies have now started hardware operations
in India.
Some 25 mission projects have been identified under the national e-government action plan for
implementation at the central and state levels over 2005-2009. According to former IT minister Dayanidhi
Maran, the government envisages the promotion of e-government on a massive scale. The programme
incorporates numerous projects, principally focused on improving service delivery to citizens and
businesses, implemented in a phased manner. Out of 191 countries, India is ranked 86th for e-government
according to a recent UN Global E-Governance Readiness report. Key priorities identified include, above
all, the creation of a core common infrastructure that can be shared by all departments of both central and
state governments.
The number of professionals employed in India by the IT sector was estimated at 813,500 in March 2004.
Of this number, 260,000 were in the IT software and services export industry and nearly 245,500 in the
IT-enabled services and BPO sector, leaving 28,000 working in the domestic software market and more
than 280,000 in various user organisations.

Hardware
BMI has again revised its computer hardware sales projections, after strong y-o-y growth in PC
shipments in Q110 (albeit from a low base in Q109). Computer shipments were up by as much as one-
third in the first quarter of 2010, compared with the same period of 2009. However quarterly stills were
still down compared with the high-water mark reached in Q208, just before the global financial crisis had
an impact.
Computer shipments grew in each of the first three quarters of 2009, after a double-digit percentage drop
in Q408 due to the economic slowdown. Sales were down sequentially in Q409, due to seasonal factors,
but thanks to an improving economy and consumer sentiment the PC market appears positioned for a
strong recovery in 2010.
2010 Outlook
BMI now estimates that the Indian addressable market for PCs (including notebooks and accessories) will
be worth around US$6.4bn in 2010, up from US$5.3bn last year. Shipments were up by as much as one-
third in Q110, showing continued improvement as the rate of growth exceeded that recorded in Q409.
The main driver was once again the consumer PC segment. Consumer PC demand was faster to recover
in 2009, with much market growth coming from the consumer notebook segment.
Business demand could receive a lift this year from tenders deferred from 2009. The business segment
also saw growth in Q110, and sales of Microsofts new Windows 7 operating system and new Intel core
technology could also help to trigger a new cycle of hardware upgrades. In Q409, major PC vendors
rolled out a series of new models installed with Windows 7, and Microsoft said that it had cooperated
with 100 original equipment manufacturers (OEMs) in India to achieve a target of having Windows 7
installed on more than 100 computer models. This may have contributed to a reported rise in PC
shipments to large companies in the final quarter of 2009.
However, some businesses are likely to remain cautious in 2010 and much will depend on business and
consumer confidence in a sustained global economic recovery. New product releases and procurements
deferred from earlier in the year enabled double-digit quarterly growth in Q309, and BMI correctly
projected that annualised growth would return in the fourth quarter of 2009. Total PC sales for the year
were estimated at around 7mn.
In H109, growth was affected by weaker consumer and business confidence, as well as the rising price of
components as a result of the stronger US dollar. The national elections of 2009 was also a contributory
factor in that it led to delays in government computer hardware procurements and IT projects. In Q409,
computer hardware vendors and retailers were expecting a much stronger festive season than the
equivalent period of 2008. Government procurement had also picked up, with some big tenders in Q309.

Drivers
BMI predicts that the market will grow at a CAGR of 15% between 2010 and 2014, with unit sales
resuming strong growth. Despite the contraction in 2009, the market has a number of potential strong
growth drivers. Only nine out of 1,000 people in India own a computer, one-fifth of the level in China.
Another driver is that 45% of Indias population is under 25, which should boost PC and IT usage.
The governments ultimate goal is for 1bn internet-connected computers in India equivalent to the total
estimated number of PCs in the world today. Annual PC sales were estimated at around 7.6mn units in
2009 and could rise to 9.2mn in 2010. Attention is on the lower end of the market, which is expected to
power market growth over the next few years.
The average price of a PC has nearly halved over the past few years, and rising incomes and greater credit
availability will continue to bring computers within the reach of lower income demographics. The
governments policy of providing tax breaks and subsidies for hardware manufacturers should help keep
prices down and support growth. However, the rate of growth will depend on other government policies,
such as its level of spending on computers for schools.
The potential certainly exists for India to outdo China over the next couple of years in growth of PC
adoption and usage. As the Indian computer hardware market has grown, vendors have increasingly
sought to produce made for India models. These are now becoming a growing focus for the main
vendors such as HCL Infosystems, HP and Intel. Typical features suited for Indian conditions include
the ability to be operated on a 2V battery, or to withstand extreme weather and dust.
Investments of more than US$18bn in hardware manufacturing in India (including telecoms hardware)
have stoked expectations of a sectoral boom. However, a high tax regime means that around 25% of the
retail price of an average computer goes to the government, and there are fears that this may delay
growth. Moreover, it will be difficult for India to catch up with Taiwan and mainland China, given the
strong lead these two territories have.
Segments
In the recent past, desktops still accounted for more than 80% of India PC market sales, a higher ratio
than for many countries in the region. However, that share has now dropped by around two-thirds, as
notebooks recorded strong growth in 2009. Sectors like education and government still have significant
demand for desktops, however, and desktop sales were estimated at around 5mn last year.
2009 saw notebooks make a rapid advance, growing by double digits year-on-year (y-o-y), while
desktops recorded single-digit declines. Notebook sales were estimated at around 2.6mn in 2009.
However, desktop sales grew by more than 10% in Q409 and, by the end of the year, still accounted for

nearly two-thirds of PC sales. Meanwhile, demand for storage hardware is growing in sectors like oil and
gas, banking and telecoms, with growing amount of customer data to process.
Netbooks
Netbook sales were estimated at more than 1.8mn in 2009 and could exceed 4mn in 2010. The new breed
of netbooks with lower price points is likely to provide a hot growth segment, but sales have so far fallen
short of expectations in India. In 2009, netbooks were one of the few growth areas of the Indian PC
market, but sales remained at a low level in absolute terms, at a nationwide average of less than 15,000
units per month. One factor is that Indian telecoms operators have been relatively slow to launch bundling
offers, compared with their counterparts in many other markets, where telecoms companies have emerged
as a major channel for netbook sales.
However, netbooks have come to feature increasingly in the market with more than 25 different models
now available from leading vendors. Vendors like Dell, Asus and HCL have announced cooperations
with mobile telecoms service providers on bundling deals. The Indian netbook market has several price
segments, with the entry level comprising models from domestic vendors like HCL, which retail for
INR18,000-21,000. High-end products will retail for more than INR25,000, which merges with the price-
bracket of a low-end fully featured notebook. Netbook purchasers are primarily from the consumer
segment, with limited corporate interest in the product category to date. At the lower end, many
customers are purchasing a second or third computer and look primarily for mobility.
Low-Cost PCs
Despite the hype reported in previous quarters surrounding low-price PCs, there is evidence that the under
INR10,000 PC market has failed to take off. After the initial rush by vendors to get involved in the
initiatives to drive PC penetration more than a year ago not least because these were supported by the
government it is unclear how many low-cost PCs have actually been sold. In the past year, many
initiatives seemed to founder on the rock of vendor disinterest, with dealers making less than INR200 on
average by selling an under INR10,000 PC a margin that evaporates at the time of the first service.
Local Manufacturing
Over the past few years, many global names, including Intel, LG, Samsung, HP, Dell, APC and Acer,
have either set up hardware components or related manufacturing facilities in India or announced an
interest. Many more, such as the UKs ACI, Taiwans Esys and even Chinese hardware vendors like
Hisense and ZTE, are also entering the market. Indian hardware vendors are also benefiting, with local
firms HCL Infosystems, TVS Electronics and Wipro witnessing more than 50% growth in the past year.
Software
The Indian software market should continue to grow, with software spending CAGR for 2010-2014
projected at 16%. In terms of sectors, the most obvious growth opportunities are in the public sector and

among SMEs. Despite the recent economic headwinds, the local market is likely to grow strongly in
2010, with more projects from key IT-spending verticals such as financial services, telecoms and
consumer goods.
After a slump in 2008-2009 in technology spending by smaller businesses, demand appeared to pick up in
H110. Government support for modernisation in lagging sectors will help to generate opportunities.
Meanwhile, SMEs are also becoming more sophisticated in their demand for customised software and
applications to increase business flexibility.
2010
The addressable software market is forecast to reach US$2.0bn in 2010. In H110, vendors reported that
enterprise IT spending was trending upwards again, with stronger demand for technology from the SME
segment. The release of Microsofts Windows 7 operating system has the potential to provide a boost this
year; however, much will depend on the extent of consumer and business confidence in the economic
upturn. As the economy recovers, there should be more demand for solutions that help to improve
efficiency. There could also be a benefit in 2010 from systems upgrades deferred from 2009.
One group of segment drivers is related to a paradigm shift in the character of the Indian IT industry, with
India gradually moving up the value chain from low-cost service provider to an integrated higher value
global IT services vendor. Indias large pool of skilled labour and relative low-cost advantage create a
wealth of opportunity for multinational companies.
Another major driver is the emergence of India as a global centre for outsourcing, with large US and
European companies focusing on offshore software development to lower costs. Several sectors are
leading the way in this respect, including auto ancillaries and pharmaceuticals, and if India is able to take
advantage, the current global economic slowdown should provide more outsourcing opportunities.
Segments
The telecoms, government, manufacturing and consumer goods and retail sectors are key verticals driving
demand, with enterprises looking to improve customer service experience and improve efficiency and
decision support. In 2010, the flow of government projects in areas such as e-governance is expected to
pick up.
The leading sectors for enterprise resource planning (ERP)/enterprise risk management (ERM)
applications are manufacturing, retail banking and financial services, telecoms, IT services/call centres,
insurance as well as state and central government agencies. As services become increasingly important,
particularly in competitive industries such as telecoms, more companies are adopting customer
relationship management (CRM) solutions.

