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Investment and opportunities

By GovernanceToday
In Cover Story
May 11, 2017
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cover-storyIndia is billed as the world’s largest sourcing destination for the information technology (IT) industry, accounting for approximately 67 percent of the USD 130 billion (approx.) market. The  industry employs about 10 million workforces. More importantly, the industry has led the economic transformation of the country and altered the perception of India in the global economy. India’s cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US, continues to be the mainstay of its Unique Selling Proposition (USP) in the global sourcing market. However, India is also gaining prominence in terms of intellectual capital with several global IT firms setting up their innovation centres in India.

The IT industry has also created significant demand in the Indian education sector, especially for engineering and computer science. The Indian IT and ITeS industry is divided into four major segments – IT services, Business Process Management (BPM), software products and engineering services, and hardware.

Market Size

The Indian IT sector expected to grow at a rate of 12-14 percent for FY2016-17 in constant currency terms. The sector is also expected triple its current annual revenue to reach USD 350 billion by FY 2025.

Employees from 12 Indian startups, such as Flipkart, Snapdeal, Makemytrip, Naukri, Ola, and others, have gone on to form 700 start-ups on their own, thus expanding the Indian start-up ecosystem.! India ranks third among global start-up ecosystems with more than 4,200 start-up.

Total spending on IT by banking and security firms in India is expected to grow 8.6 per cent year-on-year to USD 7.8 billion by 2017.

India’s internet economy is expected to touch Rs 10 trillion (USD 146.72 billion) by 2018, accounting for 5 per cent of the country’s GDP.

The public cloud services  market in India is slated to grow 35.9 per cent to reach USD 1.3 billion according to IT consultancy, Gartner. Increased penetration of internet (including in rural areas) and rapid emergence of e-commerce are the main drivers for continued growth of data centre co-location and hosting market in India. The Indian Healthcare Information Technology (IT) market is valued at USD 1 billion currently and is expected to grow 1.5 times by 2020. India’s business to business (B2B) e-commerce market is expected to reach USD 700 billion by 2020 whereas the business to consumer (B2C) e-commerce market is expected to reach USD 102 billion by 2020.

Cross-border online shopping by Indians is expected to increase 85 per cent in 2017, and total online spending is projected to rise 31 per cent to Rs 8.75 lakh crore (USD 128 billion) by 2018.

Post the government’s announcement of demonetisation of specific currency denominations, digital payment platforms such as Paytm, MobiKwik, Oxigen witnessed a sharp spike in user transactions, app downloads and merchant enquiries, thereby indicating a greater demand towards digital payments by consumers.

India ranks among the top five countries in terms of digitalisation maturity as per Accenture’s Platform Readiness Index, and is expected to be among the top countries with the opportunity to grow and scale up digital platforms by 2020.

Investments/ Developments

Indian IT’s core competencies and strengths have attracted significant investments from major countries. The computer software and hardware sector in India attracted cumulative Foreign Direct Investment (FDI) inflows worth USD 22.83 billion between April 2000 and December 2016, according to data released by the Department of Industrial Policy and Promotion (DIPP).

Leading Indian IT firms like Infosys, Wipro, TCS and Tech Mahindra, are diversifying their offerings and showcasing leading ideas in blockchain, artificial intelligence to clients using innovation hubs, research and development centres, in order to create differentiated offerings.

Some of the major developments in the Indian IT and ITeS sector are as follows:

  • Bengaluru-based fintech company ZestMoney, owned by Camden Town Technologies Pvt. Ltd, has raised USD 6.5 million in a series A round of funding led by Naspers-owned PayU; and will invest the funds in technology and product development.
  • Google plans to set up its first data centre in India in the city of Mumbai by 2017, to improve its services to local customers wanting to host their applications on the internet, and to compete effectively with the likes of Amazon and Microsoft,
  • Sagoon Inc, a social network and e-commerce start-up,  has filed mini-initial public offering (IPO) papers with the US Securities and Exchange Commission (SEC), to raise around USD 20 million, which will be used to set up a campus in India, expand its team in India, the US and Nepal, and support marketing and branding and other general purposes.
  • SAP SE, in partnership with the Associated Chambers of Commerce of India (ASSOCHAM), has rolled out a knowledge sharing resource centre which will serve as a one-stop portal for businesses looking to adopt or migrate to technology that will make them future ready for the biggest taxation reform of goods and services tax (GST).
  • Freshdesk, one of first companies from India to offer Software-as-a-Service (SaaS) to global companies, has raised USD 55 million in the latest round of funding led by Sequoia Capital India and existing investor Accel Partners, estimating to value the company at USD 700 million.
  • Warburg Pincus LLC, the USbased private equity firm, plans to invest around USD 75 million in series C round of funding to buy a significant stake in Capital Float, an online credit  platform.
  • Helpshift Inc, which makes customer support software for mobile apps, announced raising USD 2 million from Cisco Investments, in addition to working with Cisco to integrate its in-app customer support with Cisco’s contact centre solutions.
  • Knowlarity Communications Pvt Ltd, a cloud telephony provider, has announced raising USD 20 million from multiple investors such as Dubai-based private equity investor Delta Partners, existing investors Sequoia Capital Funds and Mayfield Fund, apart from venture-debt from Blacksoil and Trifecta Capital.
  • Flipkart, India’s largest e-commerce marketplace, has re-entered the private label business by launching Smart Buy, the first of two new private labels, with a view to boost earnings and fill gaps in its product selection.
  • Fitpass, a Delhi-based revolutionary app which offers access to gyms and health clubs membership, has raised USD 1 million in seed funding from investors in Mumbai, Delhi, and Bengaluru.
  • Apple’s supplier and assembler, Taiwan-based Winstron, will set up an iPhone assembly facility in Peenya, Bengaluru’s industrial hub, thus making India the third country across the world to have an assembly unit for Apple’s iPhone.
  • Kratikal Tech Pvt Ltd, a cybersecurity start-up, has raised around USD 500,000 in seed round of funding led by Mr Amajit Gupta, former director of Microsoft India, which will be used for product development and building training modules.
  • International Finance Corporation (IFC) plans to invest USD 10 million as equity in Bengaluru-based Zinka Logistics Pvt Ltd, which provides a technology platform called Blackbuck for longhaul trucking market in India, estimated at USD 70 billion.
  • Paytm’s online marketplace unit raised USD 200 million in a funding round led by a USD 177 million investment to be made by Alibaba Group Holding Ltd, and balance by SAIF Partners.
  • Intel Corporation plans to invest in Digital India related solutions such as India stack, Unique Identification (UID), e-government 2.0 and other government initiatives, and scale up operations of its data centre group (DCG), as per Mr Prakash Mallya, Director DCG, Asia for Intel Corporation.
  • Reliance Industries Ltd (RIL) plans to set up entrepreneurship hubs in key cities and towns, and  Rs 5,000 crore (USD 748 million) fund, under the name of Jio Digital India Startup Fund, to invest in technology based startups.
  • Gurgaon-based digital wallet start-up MobiKwik, which is owned and operated by One MobiKwik Systems Private Limited, has raised USD 40 million from Nasdaq-listed firm Net1, a South African payments technology company.
  • Orange Business Services, the business services arm of Orange Group, has launched a state data centre for Himachal Pradesh government, which will be the first data centre in India to be designed using ‘green’ data centre concepts that minimise power requirements and increase power utilisation efficiency.

“ Market for electronics is expected to expand at a CAGR of 66.1 percent during 2015–20. The demand for electronics hardware in India is  projected to increase to USD 139 billion by 2018″