Vendors are also increasingly focused on opportunities in the huge SME sector, where price is an
important consideration. Studies suggest that there are at at least 7.5mn SMEs in India. It is estimated that
around 60% of Indian SMEs still use paper-based systems, but an increasing number are now trying to
convert to digital. The earliest demand came from suppliers in industries like auto parts and ancillaries,
where smaller firms were obliged to implement e-commerce systems to synchronise with their larger
customers. However, firms in other sectors like transport now have a greater awareness about the
potential benefits of technology utilisation.
As the market is highly diverse, SME buying decisions tend to be solutions driven, with customers
looking for packages combining hardware, software and services. It is estimated that around 5% of SMEs
could start to implement technology solutions in 2010. Although value-conscious, SME customers are
also concerned about brands. However, open-source software is also assuming an expanded role in the
sector, competing directly with commercial software in many segments.
The tax-free status of domestic software firms, which did much to fuel local sector performance, was due
to end in 2010. However, the IT industry lobbied for an extension of the exemption to be included in the
2009 budget. The local software industry is significant, with exports worth around US$50bn annually.
Software As A Service
By the end of BMIs five-year forecast period, it is estimated that as much as 30% of applications could
be provided via a hosting model. The global economic downturn may have given additional momentum
to hosted applications and SaaS delivery models, which Indias improved telecoms infrastructure makes
more feasible. SMEs represent a potentially important segment of demand, and some vendors believe that
cost-efficient SaaS business models have the potential to change the way that Indian businesses operate.
New cloud computing offerings are expected to fuel further demand from local end-users to utilise this
technology. For the moment, however, the low level of broadband penetration and incomplete
infrastructure remains a barrier to the widespread promotion of software-on-demand solutions. Despite
this, a large expansion in Indian data centre capacity has been driven in part by demand for new
application models like SaaS.
Impact Of Windows 7
In 2010, sales of Microsofts Windows 7 operating system has the potential to have an impact on the
market. Microsoft reported that, in the first month following the launch, in October 2009, more than 2,000
Indian companies started an upgrade process. These included IT majors such as Infosys and Wipro, as
well as SMEs.
The fact that many businesses and consumers did not upgrade to Microsofts previous operating system
Vista means that there is a large base of machines installed with XP. This could lead to a natural update

cycle in the next 12-24 months. Windows 7 had five versions released on the local market at prices
ranging from INR5,800-11,000. This does not include the Starter Edition, which was available only
through OEMs. The Windows 7 versions were some 25-35% cheaper than comparable versions of
Windows Vista.
Services
Indias IT services market is estimated at around US$6.2bn in 2010 and is projected to grow to
US$13.6bn in 2014. The Indian market has traditionally been relatively small, with Indias IT majors
such as Infosys, Wipro and TCS focusing most of their attention outside their domestic market.
Particularly with the US and global economic downturn, however, vendors are now more attuned to the
growing size of the Indian IT services market opportunity.
2010 Outlook
Over the next one to two years, vendors are expected to compete for a share of significant spending on
major public sector IT projects such as ID cards, e-government and railway modernisation. There are an
increasing number of large projects, particularly from government, but also from other key verticals such
as banks, telecoms, defence, manufacturing and retail.
The economic slowdown in 2008-2009 nevertheless had an impact on projects in some key verticals that
have driven IT spending. In Q109, there were vendor reports of IT managers in various sectors reviewing
spending and focusing on immediate needs. However, by Q209, there were already signs that fewer
projects were being cancelled, although there was increased price sensitivity.
In 2010, there are expected to be opportunities in sectors such as finance, telecoms, retail and
government. Following the recent parliamentary elections, vendors reported a pick-up in government IT
tenders. Much, however, will depend on the timing and strength of global economic recovery.
Segments
Although domestic provision of IT services is still typically built around hardware sales, the consulting
element has been growing. Enterprises are increasingly looking for external advice in prescribing an IT
strategy and identifying vendors. In addition, outsourcing is taking root among large companies and is
developing beyond infrastructure management to applications development and whole-systems
outsourcing.
Indias trajectory of increasing opportunity has driven substantial investment in data centre space, which
is projected to more than double to around 2.5mn ft by 2012. The demand for data centre services is
shifting from collocation to a hosted services model.

A significant opportunity will be created by demand from Indian businesses and government agencies for
help to utilise cloud computing. There are already more than 50 cloud computing service providers
working in the Indian market, including major players like TCL. The economic downturn made many
local companies more cost-sensitive and stimulated interest in hosted services, although questions about
security and utility still remain.
Margins are relatively low in the domestic IT services market, with government contracts generally
handed to the lowest bidder. However, there are signs that this is now starting to change, resulting in more
attention being paid to the market by Indian domestic IT services companies, as well as foreign vendors.
The growing overseas ambitions of Indian companies is one driver for greater demand for higher end IT
services, while smaller companies wish to enhance operational efficiencies without investing in in-house
IT departments.
Offshoring
According to the National Association of Software & Service Companies (Nasscom), India is likely to
capture more than half of the US$110bn offshoring market by 2010. Domestic demand for IT services is
also increasing rapidly. This has been demonstrated by a number of deals, including an agreement
between Idea Cellular and IBM, by which the former agreed to outsource IT infrastructure and other
services to the latter in a contract worth up to US$80mn. The current trend is that average project size,
typically below the US$1mn mark, is now increasing, and this has resulted in several projects exceeding
the US$100mn mark. This trend is accompanied by a conscious move on the part of large players to
migrate from just cost plus advantage to that of value-added service provider.
The offshoring industry faces a number of threats, including growing competition from low-cost
destinations such as Eastern Europe, China and South Africa, and possible manpower shortages. In many
verticals, such as auto and manufacturing, Indian companies actually command a relatively small share of
the total available outsourcing market.
Traditionally, domestic IT service companies have concentrated on exports, with former IT minister
Dayanidhi Maran forecasting that software and information technology-enabled service exports would
surpass US$10bn by 2012. Exports still account for close to 80% of revenues, but demand is now
growing within the domestic market, too, including for facilities management and even managed services.
Increasingly, local players like Wipro and TCS are pitching for IT deals from domestic companies, both
for IT services and BPO. Infosys has set a target of generating US$1bn in revenues from the Indian
market, to be achieved within the next two to three years.
End-User Analysis
A substantial part of spending is accounted for by key sectors such as IT-BPO, financial services and
banking, government and telecoms. A number of large companies in the manufacturing sector also make

significant investments in IT. These companies have focused on acquiring IT products, developing
customised applications and integrating systems to improve their competitive positions. SMEs are also
becoming a priority for vendors, which are customising their product offerings accordingly (see
Competitive Landscape).
Government
The government accounts for around 12% of national IT expenditure. Government and public sector
spending is expected to remain robust in 2009, even as it slows in the private sector. Major tenders are
expected to be awarded in 2009-2010 related to projects such as ID cards, railway modernisation and e-
government.
During the last few years, a number of initiatives have been taken at the central and state government
levels to computerise departments and administrative functions. Various government departments have
earmarked 1-3% of their budgets on improving their IT infrastructure. However, IT industry bodies have
described this level of spending as inadequate and called for it to be raised above 3%.
At the central level, the foreseeable focus of government IT investments is likely to be primarily on
revenue services (such as income tax, excise and customs), citizen services (such as issue of passports)
and information dissemination. A key driver of informatisation in the government sector is likely to be the
e-ID card programme, which took a step forward in June 2009 when the government announced a new
head for the Unique Identity Authority of India. After repeated delays, the project is still at a very early
stage. However, it has been estimated that the total cost of the project could be at least INR1.5bn lakh
crore. The project received a boost in January when a court suggested that national ID cards should be
made mandatory for all citizens. Previously, ID cards had been issued by various different government
departments for particular purposes, such as the PAN card created by the tax department.
At the state level, the main area of IT investments is likely to be the computerisation of land records,
citizen records and payment of taxes.
Healthcare
Healthcare is expected to be another major area of opportunity, with the local market estimated at
potentially more than US$10bn. There is thought to be considerable potential to provide cloud computing
services to medical facilities in India, which often do not have data centres. One of the largest government
IT projects of recent times was the INR1,182 crore project awarded by the Employees State Insurance
Corporation to Wipro to improve management of its healthcare facilities. The project was to be spread
over six and a half years.
Banking
The banking segment is a key user of software products and services in the domestic market, with banks

undertaking IT-related investments including the computerisation of branches, very small aperture
terminal-based networking among branches, installation of ATM networks, systems related to handling of
credit/debit cards and facilities for internet banking. The Indian government likes to claim that Indias
nationalised bank system means immunity from the global financial crisis, although in practice there has
been an impact. Cheque truncation is likely to constitute the next major opportunity in this sector. As
banks have growing volumes of data to handle, many are investing both in data centres with high-
performance computers and in managed services.
Power
The power sector represents an opportunity over the coming years. The power ministry has announced
plans to make IT investment mandatory for utilities companies to be eligible for state funding. State-
owned lenders such as the Rural Electrification Corporation and Power Finance Company lend
billions of US dollars to the sector each year. The government has decided that efficiency in the sector
can only be improved if IT systems are put in place across the country. Many state-owned power utilities
do not even maintain up-to-date financial accounts owing to their lack of modern IT infrastructure.
Meanwhile, the privatisation of state electricity boards and distribution sector has led to greater use of IT
in billing and transmission applications.
SMEs
Applications vendors are increasingly looking for growth in an SME sector expected to spend around
US$8bn on IT infrastructure in the current financial year. IBM said that the SME division is the fastest
growing in India and accounts for around 60% of its business in India, compared with 20% worldwide.
Meanwhile, HP is reporting as much as 50% growth each quarter in this segment, equivalent to 100 new
clients a quarter. HP estimates that there are as many as INR10.2 lakh companies in the SME segment,
which represent potential demand.
Industry Developments
IT-BPO
According to latest figures from Nasscom, Indias technology and business services revenues accounted
for 6.1% of GDP in 2010, up from 1.2% in 1998. This was despite the fact that earlier Nasscom had
downgraded its growth projections for the domestic IT sector as a result of the global economic crisis. IT
and BPO exports grew only 5.5% in 2010, due mainly to IT budget cutbacks by clients in Western
countries. However, the long-term trajectory of the industry is strongly upwards, with an industry CAGR
of 34% estimated for the period 1998-2011.
The government plans to launch initiatives to boost the supply of educated and suitable manpower. The
Indian IT-BPO industry employs around 2.3mn people. However, the industry faces a number of threats,
including growing competition from low-cost destinations such as Eastern Europe, China and South

Africa. A recent report by Nasscom identified China as the major challenger, with addressing manpower
shortages and a perceived skills gap seen as crucial.
The government has recently outlined a number of new measures in partnership with Nasscom. These
include boosting IT education in schools and establishing a series of new IT institutes. In 2008, Nasscom
submitted a detailed project report to the Ministry of Human Resource Development concerning the
establishment of 10 new Indian Institutes of Information Technology. The plan was initially announced
by the prime minister in the 11th Five-Year Plan. Nasscom has also recently launched a career guide to
help both students and young professionals select subjects for training based on industry requirements.
E-Government
IT vendors reported a pick-up in the flow of Indian government IT projects following the general election
in April-May 2009. The governments five-year e-government plan, unveiled in 2006, was assigned a
nominal budget of INR23,000 crore through 2011. The budget covered 26 core projects including
agriculture, income tax, pensions, land records and passports. However, after three years, many of these
projects have yet to be awarded, or even tendered, and the whole process has been far slower than
anticipated.
2009 Budget
Faced with a slump in global and domestic sales, in 2009 the Indian IT industry was calling for the 2009
budget to offer relief in various forms. Following the triumph of the Congress party in the recent
elections, expectations were high for a budget that could kick-start Indias economy in the face of global
economic recession, while continuing structural reforms. A key demand of the IT industry was for an
extension of the tax exemption on software companies operating from special economic zones. The
exemption is currently due to expire in March 2010, and industry representatives had asked for the
government to remove uncertainty by using the budget to signal an extension.
Other demand centred around tax issues, in particularly the double taxation of online software sales,
which are subject to 4% VAT as goods as well as a 10.3% service tax. The industry also called for the
government to support IT spending by raising the budget allocation for government department
computerisation above the current 3% and by increasing investment in improving IT infrastructure and
digital connectivity across the economy and society.
Response To The Economic Slowdown

In 2009, the Indian government had already announced a series of measures to support the IT market.
Service tax was cut from 12% to 10% and excise duty from 10% to 8%. The measures were intended to
provide relief to domestic consumers, while also providing some support to IT exporters.

However, there were questions about how much effect the measures would have on both scores. The
lower excise duty should potentially help sales of some computer hardware products, but will not directly
affect laptops and desktop, as duty had already been reduced to 8% for these products in December 2008.
The cut in service tax was welcomed by IT services providers, but it was uncertain as to how much of the
cut would be passed on to customers. IT exporters already receive a rebate on the service tax and so the
new measures represent only a cash flow advantage. On balance, the net effect of the measures will
probably be to help retailers margins, rather than result in lower prices.
Meanwhile, the IT ministry responded to the anticipated slowdown by moving to ask the government to
extend the Software Technology Parks of India (STPI) scheme by three more years. The STPI scheme,
which offers a tax holiday to software firms located inside STPI parks, was due to expire in March 2010,
having being extended by one year by the finance ministry in April 2008.
The tax exemption, credited with helping fuel Indias success in software, had originally been due to
expire in March 2009, and an extension was heavily lobbied for by the industry. Had it not been granted,
the effective tax rate on software companies of 8-10% would have risen by about 10%. The extension
particularly benefits those smaller software companies that cannot afford to relocate to special economic
zones where many of the same tax benefits can be enjoyed.
Connected India
The governments efforts to get India connected to the modern world will provide the frame for IT market
development over the next few years. The ultimate goal of government policy is for 1bn computers
connected to the internet equivalent to the total number of PCs in the world today.
The government is currently implementing two major ICT initiatives. Connected India is a low-cost
connectivity initiative intended to drive connections towards the ultimate 1bn target. The government has
joined forces with several IT companies and industry organisations including Tata and Reliance
Communications, as well as the WiMAX Forum. Fixed-wireless technologies such as WiMAX are seen
as a promising connectivity solution for India. Intel recently signed a memorandum of understanding with
leading telecom company BSNL jointly to develop broadband and WiMAX.
The other major federal initiative is the National Knowledge Network, which aims to connect all
institutions of higher learning and research in the country to a high-speed digital network. The target is to
connect 10,000 schools across India within the next three years. The education minister has called for a
big increase from the current computer penetration level of just 11 PCs per 1,000 people, and the
programme also involves IT training for teachers. The programme started in 2008, with a pilot of about
100 schools.

IT Industry Policy
Debate continues over measures to stimulate the development of the hardware sector. According to the IT
Manufacturers Association, India currently produces only 22mn PCs a year, compared with more than
100mn TVs. Consumption of hardware is currently estimated to be about double the level of domestic
production. Some have pointed blame at the tax system. Over the past few years, there have been several
confusing changes in the tax regime, as the government has tried to balance the twin objectives of
widening PC penetration and protecting domestic manufacturers against imports.
Table: IT Industry Tax
Excise duty ! Total burden on imported computers has increased significantly since 2005 as local
manufacturers offered protection
! In 2006, excise duty was increased to 12% following withdrawal of a previous 7% levy
VAT ! Domestic manufacturers traditionally enjoy concessional rate of 4%. Some states also have
concessional rate for central sales tax (VAT) for interstate computer sales
! No distinction made between assembly and manufacturing
! Desktops and laptops subject to same rate
! System is transitioning to general sales tax instead by 2010, which should lead to
simplification, more transparency and lower burden overall
The government is currently reviewing an IT amendment bill, which was first introduced to parliament in
December 2006 and then referred to committee, where it languished for many months. The bill contains a
Special Incentive Package Scheme to encourage investments in semiconductor fabs and other
technologies. The Council of Ministers recently approved the bill, and with clauses relating to
information security having been tightened, it will now be presented to parliament. According to the
government, 16 proposals have been received from potential investors for the setting up of manufacturing
facilities, with the total proposed investment in the region of INR155,000 crore.
The government claimed success in an earlier initiative launched in 2007 to promote chip manufacturing
in India. The policy proposed a range of incentives, such as tax advantages and subsidies for
semiconductor manufacturers. According to the government, after just one year, Indias semiconductor
industry had already attracted around US$7bn in committed investments. The government has also
proposed a new programme of IT Investment regions to help the hardware sector.
Regional Developments
A key part of the governments plans for the IT sector is to attract investment to new regions. The
government now sees southern India emerging as a global hub for semiconductor and electronics

industries, centred on chip design services in Bangalore, chip manufacturing in Hyderabad and product
manufacturing in Chennai.
Nationwide, the government said that it hopes to attract investments worth US$40bn in the IT sector over
the next three years, including US$8-10bn for Chennai. In line with government and vendor emphasis on
regional development, the focus is turning to new states to achieve this target, with several competing to
emerge as new IT hubs. Kerala is one of those trying to catch up, with a number of major projects
designed to raise the state to IT prominence. The states software exports were expected to have passed
US$305mn in 2008.
Chennai state has set an ambitious goal of attracting 25% of the countrys ICT production by 2011, from
around 11% currently. In 2007, the state held the first meeting of a newly established state-level IT task-
force. The state expects to attract US$8-10bn worth of investment in the IT sector over the next three
years and aims to create 3mn jobs.
Many other states are taking similar measures. The Karnataka government is considering setting up an
authority exclusively for high-tech promotion and launching a policy to encourage the semiconductor
industry. Meanwhile, Maharashtra is to implement a new IT policy in the state from January 2009, with
the aim of boosting IT even in rural areas of the state.

Industry Forecast Scenario
Indias potentially vast IT market appears to be positioned for a strong recovery in 2010 thanks to an
improving economy and consumer sentiment. Computer shipments were up by as much as one-third in
the first quarter of 2010, compared with the same period of 2009, although shipments have yet to return to
the high-water mark recorded before the global economic crisis.
Business IT spending was also picking up in H110, led by demand from SMEs. The total size of the IT
market is now projected to increase from US$16.0bn in 2010 to US$32.7bn by 2014. IT spending growth
slowed significantly in H109, but a recovery was confirmed in the fourth quarter of the year, with a robust
festive season.
2010 Outlook
Sales of PCs recorded annualised growth of around one-third in Q110, exceeding even the strong double-
digit growth recorded in Q409, although from a low base. Consumer spending was the main driver in
early 2010, with notebook shipments recording growth of above 70%.
The business segment also saw growth in Q110, however, and could receive a lift this year from tenders
deferred from 2009. Sales of Microsofts new Windows 7 operating system and new Intel core
technology could also help to trigger a new cycle of hardware upgrades.
SMEs were reported to be leading growth in the business segment in early 2010. It is estimated at around
5% of Indias 7.5mn SMEs could implement a technology solution in 2010. However, vendors also
reported a strong pick-up in PC orders by large companies. There was also a an increase in the number of
projects from key IT-spending verticals such as financial services.
In 2010, business demand could receive a lift from tenders deferred from 2009. The release of
Microsofts new Windows 7 operating system could also help to trigger a new cycle of hardware
upgrades. However, much will depend on business and consumer confidence. In 2009, Indian authorities
announced a series of measures to stimulate the domestic market as well as assist domestic IT companies.
Service tax and excise duty taxes were lowered, while the Reserve Bank of India took various steps to try
and free up credit.
Government procurement should grow steadily in 2010, after some disruption due to the national
elections in H109. Government tenders picked up following the parliamentary elections in April-May
2009. In the business segment, major IT services vendors reported a reduction in project cancellations by
Q209, as clients began to anticipate a recovery in the global and US economies. However, price-sensitive

clients often demanded reductions in standard billing rates, placing under pressure margins that are
generally lower than in more mature markets.
Market Drivers
(about one-fifth of the level in China), meaning particular potential in the lower end product range.
Significantly, 45% of Indias population is under 25, which should boost PC and IT usage. Mindful of
increasing global vendor interest, a number of federal and local government initiatives have been
designed to attract investment. Therefore, despite the current demand slowdown, India should confirm its
potential as a key emerging market over the forecast period.
However, realisation of this long-term growth potential depends on fundamental drivers such as raising
Indias low computer penetration, rising incomes, falling computer prices and the governments
ambitions to connect the vast rural areas to the outside world. Currently, broadband penetration is
projected to reach around 7.3% by 2013, far below government targets. The popularity of the new wave
of low-cost PCs and netbooks has largely been restricted to urban and semi-urban areas.
There are a number of barriers including regional imbalances, low incomes and a flawed legal regime for
patent protection. Measures to encourage the domestic hardware sector have thus far had mixed results,
and the important BPO sector faces a strong challenge from other markets including China. The current
global economic crisis has exacerbated some of these challenges. However, the government is expected to
continue its focus on developing internet connectivity in rural areas. The continued development of e-
government services will also act as a driver for PC adoption in smaller towns.
Segments
The potential certainly exists for India to outdo China over the next couple of years in growth of PC
adoption and usage. The average price of a PC has nearly halved over the past few years to less than
US$250, and rising incomes and greater credit availability will continue to bring computers within the
reach of lower income demographics. The new breed of netbooks, with their lower price points, is likely
to provide a hot growth segment. However, the rate of growth will depend on other government policies,
such as its level of spending on computers for schools.
The IT-enabled service sector remains critical. According to government figures, Indias BPO industry is
growing at a rate of around 40% per annum and is likely to capture more than half of the US$110bn
global offshoring market by 2010, generating continued opportunities for vendors of IT products and
services. The fastest growing software and services areas are therefore expected to be call centres and
BPO operations, with 80% of domestic industry revenues coming from exports. However, a recent
Nasscom report identified a strong challenge to Indias BPO dominance from other countries, including
China.