  • PurpleTalk Inc, a US based mobile solutions company, has invested USD 1 million in Nukkad Shops, a Hyderabad based uber-local commerce platform that helps neighbourhood retail stores take their businesses online through a mobile app.
  • KartRocket, a Delhi based e-commerce enabler has completed its USD 8 million funding round by raising USD 2 million from a Japanese investor, which will be used to enhance Kraftly, a mobile-first online-to-offline marketplace targeting small sellers, individuals and homebased entrepreneurs in India in product categories such as  apparel and accessories.
  • Xpressbees, an e-commerce logistics firm operated by Busybees Logistics Solutions Private Limited, has raised USD 12.5 million in a Series A funding, led by its existing investors SAIF Partners, IDG Ventures, Vertex Ventures and Valiant Capital, which will be used to strengthen technology initiatives and processes of the firm.
  • Housejoy, an online home services provider, has raised Rs 150 crore (USD 22 million) in a Series B round of funding led by Amazon, and which also includes new investors such as Vertex Ventures, Qualcomm and Ru-Net Technology Partners.
  • Nasscom Foundation, a nonprofit organisation which is a part of Nasscom, has partnered with SAP India to establish 25 National Digital Literacy Mission (NDLM) centres in 12 cities across India, as a part of Government of India’s Digital India initiative.
  • Government Initiatives
  • In the Union Budget 201718, the Government of India announced the following key proposals:
  • The Government of India has allocated Rs 10,000 crore (USD 1.5 billion) for BharatNet project under which it aims to provide high speed broadband to more than 150,000 gram panchayats by 2017-18. Prime Minister of India, Mr Narendra Modi, has launched the Bharat Interface for Money (BHIM) app, an Aadhaar-based mobile payment application that will allow users to make digital payments without having to use a credit or debit card. The app has already reached the mark of 10 million downloads.
  • Some of the major initiatives taken by the government to promote IT and ITeS sector in India are as follows:
  • Mr Ravi Shankar Prasad, Union Minister of Electronics and Information Technology, has launched a free Doordarshan DTH channel called DigiShala, which will help people understand the use of unified payments interface (UPI), USSD, aadhaar-enabled payments system, electronic wallets, debit and credit cards, thereby promoting various modes of digital payments.
  • The Government of India plans to revamp the United Payment Interface (UPI) and Unstructured Supplementary Service Data (USSD), to make it easier for consumers to transact digitally either with or without an Internet connection with the aim of strengthening its push towards making India a digital economy.
  • The Telecom Regulatory Authority of India (TRAI) will soon release consultation papers ahead of framing regulations and standards for the rollout of fifth-generation (5G) networks and Internet of Things (IoT) in India.
  • The Government of Gujarat has signed 89 MoUs worth Rs 16,000 crore (USD 2.3 billion) in the IT sector, during Vibrant Gujarat Global Summit-2017.
  • The Government of Telangana has signed an agreement with network solutions giant Cisco Systems Incorporation, to cooperate on a host of technology initiatives, including Smart Cities, Internet of Things, cybersecurity, education digitisation of monuments.
  • The Railway Ministry plans to give a digital push to the India Railways by introducing bar-coded tickets, Global Positioning System (GPS) based information systems inside coaches, integration of all facilities dealing with ticketing issues, Wi-Fi facilities at the stations, super-fast long-route train service for unreserved passengers among other developments, which will help to increase the passenger traffic.cover-story-pic2
  • The Pune Smart City  Development Corporation (PSCDCL) has signed a memorandum of understanding (MOU) with the European Business and Technology Centre (EBTC), which will allow it to gain access to real-time knowledge of technologies, solutions and best practices from Europe.
  • The Human Resource Development (HRD) Ministry has entered into a partnership with private companies, including Tata Motors Ltd, Tata Consultancy Services Ltd and real-estate firm Hubtown Ltd, to open three Indian Institutes of Information Technology (IIITs), through public-private partnership (PPP), at Nagpur, Ranchi and Pune.
  • Government of India is planning to develop five incubation centres for IoT start-ups, as a part of Prime Minister Mr Narendra Modi’s Digital India and Startup India campaign, with at least two centres to be set up in rural areas to develop solutions for smart agriculture.
  • The Government of India has launched the Digital India program to provide several government services  to the people using IT and to integrate the government departments and the people of India. The adoption of key technologies across sectors spurred by the ‘Digital India Initiative’ could help boost India’s Gross Domestic Product (GDP) by USD 550 billion to USD 1 trillion by 2025.
  • India and the US have agreed to jointly explore opportunities for collaboration on implementing India’s ambitious Rs 1.13 trillion (USD 16.58 billion) ‘Digital India Initiative’. The two sides also agreed to hold the US-India Information and Communication Technology (ICT) Working Group in India later this year.

ELECTRONICS PRODUCTION IN INDIA HAS BEEN GROWING AT A RAPID PACE

It has been estimated that demand of electronics products and systems in India would grow to about USD 400 Billion by 2020. At the conventional rate of growth of domestic production, it would only be possible to meet demand of about USD 100 Billion by 2020. The Government attaches high priority to electronics & IT hardware manufacturing. It has the potential to generate domestic wealth and employment, apart from enabling cyber-secure ecosystem. There have been some efforts for rapid growth of the electronics (including telecom) hardware manufacturing sector in the past like 100% FDI permitted under automatic route, no Industrial license requirement, payment of technical know-how fee and royalty for technology transfer under automatic route.