On the other hand, domestic spending on IT services is also growing rapidly in domestic sectors such as
banks and financial services, telecoms, government and education. A significant opportunity will be
created by demand for help to utilise cloud computing. Indias trajectory of increasing opportunity has
driven substantial investment in data centre space.
Vendors are also increasingly focused on opportunities in the huge SME sector, where price is an
important consideration. Studies suggest that there are at least 7.5mn SMEs in India. It is estimated at
around 60% of Indian SMEs still use paper-based systems, but an increasing number are now trying to
convert to digital.
Growth over the forecast period is also expected to be provided by Indias long secondary hardware
sector. However, while the government has been unveiling a new series of tax incentives and subsidies to
encourage the fast-growing hardware sector, a number of restraints remain, including high tariffs. Most
recently, the government has unveiled plans for a new series of electronic hardware manufacturing units
within new IT Investment Regions. At the same time, the big discrepancy in tax rates for Indias hardware
sector (in excess of 20-30%, compared with around 17% in China) creates obvious possibilities for
further reform and yet faster growth. The possibility that the government may respond to industry
pressure with some tax rationalisation provides an upside to our forecast.
The speed and determination with which the e-government agenda is implemented nationwide will also
be an important factor, with a number of projects involving online bill payment for water, electricity,
telephone as well as birth and death certificates under way and the government promising to facilitate
similar services for five more areas. Government plans for education would be a significant driver, if
implemented.
Summary
The share of hardware in total IT spending is expected by BMI to remain above 50% during the 2010-
2014 forecast period. Overall, the hardware market is predicted to grow from an estimated US$7.9bn in
2010 to US$14.7bn in 2014, with PC sales including accessories projected to rise from an estimated
US$6.4bn to US$12.2bn over the same period. Combined software and services spending is forecast to
increase from an estimated US$8.1bn to US$17.9bn.

Table: India IT Sector US$mn Unless Otherwise Stated
2007 2008 2009e 2010f 2011f 2012f 2013f 2014f
IT market 12,075 13,524 13,254 16,037 19,725 23,868 28,164 32,670
IT market as % GDP 1.1% 1.1% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Hardware (computer
market sales) 6,671 7,303 6,680 7,890 9,498 11,242 12,969 14,701
Services 4,075 4,733 5,010 6,174 7,752 9,571 11,519 13,623
Software 1,328 1,488 1,564 1,973 2,476 3,055 3,675 4,345
PCs (including
notebooks) 5,337 5,842 5,344 6,391 7,712 9,218 10,739 12,173
Servers 600 657 601 710 855 1,012 1,167 1,323
Source: BMI. ITU (Internet and broadband penetration)

Country Context
Table: Rural/Urban Breakdown, 2005-2030
2005 2010f 2020f 2030f
Urban population, % of total 28.7 30.3 34.3 40.6
Rural population, % of total 71.3 69.7 65.7 59.4
Urban population, total, 000 317,131 358,076 473,065 611,334
Rural population, total, 000 786,240 825,216 906,133 894,414
Total population, 000 1,103,371 1,183,292 1,379,198 1,505,748
f = forecast. Source: UN Population Division
Table: Consumer Expenditure, 2000-2012 (US$)
2000 2007e 2008e 2009f 2010f 2012f
Consumer expenditure per

capita 292 502 594 701 793 994
Poorest 20%, expenditure per

capita 118 203 241 284 321 403
Richest 20%, expenditure per

capita 662 1,138 1,346 1,588 1,796 2,252

capita 910 1,563 1,848 2,181 2,466 3,093
Middle 60%, expenditure per

capita 227 390 461 545 616 772
Purchasing power parity
Consumer expenditure per

capita 1,482 2,296 2,488 na na na
Poorest 20%, expenditure per

capita 600 930 1,008 na na na

capita 3,357 5,200 5,635 na na na

capita 4,609 7,140 7,738 na na na
Middle 60%, expenditure per

capita 1,151 1,783 1,932 na na na
e/f = BMI estimate/forecast. na = not available. Source: World Bank, country data, BMI

Internet
Table: Telecoms Sector Internet Historical Data & Forecasts
2007 2008 2009f 2010f 2011f 2012f 2013f 2014f
No. of Internet Users (000) 150,000 204,966 246,420 288,130 329,445 373,270 400,453 405,692
No. of Internet Users/100

Inhabitants 13.2 17.5 21.1 24.3 27.4 30.6 32.4 32.4
No. of Broadband Internet

Subscribers (000) 3,130 5,525 8,030 12,723 20,770 34,776 59,565 105,417
No. of Broadband Internet

Subscribers/100 Inhabitants 0.3 0.5 0.7 1.1 1.7 2.9 4.8 8.4
f = BMI forecast. Source: TRAI, BMI
Indias internet market forecast is based Internet Historical Data & Forecasts
on regulatory data for the end of 2007-2014
September 2009. The TRAI has
indicated that there were 14.63mn
internet subscribers in Q309,
representing growth of 4.1% in the
quarter. Although the regulator does not
publish figures on the number of internet
users, we believe that there were almost
205mn at the end of 2008, around 224mn
users as of Q209 and 233mn users in
Q309. The growth of internet usage in
the country has been driven by several
f = BMI forecast. Source: TRAI, BMI
factors, including the development of
new broadband networks and their extension into currently underserved parts of the country. Our current
forecast envisages the number of Indian internet users rising to almost 406mn by the end of 2014; this
would be equivalent to over 32.4% of the population.
There is more recent data available for the broadband market, which reached a total of 8.03mn
subscribers at the end of 2009. This indicated lower-than-expected growth during the year of 45.3%,
down from 76.5% in 2008. For the most part, Indias broadband services are largely offered by state-
owned operator BSNL, which had a 55% share of the internet market, while together with second-ranked
fellow state-owned company MTNL, they occupy 70% of the market. To ensure that broadband growth
become stronger and build on current penetration rates of 0.7%, greater investment in BSNL and MTNLs

broadband networks are required. However, BSNL is currently facing financial problems, which requires
it to sell off a 10% stake so that it can fund more network investments, while MTNL only offers services
in Delhi and Mumbai compared to BSNLs national licence.
For the most part broadband connection remains based on DSL, although BSNL has been investing in
ways to bring greater connectivity to rural areas where two-thirds of the population reside but where DSL
network is patchy. This saw the operator become the first in the country in December 2009, to launch
mobile WiMAX services, which would help to bring services to rural and economically deprived areas of
India. Such wireless broadband alternatives will also help the government achieve its rather ambitious
target of providing broadband access across all its 630,000 villages by May 2012.
BMI has revised downwards its broadband figures and we expect that 2010 will achieve closer to 12.7mn
subscribers, the equivalent to a penetration rate of 1.1%. By the end of 2014, we forecast rates of 8.4%.

Macroeconomic Forecast
A Strengthening Recovery In FY2010/11

Indias economy is booming once more on the back of successful policy stimulus, a pick-up in
commercial credit and the general improvement in global conditions. While cyclical drivers will
inevitably fade in FY2010/11 (April-March), robust domestic demand will continue to underpin economic
activity. With this in mind, we see real GDP growth accelerating from 7.0% to 7.8% in the coming fiscal
year.
On latest economic evidence, Indias economy is booming. Rapid upswings in industrial activity,
inflation and retail sales (among other factors) suggest to us real GDP growth may have come in near
double digits in the final quarter of FY2009/10 (Q110) for the first time since early 2007. Such an outturn
would have easily put full-year headline growth in the region of our 7.0% estimate, justifying the upbeat
stance we have held on the country throughout the depths of the global downturn.
Naturally, the resurgence in economic growth has likely been helped by a number of cyclical factors not
least aggressive public spending, inventory replenishment, and base effects (Q408-Q109 was the trough
of the business cycle). Even as these supportive factors roll back, however, we are confident that headline
growth will continue to motor along at a brisk pace, keeping India well amongst the top EM performers in
the coming years our key macro views on the country still hold. With domestic demand providing the
main catalyst to growth, India remains well insulated from a subdued developed world recovery outlook.
Furthermore, responsive fiscal and monetary retrenchment, both past and present, will insure against a
hard landing for growth in FY2011/12. With this in mind, we see real GDP growth accelerating from
7.0% to 7.8% in the coming fiscal year, and further still to 8.0% in FY2011/12.
Key Themes In FY2010/11
! After a conservative FY2009/10, commercial banks will look to expand their loan portfolios.
Theredore, credit growth could really take off, supporting consumer and capital expenditure.
! Rural consumption should be less dependent on state support as agricultural output recovers
from last years poor monsoon.
! Ambitious infrastructure build-out, orchestrated by both the public and private sector, will
stimulate urban investment.
After seeking refuge in the (relative) safety of government securities in FY2009/10, Indias commercial
banks are starting to expand their loan portfolios aggressively. Indeed, the sectors credit-to-deposit ratio

has ticked up to a 12-month high of 72.2%, with investment in government securities falling as a result.
This trend is in line with a view our commercial banking team promoted in January (see our online
service, January 18, A Better Year In Store In 2010), and, since then, commercial credit growth has
accelerated to 16.8% y-o-y the fastest pace since May 2009. We expect credit extension to remain on an
uptrend in the months ahead, even accounting for the Reserve Bank of Indias likely tightening bias (we
are pencilling in 100bps of repo rate hikes to 6.00% by end-FY2010/11). This normalisation of monetary
policy is unlikely to derail the improvement in credit conditions, in our view.
Rising credit, particularly in the consumer and infrastructure space, bodes well for household spending
and fixed investment growth. Domestic car sales grew by a whopping 46.3% y-o-y (using a three-month
moving average) in February 2010, highlighting the increasing purchasing drive of the Indian consumer.
Meanwhile, capital goods production rose by 39.0% on a similar basis in March. While both these growth
rates could cool as base effects unwind, we expect the recovery trend to remain firmly intact.
Agricultural output is likely to post gains in FY2010/11. The poor monsoon in FY2009/10 the worst in
almost 40 years severely hit Indias agriculture sector, meaning that the government had to boost
spending significantly to support rural incomes. According to the Department of Agriculture and
Cooperation, the total kharif (summer) crop suffered a 15.4% contraction last fiscal year, with rabi
(winter) output registering only marginal growth. Coming from such a low base, we expect to see a
broad-based improvement in agricultural output in FY2010/11, especially given the significant public
investment in crop production. This should help support Indias rural communities and our more general
macro view of bottom-up growth generated at the grassroots level.
Indias infrastructure boom will be a key driver of economic growth. We outlined our thoughts on Indias
infrastructure investment drive earlier this month (see Building An Attractive Growth Story, April 13).
Despite the risks in terms of execution and financing, we believe this sector will become an increasingly
pivotal driver of headline economic growth this year and next. Aggressive capital outlay could see
infrastructure investment rise to as high as 8.5% of GDP this fiscal year, from just 3.7 % in FY2002/03.
From a national account perspective, Indias infrastructure boom should ignite gross fixed capital
formation (GFCF), and we are eyeing up growth of 11.7% and 11.8% in this category in FY2010/11 and
FY2011/12 respectively.
Risks To Outlook: The Pace And Strength Of Stimulus Unwinding

With the economy humming along nicely, the attention of policy-makers both at the central bank and
finance ministry has shifted from growth to inflation. Wholesale prices, Indias benchmark inflation
measure, are on the verge of hitting double-digit growth, highlighting the risk of a much more aggressive
monetary and fiscal retrenchment than currently anticipated. While on the fiscal side, Indias FY2010/11
budget suggests that the government is unlikely to become overly-hawkish (a factor that in itself could

hurt the countrys long-term economic prospects), the RBI could yet deliver more than the 100bps of
hikes we are currently anticipating, potentially at the expense of near-term growth.
Table: India GDP By Expenditure, % Of GDP
1992 1995 2000 2005 2010f 2011f 2012f 2017f 2020f

1,3
Nominal GDP, INRbn 7,525.9 11,918.1 21,023.1 37,064.7 71,880.1 82,263.7 947,23.8 179,762.9 -
2,4
Nominal GDP, US$bn 248.8 295.6 543.8 827.9 1656.2 2006.4 2407.2 4787.3 -
Private consumption, % of
4
GDP 65.2 63.1 63.7 58.0 56.7 56.2 55.6 55.3 -
Government final
4
consumption, % of GDP 11.3 10.9 12.6 10.9 10.3 9.6 9.1 8.6 -
Fixed capital formation, %

4
Total GDP 23.1 26.2 24.3 34.3 38.4 39.6 41.2 41.8 -
Exports of goods &

4
services, % of GDP 8.9 11.0 13.2 0.3 20.8 21.5 22.3 27.2 -
Imports of goods and

4
services, % Total GDP 9.7 12.2 14.2 21.9 26.5 27.3 28.5 33.2 -
Net exports of goods &

4
services, % Total GDP 0.0 -0.3 -1.8 -1.5 -4.6 -5.0 -5.0 -5.5 -
1 2
Note: f = BMI forecast. GDP at market prices, Fiscal years ending March 31 (1990=1990/91); 2008=FY2008/09,
3 4
Factor Cost. Source: Central Statistics Organisation, BMI calculation. Central Statistics Organisation

Competitive Landscape
Hardware
In 2010 PC vendors were positioning themselves to take advantage of expected strong growth in the
Indian market in 2010. The sharp annualised contraction in computer sales in 2009 presented a threat to
the growth of some leading brands such as Dell, HP and Acer, as well local firms such as HCL
Infosystems. With weaker consumer and business confidence, locally assembled PC units were gaining
share at the expense of branded ones. Branded PCs are thought to account for about 60% of unit sales.
In 2010, HP regained top spot in the brand notebook segment from its fellow US rival Dell, which had
usurped HP at the end of 2009. Dell was in second place, ahead of Taiwanese company Acer. Dell grew
strongly in 2009, benefiting from comprehensive marketing and a broad product portfolio. By Q409, Dell
had taken first spot in the notebook segment, according to market research firm IDC, with a more than
25% share.
The top three vendors account for around 40% of the brand PC market. In H110, Acer claimed to be
selling around 35,000-37,000 notebooks a month, of which around 15-18% were netbooks. The company
has forecast that it will achieve 30% volume growth in the Indian market in 2010, growing faster than
BMIs estimate for the market as a whole. In the desktop market, Acer said that it expected strong
demand from government and home buyers.
HP remained Indias overall PC market leader in Q110, however, according to IDC, and also led in the
desktop segment, ahead of Dell and HCL. However, rival market research firm Gartner made Acer the
desktop leader, ahead of HP. The desktop PC market is relatively diffuse, with local company HCL a
leading player, but no vendor having much more than a 10% share. Following a double-digit y-o-y
decline in desktop shipments in H109, most vendors expected the situation to improve in the second half
of the year; for example, Lenovo forecast a 30% increase in enterprise sales in Q309. Desktop sales
achieved y-o-y growth in Q409.
Around 1.8mn netbooks were estimated to have been sold in FY09, and that could increase to 4mn in
2010. Korean consumer electronics company Samsung is relying on the netbook segment to spearhead its
assault on the Indian PC market in 2010, and is targeting a 20% segment share. The company has nine
models available on the Indian netbook market, with prices ranging from IRS17,290 and IRS23,990, and
plans to expand to 12-13 this year, including some 3G models.
Relatively disappointing netbook sales in H109 were attributed in part to a lack of bundling offers by
telecoms operators, but in H209, leading Indian market PC vendors including Asus, HCL and
Dell pursued tie-ups with telecoms companies to bundle mobile data packages with their netbooks. Dell

has reached an agreement with Mahanagar Telephone Nigam Ltd (MTNL) to offer Dells Inspiron
Mini 10 netbook with MTNLs 3G wireless mobility solution. The netbook retails at INR30,000 in the
India market. Meanwhile, Dell and Asus have both announced similar tie-ups with Reliance, which will
offer wireless broadband to purchasers of their netbooks. HCL said that it was also in talks with leading
telecoms companies. These three vendors also planned to launch new models in Q409, following the
official release of Microsofts new Windows 7 operating system.
Despite the bad economy, most vendors appeared to feel that the slowdown would be temporary and that
India will be a key growth market over the next few years. India is reported to be the fastest growing
market for US firm HP the Indian PC market leader with 15-20% of the market. Many vendors have
preferred to rely on new launches rather than price cuts to sustain sales. In any case, room to reduce prices
was limited by current low margins.
In 2009, HP announced plans that deepened its commitment to the Indian market, with an aggressive
concentration on the retail segment, despite the economic slowdown. HP said that it would expand its
retail footprint across 650 cities, while growing its retail partner network to more than 10,000 by the end
of 2009. The main growth driver was anticipated to be notebooks, with people using laptops and netbooks
while travelling as jobs become more mobile.
HP also said that it was moving towards a different method of segmentation of the Indian PC market,
based more on lifestyle and psychological categories. Previously, HP had employed a basically
functional segmentation using categories of consumer, enterprise, SME, government and education. As a
corollary of this change, HP has also restructured its sales channel in India, segmenting it into four
categories modern retail, HP World, multi-brand outlets and IT resellers.
Meanwhile, Japanese company Toshiba has ambitious plans to treble its market share in laptops to at
least 12%, from around 4% in 2009. To achieve its goal, the company will spend about US$10mn on
advertising, new product launches, and channel expansion. The company will particularly target the
consumer and education segments. Meanwhile, Toshiba will also conduct road shows in south and west
regions to spur efforts to strengthen channel presence and after-sales service networks in those areas.
There were some changes in competitive rankings in the PC market in 2009, with Dell continuing to
advance at the expense of some of its rivals. The companys notebook market share is thought to be
around 13%. In early 2010, Dell said that it was growing at 100%, faster than the market, and the
companys y-o-y growth in some recent quarters has exceeded that of Chinese sales. However, while Dell
will continue to invest in research and development in India, in statements made in 2009, it appeared
more cautious about its earlier commitment to double its headcount in India to 20,000, saying that the
world had changed.