However, these efforts have not led to a substantial impact; partly because of India is a signatory to the Information Technology Agreement (ITA-1) that has resulted in a zero duty regime on import of the goods covered under the Agreement. India has also executed Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTA) with several countries/ trading blocks, which has enabled zero duty import of items not covered under ITA. Other factors hampering the growth of electronics includes lack of reliable power, high cost of finance, poor logistics & infrastructure, weak components manufacturing base, lack of targeted & proactive R&D in collaboration with industry etc. In March 2017, Xiaomi announced its 2nd manufacturing plant along with Taiwan based company Foxconn, in Andhra Pradesh. This will help create employment in 100 nearby villages for at least 5,000 people.

According to government estimates, Consumer Electronics has the highest share (29.7 per cent) in the total production of electronic goods in India. The growth in consumer electronics over the years has been accompanied by an increase in imports in respect of certain items like LCD/LED TVs. The Electronic Components had witnessed a growth of about 23.74 per cent from the previous year which was supported by the rapid growth in domestic manufacturing of electronic components. Industrial electronics contributed 20.9 per cent of the total output of electronics goods industry in FY15. Industrial electronics is expected to grow at a considerable pace with the new plans and schemes by government Communication and broadcasting equipment constitutes 10 per cent of total production of electronic goods in India in FY15. Not surprisingly, computers are a key component of total electronics output in India (9.9 per cent in FY15). The segment’s share is likely to go up over this decade, given greater policy focus on encouraging computer hardware manufacturing. As of FY16, production of industrial electronics, mobile phones and LEDs, in value terms, stood at around USD 6887.11 million, USD 8249.31 million and USD 548.43 million, respectively.

Opportunities

MULTIPLE FACTORS FAVOUR INVESTMENT IN ELECTRONICS:

Market for electronics is expected to expand at a CAGR of 66.1 percent during 2015–20. The demand for electronics hardware in India is projected to increase to USD 139 billion by 2018. Domestic electronic production accounts for around 45.0 per cent of the total market demand. Therefore, in order to reduce the import bill, the government plans to boost the domestic manufacturing capabilities and is considering a proposal to give preference to Indian electronic products in its purchases Increasing penetration in the consumer durables segment: Consumer durables market in India is characterised by low penetration in various product segments, viz. 1 per cent in microwaves, 3 per cent in ACs, 16 per cent in washing machines, 18 per cent in refrigerators, etc. Higher disposable incomes are leading to realisation of penetration potential in various product segments, especially in rural areas Policy and investment support. As per the targeted reduction in import bill, the government has proposed an investment of USD 555.0 million for semiconductor manufacturing plant. This will attract foreign companies to set up manufacturing facilities in India. In Union Budget 2016–17, inputs, parts, components & subparts for manufacturing of charger/ adapter, battery & wired handsets / speakers of mobile phones are fully exempted from Basic Customs Duty (BCD), Counter Veiling Duty (CVD) & Special Additional Duty (SAD) Growth in electronics Incentives and concessions under schemes: Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park (EHTP) Scheme, Software Technology Park (STP) Scheme and EOU/ EHTP/STP Schemes.  IESA (India Electronics and Semiconductor Association) announced the launch  of new chapters to strengthen and improve the supply chain. Chennai, also known as Electronic Manufacturing Services (EMS), is one of the fastest growing manufacturing cities, with easy accessibility to seaports. It will help India in becoming a global electronic manufacturing hub to increase electronic manufacturing in the country.

ERA OF DIGITISATION OPENS NEW OPPORTUNITIES:

The government announced the digitisation of cable television in India in 4 phases, which was to be completed by March 2017 Digitisation will lead to complete switchover from analogue cable to Digital Addressable Systems in a phased manner The number of DTH subscribers in India is expected to increase from 84.80 million in December 2015 to 200 million by 2018 The number of active DTH for the quarter of September 30, 2016, was recorded at 1.4 million.

Road Ahead

India is the topmost offshoring destination for IT companies across the world. Having proven its capabilities in delivering both on-shore and off-shore services to global clients, emerging technologies now offer an entire new gamut of opportunities for top IT firms in India. Social, Mobility, Analytics and Cloud (SMAC) are collectively expected to offer a USD 1 trillion opportunity. Cloud represents the largest opportunity under SMAC, increasing at a CAGR of approximately 30 per cent to around USD 650-700 billion by 2020. The social media is the second most lucrative segment for IT firms, offering a USD 250 billion market opportunity by 2020. The Indian e-commerce segment is USD 12 billion in size and is witnessing strong growth and thereby offers another attractive avenue for IT companies to develop products and services to cater to the high growth consumer segment.

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