As the Indian hardware market has grown, made for India models have become a growing focus for the
main vendors such as HCL, HP and Intel. Typical features suited for Indian conditions include low-
power requirements and the ability to withstand dust and extreme weather. HP India started designing
computers specifically for the Indian market several years ago in Bangalore and has introduced some six
models so far. Intels small-form factor Classmate PC aimed at the education segment was in large part
designed in India. Intel launched a new notebook model called Netbook, which retails at US$300.
HP claims to compete on value rather than just price and has 350 service centres across the country, more
than many of its competitors. The company is targeting future growth by looking to second-tier cities
such as Coimbatore, Madurai, Salem and Tiruchi. Manufacturing typically accounts for close to 75% of
HPs SME business, with greatest demand for ERP, CRM and basic office automation and security
solutions. The average IT deployment deal size is increasing.
Attention is on the lower end of the market, which is expected to power market growth over the next few
years. Vendors are also entering the low-price ultra-portable PC market, which is seen as having great
potential with demographics such as students, women, sales staff and first-time PC users. HP and Dell
have both launched ultra-portables, priced at below US$500. However, the ultra-portables market has not
really taken off as yet, and hardware manufacturers are shifting emphasis to the segment of small and
compact laptops, measuring around 8.9 inches.
Software
Sales of Microsofts new Windows 7 operating system has the potential to boost software and PC
spending in 2010. In Q409, major PC vendors rolled out a series of new models installed with Windows
7, and Microsoft said that it cooperated with 100 OEMs in India to achieve a target of having Windows 7
installed on more than 100 computer models. Microsoft reported that, in the first month following the
new operating system launch, more than 2,000 Indian companies started an upgrade process. These
included IT majors such as Infosys and Wipro, as well as SMEs. Meanwhile, PC vendors also reported a
pick-up in large company procurements in Q409, partly triggered by the release of Windows 7.
Software piracy is as high as 69% in the Indian market, but Microsoft has been proceeding aggressively
with its Get Genuine Solution, which, in November 2007, it extended in the Indian market to include
Windows Vista. The program allows SMEs to easily legalise their unlicensed Windows Vista and
Windows XP Professional PCs. Participants who place an order with a reseller to legalise their counterfeit
software will receive genuine licences and become eligible for further updates. The program was
launched in 2007, and the company believes that it has already sold more than 90,000 licences through
the initiative in India.
The current cost-sensitive business climate has also presented an opportunity to promoters of open-source
software. In September 2009, the Indian Institute of Management in Bangalore released a survey that

claimed to identify significant cost savings by 20 Indian organisations that had adopted open-source
software. For example, the Life Corporation of India was found to have saved around INR42 crore by
adopting open-source software for its IT infrastructure of 3,500 servers and 30,000 desktops. The survey
claimed that, even if only 50% of computers nationwide in were fitted with an FOSS operating system,
the savings would be around INR980 crore, rising to INR1,380 core at the 70% level. However,
Microsoft disputed the findings, pointing out that software licensing costs were only a small part
of the total cost of software ownership, which it claimed to be lower with Windows.
Meanwhile, vendors are also eyeing opportunities to profit from growing interest in cloud computing.
Microsoft announced in May 2010 that IT firms NIIT, Cognizant and CDC Software would partner
with the Indian Institute of Science (IISc) to build solutions and conduct training based on Microsofts
cloud computing platform Windows Azure. Around 4,000 applications have already been built in Indian
on the Windows Azure platform. Other multinational cloud computing providers such as Salesforce,
Google, Amazon, Yahoo and IBM are also promoting their solutions in China.
Meanwhile, Indian IT companies like Wipro, Infosys, TCS, HCL and Mahindra Satyam are developing
cloud computing applications and solutions for verticals ranging from financial services and banking to
government, healthcare and manufacturing. Mumbai-headquartered Patni Computer Systems set an
example by announcing in June 2010 that it was set to host all of its infrastructure needs on a private
cloud. The company claimed that this would enable it to reduce its capital expenditure by nearly 30%.
IT Services
The Indian IT service leaders, which include the likes of Infosys, Wipro and Tata Consultancy Services
(TCS), are among Indias biggest companies. These companies have taken a hit from the US slowdown,
with companies freezing wages and slowing hiring. This slowdown has exacerbated an existing trend of
the big vendors paying much more attention to the domestic market.
Infosys has set up a division aimed solely at Indian customers. For the moment, India constitutes less
than 3% of revenues, but Infosys wants to increase that to 5% in the near future. In August 2009, Infosys
said that it targeted US$1bn in revenues from the Indian market within two to three years and that it had
bid for 10 large government contracts. Infosys aimed to hire 25,000 employees throughout FY09, with a
concentration on core functions such as IT services, BPO and consulting. Most of the new employees will
be employed in India. For its part, TCS said that it wanted to double income from the country over the
next three to four years.
Meanwhile, in April 2010, Infosys claimed a high-profile win when it announced it had signed a three-
year global agreement to manage the internal services of IT company Microsoft. Infosys will provide
Microsoft with IT help-desk, desk-side services and infrastructure and application support from multiple

global centres. The company will also manage Microsofts internal IT services for applications, devices
and databases in 450 locations across 104 countries.
Despite the economic slowdown, in 2009 IT services vendors continued to find opportunities,
particularly in key IT spending verticals like telecoms. In September 2009, Tata Communications Ltd
(TCL) announced a strategic alliance with Microsoft to launch a Microsoft-TCS virtualisation centre of
excellence in Chennai. The new centre is designed to accelerate the adoption of virtualisation
technologies, seen by both vendors as a growth area. Meanwhile, in May 2009, Wipro signed an
INR2,200 crore nine-year contract with Unitech Wireless. Wipro will integrate the companys ERP
system and host all its data centres.
This win followed an INR3,000 crore contract that Wipro signed with Aircel earlier to migrate passport
services to an electronic platform. The public sector continued to generate opportunities in 2009, with
TCS signing an INR1,200 crore deal to migrate passport services to an electronic platform. Meanwhile,
Wipro got an e-government contract from the Employees State Insurance Corporation. In H209, a
US$2bn contract to create a nationwide communications network for the armed forces is set to be issued,
with companies such as Infosys, Wipro and TCS likely to be among the bidders, along with various
telecoms firms.
One big story in the Indian IT services sector in early 2009 concerned Satyam, whose collapse amid
financial scandal in January sparked a flurry of interest in purchasing the company. HP and Computer
Sciences Corp were rumoured to be among potential bidders, as Satyam launched a sales process. In
April 2009, Tech Mahindra, part of the Mahindra Group, bought 31% of Satyam via a preferential
share issue at INR58 per share. Satyam subsequently launched a rebranding exercise, based around the
brand name Mahindra Satyam, and Mahindra made an offer for an additional 20% of Satyam
shares. However, the company has found that rebranding is not always simple; as of mid-2009, the
International Olympic Committee was resisting Mahindra Satyams attempt to associate the new name
with its sponsorship of the 2010 Olympic Winter Games.
While Indian vendors invest to increase their strength in their home market, the global giants often
already have deep roots in the market. Global companies IBM, Accenture and HP have collectively
around 200,000 employees in India between them. IBM has been focused on the Indian market for nearly
10 years and has a customer base that includes telecoms companies like Bharti Airtel, Idea Cellular and
Vodafone, as well as government departments and Delhi International Airport. In 2009, IBM embarked
on a new strategy of moving beyond Indias leading city markets to focus on expansion in tier-two and
tier-three cities. The company has announced its first partnerships with two companies in Uttar Pradesh,
which will offer a wide range of solutions and consulting services to clients.

In 2009, IBM launched an overhaul of its Indian channel structure, planning to move from an open to a
closed distribution model from October 1 2009. The company has averaged more than 25% annual
growth in recent years. Major deals have included a 10-year strategic partnership with leading retailer
Bharti Retail to consolidate its IT infrastructure, launched in 2008.
On the overall figures, HP has not competed so well in the outsourced services area. HPs Indian BPO
unit employs only 6,600 people, compared with 53,000 employed by IBMs service operation. HP is now
planning to increase its presence to challenge IBM and the leading domestic companies, with a particular
focus on the financial services vertical. Among recent financial-vertical customers was Thane Janet
Sahakari Bank, the leading cooperative bank in India, which implemented an HP platform to help reduce
operational costs and improve interactions with customers.
HPs buyout of fellow US technology services firm EDS will have a significant impact in the Indian
market. Following the acquisition, HPs Technology Solutions Group will shift its outsourcing services,
and some portion of consulting and integration services, to EDS. Globally, it is hoped that the deal will at
least double HPs services revenues.
Internet Competitive Landscape

There were around 246mn internet users in India by end-2009, representing a penetration rate of 21%,
among the lowest among all Asia Pacific countries profiled by BMI. Residential usage is limited, largely
owing to a lack of internet access outside major metropolitan areas. Capacity has also been a problem,
although MTNL did expand capacity in Mumbai by installing an additional 5,400 ports in the city in
H203, taking the total to more than 10,800. The expansion was carried out in conjunction with Compaq
and HCL Comnet. Subscriber growth continues to be driven by heavy usage of the comparatively cheap
internet cafs.
Broadband services are becoming more widely available, with a number of multinationals launching
services. By the end of 2008, there were an estimated 5.5mn broadband subscriptions in India,
representing y-o-y growth of about 70%.

Table: Regional Broadband Penetration Overview
Country Broadband Penetration, 2008 (%) Regional Rank, 2008 (2007)
Australia 35.7 1 (2)
South Korea 32.5 2 (1)
Singapore 31.5 3 (4)
Taiwan 30.8 4 (5)
Hong Kong 29.7 5 (3)
Japan 24.9 6 (6)
Malaysia 7.8 7 (7)
China 7.0 8 (8)
Vietnam 2.9 9 (9)
Philippines 1.7 10 (15)
Thailand 1.6 11 (10)
Sri Lanka 0.9 12 (=13)
Bangladesh 0.7 13 (11)
Indonesia 0.6 14 (12)
India 0.5 15 (=13)
Pakistan 0.4 16 (16)
Source: BMI

Company Profiles
IBM India
Services Manufacturer, distributor and provider of advanced IT solutions including hardware, software,
peripherals and data-processing equipment.
Recent Developments IBM has announced a 10-year strategic partnership with leading retailer Bharti Retail to
consolidate its IT infrastructure. As Bharti has a franchise agreement with US retail leader
Wal-Mart, IBMs services will link into the platform Wal-Mart is using to provide technical
support to Bharti.
The deal maintains the momentum of a successful 2007. In Q407 alone, IBM reportedly
signed multiple-year contracts worth an aggregate INR1.4bn. In 2007, IBM launched its
Express Advantage programme in India, with a number of cross-industry solutions designed
for SMEs. This was complemented with an IBM financing advantage programme that offered
single-source financing at competitive rates and easy access to leases and loans for IBM
products.
In August 2007, IBM announced the opening of a new global delivery location in Chennai. The
new facility, which is IBMs sixth global delivery location in India, will concentrate expertise in
applications and IT infrastructure services. The centre will initially employ up to 100 people,
but this should increase to around 2,500 over time.
In mid-2007, IBM entered into an agreement with the International Institute of IT, Bangalore,
for collaboration in research initiatives. IBM Global Services has also been developing a
programme to promote IT education at a grassroots level in India.
Future Plans IBM has stressed that it is to continue to invest billions of US dollars over the next few years in
developing India as a hub for its IT services and software. The company also wants to counter
increasing competition for Indian business from domestic vendors like TCS and Infosys.
IBM is aggressively targeting the SME segment in India, and in 2007, it announced an
extension of its relationship with SAP to serve medium-sized companies in India. SAP and
local IBM Business Partners will bring new packaged solutions to a number of industries
including distribution, life sciences, retail, industrial machinery, construction and engineering.
Local Market IBM India achieved nearly US$1bn in revenues in 2007. In recent years, the companys India
Performance operations have reported over 35% growth annually. IBM has a very significant portion of
(perhaps as high as 50%) outsourced contracts in India. Clients include Bharti Airtel, Idea
Cellular and Vodafone, as well as government departments and Delhi International Airport,
IndusInd Bank, Yes Bank, Tata Motors and Bajaj Auto. IBM takes care of Bhartis hardware
and software requirements and has a mandate to consolidate the companys data centres and
IT help-desks. The landmark outsourcing contract includes all customer facing IT applications
such as billing, CRM and data warehousing. IBM is also servicing Bhartis internal applications
such as intranet, email and online collaboration and was responsible for setting up disaster

recovery.
Presence IBM has a significant presence in India with a presence of 73,000 employees in 25 centres.
Samuel J Palmisano, chairman of IBM, has announced plans to make India its hub for its
South Asian operations and has made major investments in the country. IBM has six global
delivery centres in Bangalore, Gurgaon, Kolkata, Pune, Hyderabad and Chennai.
Sectors Key sectors for IBM India include telecoms, banking and financial services, and the public
sector. Traditional sectors for IBM India included manufacturing and government, but recently
the company has been enjoying success in some new areas such as telecoms. IBM said that
the solution-based modelling division is the fastest growing in India and accounts for around
60% of its business in India, compared with 20% worldwide.

Wipro (India)
Services Wipro Infotech, the IT services, solutions and products division of Wipro Limited, is a global
provider of IT services, with computer software currently its main business.
Recent Developments In 2009, Wipro continued to find opportunities in key verticals, especially telecoms. In May
2009, Wipro signed a INR2,200 crore nine-year contract with Unitech Wireless. Wipro will
integrate the companys ERP system and host all its data centres. This win followed a
INR3,000 crore contract that Wipro signed with Aircel earlier this year.
Meanwhile, Wipro won a INR1,182 crore e-government contract from the Employees State
Insurance Corporation. Wipro has also announced that it is to serve as a Wi-Fi alliance test
lab for Wi-Fi alliance members in India and other parts of Asia. The Wipro facility in Bangalore
will streamline certification and provide faster time to market for Wi-Fi-certified products.
Wipro and Lockheed Martin, the worlds largest defence contractor and the US governments
leading IT provider, recently opened a Network Centric Operations Centre in Gurgaon, India.
The new facility will develop, demonstrate and experiment with emerging network-enabled
capabilities and applications.
Future Plans Wipro is expanding its global delivery capacity, with new centres established in FY07 in
Beijing and Shanghai in China as well as Romania, Portugal and Brazil. Similarly, in India, the
company is expanding to cities such as Bhubaneswar, Cochin and Mysore.
Local Market India and Asia Pacific IT services and products revenues for FY07 were reported at
Performance INR28.4bn. Global revenues for the segment were INR110.9bn. Total global revenues were in
excess of US$5bn. Wipro is one of the most successful firms in the outsourcing sector and,
like Infosys, has benefited from a boom in back-office services such as handling customer
calls for companies abroad and claims to have worked with more than half of the companies
on the Fortune 500 list.
Presence In the Indian market, Wipro provides integration, software solutions and IT services.
Headquartered in Bangalore, the company also has profitable presence in some consumer
products market segments. Globally, Wipro has around 72,000 employees, with more than
one-third in India. However, less than 8% of global revenues in 2007 came from India.
Sectors Wipro Infotech has four divisions: Infrastructure Solutions, Professional Services, Business
Solutions and Communication Services. The Infrastructure Solutions team has alliances with
global technology leaders including Sun Microsystems, Microsoft, Intel, Computer
Associates and Cisco to offer enterprise servers and storage, networking and software
platforms to its customers. The Professional Services division provides application, platform
and network integration services and enterprise management services. The Business
Solutions division offers solutions in e-commerce, e-security and business applications. The
Communication Services team offers data-centre services, connectivity services, managed

services and call-centre services.

Microsoft India
Services Software as well as consulting and support services.
Recent Developments In November 2008, Microsoft extended its Get Genuine Solution in the Indian market to
include Windows Vista. The programme allows SMEs to easily legalise their unlicensed
Windows Vista and Windows XP Professional PCs. The programme was launched in 2007,
and the company believes that it has already sold more than 90,000 licences through the
initiative in India.
In 2007, Microsoft launched its Office Professional 2007 Prepaid Edition in India on a six-
month subscription basis available to the SME segment. The company adopted the same
approach with its Dynamics ERP suite, making it available as a subscription service.
Microsoft announced ambitious new growth plans for India and a target of passing the 1mn-
customer mark in 2007. Microsofts Entertainments and Devices division was expecting 1mn
units of hardware sales in 2009.
Plans Microsoft has spent hundreds of millions of US dollars expanding research and development
facilities in the country over the past couple of years. The companys first India-based
innovation centre is established in Bangalore and will continue to support a local team working
on areas like local-language computing solutions and affordable access to technology.
Local Market Asia Pacific is the fastest growing region for Microsoft, although it currently represents only
Performance about 5% of Microsofts revenues. Microsoft reportedly sold 750,000-800,000 units of
hardware in India in 2007. Meanwhile, Microsoft IT, an IT services division employing around
1,000 staff, has reported annual growth of nearly 80% over the past four years.
Presence Fully owned subsidiary. The company has a network of more than 8,500 dealers and retailers
in 93 cities and expects to reach 100 cities soon.
Sectors Microsoft appears to be taking a dual-track approach to the market, promoting its mature
business while also seeking to reach those who traditionally have not been able to afford
computing. As part of a new focus on hardware in India, the company will be promoting some
newly launched peripherals including gaming devices, wireless mouses, keyboards and
webcams.

Tata Consultancy Services (TCS)
Services Technology services, consulting and integration.
Recent Developments Tata Consultancy Services (TCS) recently signed a INR1,200 crore deal with the government
to migrate passport services to an electronic platform. Tata said that it hoped to recruit
30,000-50,000 employees in 2008 for a net add of around 20,000. The company is recruiting
as it steps up its campaign to win a larger share of its domestic market. In Q108, TCS
launched a new business unit to provide customised solutions to SMEs. The solutions will be
provided on a subscription-based model. SMEs will be provided with what TCS describes as
blueprints for business-process improvement and end-to-end managed solutions in IT and
telecoms.
TCS recently announced the launch of its second global delivery centre in Hyderabad, where
TCS employs around 6,000 staff currently. It is the second TCS campus and, with a capacity
of 8,000, will be the largest TCS facility in Hyderabad. The facility will serve global TCS
customers in a number of segments.
TCS started construction of a new BPO centre in Nagpur in December 2007-January 2008.
The company entered into an agreement with Tata Realty and Infrastructure to develop the
project. The Nagpur BPO will have a capacity of 5,000 people, and operations are scheduled
to start within 18 months of construction.
Future Plans The company is reaching out towards the SME segment. To help sustain growth, the
company is also looking beyond first- and second-tier cities for recruitment and has embarked
on a programme of developing relationships with colleges and educational institutions in third-
tier cities. The company added 32,000 employees in 2006-2007 and around 90% of the
companys employee base are Indian nationals.
Local Market In FY07, consolidated revenues were US$4.3bn. TCS was the first Indian IT company to
Performance reach the US$1bn league in 2004. Asia Pacific contributed just 4.78% of global revenues in
2007. However, according to TCS, India continues to demonstrate growth in absolute terms
and is an important strategic market.
Presence Indias largest IT company. In 2007, the company has moved into new corporate headquarters
in Mumbai. It has more than 100,000 global employees. Currently, Tata claims around 12,000
employees dedicated to its Indian business.
Sectors TCS said that in India it intends to concentrate on projects with scale and complexity such as
the National Stock Exchange (the third largest global exchange by trading volumes) or
mission critical projects like the Ministry of Company Affairs MCA-21 initiative. Key Indian
market sectors for TCS are finance, where it claims 15 of the top 30 Indian financial services
organisations as clients, and retail, where it claims five of the top 10 Indian retailers.

Country Snapshot: India Demographic Data

Section 1: Population
Population by age, 2005 Population by age, 2005:2030 (total)

75+ 75+
70-74 70-74
65-69 65-69
60-64 60-64
55-59 55-59
50-54 50-54
45-49 45-49
40-44 40-44
35-39 35-39
30-34 30-34
25-29 25-29
20-24 20-24
15-19 15-19
10-14 10-14
5-9 5-9
0-4 0-4
-60.0 -40.0 -20.0 0.0 20.0 40.0 60.0 -150.0 -100.0 -50.0 0.0 50.0 100.0 150.0
Male Female 2030 2005
Figures in millions. Source: UN Population Division
Table: Demographic Indicators, 2005-2030
2005 2010f 2020f 2030f
Dependent population, % of total 36.8 35.0 33.4 31.7
Dependent population, total, 000 402,947 409,342 461,380 477,392
Active population, % of total 63.1 64.9 66.5 68.3
Active population, total, 000 691,636 757,201 917,819 1,028,356
Youth population*, % of total 31.6 29.7 26.7 22.8
Youth population*, total, 000 346,631 347,406 368,798 344,299
Pensionable population, % of total 5.1 5.3 6.7 8.8
Pensionable population, total, 000 56,316 61,936 92,582 133,093
f = forecast. * Youth = under 15. Source: UN Population Division

Table: Rural/Urban Breakdown, 2005-2030
2005 2010f 2020f 2030f
Urban population, % of total 28.7 30.3 34.3 40.6
Rural population, % of total 71.3 69.7 65.7 59.4
Urban population, total, 000 317,131 358,076 473,065 611,334
Rural population, total, 000 786,240 825,216 906,133 894,414
Total population, 000 1,103,371 1,183,292 1,379,198 1,505,748
f = forecast. Source: UN Population Division
Section 2: Education And Healthcare
Table: Education, 2002-2005
2002/03 2004/05
Gross enrolment, primary 116 115
Gross enrolment, secondary 54 54
Gross enrolment, tertiary 12 11
Gross enrolment is the number of pupils enrolled in a given level of education regardless of age expressed as a
percentage of the population in the theoretical age group for that level of education. Source: UNESCO
Table: Vital Statistics, 2005-2030
2005 2010f 2020f 2030f
Life expectancy at birth, males (years) 61.7 63.2 66.6 69.3
Life expectancy at birth, females (years) 64.7 66.7 70.4 73.6
Life expectancy estimated at 2005; f = forecast. Source: UNESCO

Section 3: Labour Market And Spending Power
Table: Employment Indicators, 1996-2001
1996 1997 1998 1999 2000 2001
Economically active population, 000 na na na na na 402,235
% change y-o-y na na na na na 38.2
% of total population 347,060 350,402 340,596 na 368,966 na
Employment, 000 0.9 0.9 -2.8 na na na
% change y-o-y 257,598 261,862 259,706 na 262,484 na
male 89,462 88,540 80,890 na 106,482 na
female 25.7 25.2 23.7 na 28.8 na
female, % of total 7,564 9,323 12,542 na 16,634 na
Total employment, % of labour force 6,428 7,107 9,489 na 11,838 na
Unemployment, 000 1,136 2,217 3,052 na 4,797 na
male 2.1 2.6 3.6 na 4.3 na
f = forecast. na = not available. Source: ILO
Table: Consumer Expenditure, 2000-2012 (US$)
2000 2007e 2008f 2009f 2010f 2012f
Consumer expenditure per capita 292 502 594 701 793 994
Poorest 20%, expenditure per capita 118 203 241 284 321 403
Richest 20%, expenditure per capita 662 1,138 1,346 1,588 1,796 2,252
Richest 10%, expenditure per capita 910 1,563 1,848 2,181 2,466 3,093
Middle 60%, expenditure per capita 227 390 461 545 616 772
Purchasing power parity
Consumer expenditure per capita 1,482 2,296 2,488 na na na
Poorest 20%, expenditure per capita 600 930 1,008 na na na
Richest 20%, expenditure per capita 3,357 5,200 5,635 na na na
Richest 10%, expenditure per capita 4,609 7,140 7,738 na na na
Middle 60%, expenditure per capita 1,151 1,783 1,932 na na na
e/f = BMI estimate/forecast. na = not available. Source: World Bank, Country data; BMI calculation

Table: Average Annual Manufacturing Wages, 2000-2012
2000 2006 2007e 2008f 2009f 2010f 2012f
Local currency 15,370 24,351 26,974 29,665 32,435 35,428 42,013
Wage growth, % y-o-y -17.2 8.83 10.7 9.9 9.3 9.2 8.9
US$ 354 551 616 723 842 937 1,131
e/f = BMI estimate/forecast. Source: ILO, BMI

BMI Methodology
How We Generate Our Industry Forecasts
BMIs industry forecasts are generated using the best-practice techniques of time-series modelling. The
precise form of time-series model we use varies from industry to industry, in each case being determined,
as per standard practice, by the prevailing features of the industry data being examined. For example, data
for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there
may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than
cyclical booms.
Our approach varies from industry to industry. Common to our analysis of every industry, however, is the
use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the
variables own history as explanatory information. For example, when forecasting oil prices, we can
include information about oil consumption, supply and capacity.
When forecasting for some of our industry sub-component variables, however, using a variables own
history is often the most desirable method of analysis. Such single-variable analysis is called univariate
modelling. We use the most common and versatile form of univariate models: the autoregressive moving
average model (ARMA).
In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data
quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a
basis for analysis and forecasting.
It must be remembered that human intervention plays a necessary and desirable part in all of our industry
forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks,
anomalous data, turning points and seasonal features where a purely mechanical forecasting process
would not.
IT Industry
Forecasts
There are a number of criteria that drive our forecasts for each IT variable.
IT forecasting is complicated due to the fragmented nature of the market, with little transparency of
vendor data and low apparent agreement between many sets of figures in terms of market definition, base
and methodology. In addition, forecasts are naturally affected by consideration of a variety of internal and
external political and economic factors.

Within best-practice techniques of time-series modelling, BMIs quarterly updated forecasts are
improved substantially by intimate knowledge of the prevailing features of each local market.
Individual variables taken into account in creating each forecast include:
! Overall economic context, and GDP and demographic trends;
! Underlying information society trends;
! Projected GDP share of industry;
! Maturity of market structure;
! Regulatory developments and government policies;
! Developments in key client sectors such as telecommunications, banking and e-government;
! Technological developments, and diffusion rates;
! Exogenous events.
Estimates are calculated using BMIs own macroeconomic and demographic forecasts.
IT Ratings Methodology
Our approach in BMIs IT Business Environment Ratings is threefold. First, we seek accurately to
capture the operational dangers to companies operating in this industry globally. Second, we attempt,
where possible, to identify objective indicators that may serve as proxies for indicators that were
traditionally evaluated on a subjective basis. Finally, we include aspects of BMIs proprietary Country
Risk Ratings (CRR) that are relevant to the IT industry. Overall, the ratings system, which integrates with
those of all 16 industries covered by BMI, offers an industry-leading insight into the prospects/risks for
companies across the globe.
Ratings System
Conceptually, the ratings system divides into two distinct areas:
Limits of potential returns: Evaluation of sectors size and growth potential in each state, and also broader
industry/state characteristics that may inhibit its development.
Risks to realisation of those returns: Evaluation of industry-specific dangers and those emanating from
the states political/economic profile that call into question the likelihood of anticipated returns being
realised over the assessed time period.
Indicators
The following indicators have been used. Overall, the rating uses three subjectively measured indicators,
and 41 separate indicators/datasets.

Table: IT Business Environment Indicators
Indicator Rationale
Limits to potential returns
Market structure
IT market value, US$bn Denotes breadth of IT market. Large markets score higher than smaller ones
Sector value growth, % year-on- Denotes sector dynamism. Scores based on annual average growth over five-year
year (y-o-y) forecast period
Government initiatives and Denotes spending boost provided by public sector, which can be a crucial
spending determinant of sector development
Denotes maturity of market. A high proportion of hardware sales compared to

Hardware, % of total sales services/software indicates that the overall IT market is immature
Country structure
Urbanisation is used as a proxy for development. Predominantly rural states

Urban-rural split therefore score lower
GDP per capita, US$ A high GDP per capita supports long-term industry prospects.
Overall score for country structure is also affected by the coverage of the power transmission network across the state
Risks to potential returns
Market risks
Markets with fair and enforced IP regulations score higher than those with
Intellectual property (IP) laws endemic counterfeiting
Subjective evaluation of official policy towards IT development, as enshrined in

ICT policy statute and tax code
Country risk
Rating from CRR evaluates the vulnerability to external shock, which is the
Short-term external risk principal cause of economic crises. Such a crisis would cut investment
Rating from BMIs CRR, to denote risk of currency crisis and stability of banking
sector. The former would hit revenues in hard currency, while the latter would
Short-term financial risk curtail investment funding
Trade bureaucracy Rating from CRR to denote ease of trading with the state
Rating from CRR denotes the strength of legal institutions in each state security
Legal framework of investment can be a key risk in some emerging markets
Bureaucracy Rating from CRR denotes ease of conducting business in the state
Rating from CRR denotes the risk of additional illegal costs/possibility of opacity in
Corruption tendering/business operations affecting companies ability to compete
Source: BMI

Weighting
Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-
components equal weight. Consequently, the following weight has been adopted.
Table: Weighting Of Components
Component Weighting
Limits of potential returns 70%
IT market 65%
Country structure 35%
Risks to realisation of potential returns 30%
Industry risks 40%
Country risk 60%
Source: BMI
Sources
Additional sources used in IT reports include national ministries and ICT regulatory bodies, national
industry associations, and international industry organisations such as the International
Telecommunication Union (ITU), officially released company results and figures, and international and
national industry news agencies.

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Q3 2010

Part of BMIs Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: July 2010

Business Monitor International 2010 Business Monitor International.

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Executive Summary ......................................................................................................................................... 5

SWOT Analysis ................................................................................................................................................. 8

IT Business Environment Ratings ................................................................................................................ 13

Asia Regional IT Markets Overview.............................................................................................................. 16

India Market Overview ................................................................................................................................... 23

Industry Forecast Scenario ........................................................................................................................... 38

Competitive Landscape ................................................................................................................................. 48

Company Profiles ........................................................................................................................................... 55

Country Snapshot: India Demographic Data............................................................................................... 61

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Table: Consumer Expenditure, 2000-2012 (US$) ................................................................................................................................................ 63

BMI Methodology ........................................................................................................................................... 65

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Key Issues For Investors

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Weaknesses ! Weak IT patent protection and high piracy rates.

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Indian Telecoms Industry SWOT

Strengths ! Mobile subscriber growth continues to be strong.

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India Political SWOT

Weaknesses ! Large coalition governments complicate policy-making at the centre, as coalition

Threats ! Hindu nationalism presents a growing threat to Indias constitutionally enshrined

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India Economic SWOT

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India Business Environment SWOT

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IT Business Environment Ratings

Table: Asia Pacific IT Business Environment Ratings

IT Country Market Country IT BE Regional

Australia 56 100 71 80 71 75 72.2 1

Singapore 53 100 69 70 84 78 71.9 2

Hong Kong 48 95 65 70 87 80 69.4 3

South Korea 52 75 60 75 71 73 63.9 4

Sri Lanka 30 10 23 35 43 40 28.0 11

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Asia Regional IT Markets Overview

The two Asian giants, China and India,

Lower price will help to drive higher PC

Around the region, affordable computer

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IT Growth And Drivers

Strong fundamental demand drivers of IT Source: BMI

In the largest market, China, an IT Market Sizes As % Of National GDPs

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The Philippines is one of the countries

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Sectors And Verticals

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Market Structure (% Of Total IT Market)

f = forecast. Scores out of 100. Source: BMI

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