I.T & B.P.M Industry


 

OVERVIEW

The IT- BPM sector has become one of the most significant growth catalysts for the Indian economy and contributes to approximately 9.3% of the country’s GDP. The industry is known for its cost competitiveness and high quality services across the world and has been instrumental in transforming the perception of India in the global economy. India has been successful in capturing a sizeable portion of the global technology sourcing business. The Indian IT industry’s (including hardware) share in the global market stands at 7% and it has been an export oriented industry.

Around 60% firms use India as a medium for testing services before taking software products global. There are more than 15,000 firms in the nation dedicated to this business. It is one of the largest private sector employers, employing around 3.7 million jobs. India’s domestic IT-BPM market is growing at an impressive CAGR of 14%.

It has been forecasted that the revenue generated by the sector will touch nearly US$ 350 Billion by the period 2025. India’s IT & BPM sector has continued to record double digit growth despite static growth in global tech spending. India is also world’s biggest BPM destination. The e-commerce industry itself is growing at a CAGR of near 20% by the same time. Global industry giants from France, Germany, USA and Japan have substantial operations spread across the country.

Major growth drivers which have contributed to exports growth are emerging geographies and verticals, non-linear growth due to platforms, products and automation and also revival in demand for IT services from US and Europe. Other contributors have been increasing adoption of technology and telecom by consumers and focused government initiatives.

Technology based startups are also key growth drivers of IT & BPM products in India with more than 4,700 startups currently operating in the country. IT and BPM industry revenues (excluding hardware) is estimated at around US$ 130 billion for the year 2015-16. It is estimated that the size of the industry will rise and reach US$ 350 billion by 2025.

India’s startup revolution will benefit verticals such as Internet of Things (IoT), Machine Learning, Artificial Intelligence (AI) and Health Care technology. In BPM segment, a strong annual growth will be fueled by newly emerging fields such as cloud, mobility and advanced analytics. By the period 2020, social, mobile, analytics, and Cloud (SMAC) market, which is helping to attract new customers is projected to reach US$ 225 billion by the year 2020. 

The value of aggregate exports by the IT-BPM sector (including hardware) were estimated to be $117 billion in FY17; recording a CAGR of 12.84% between the period FY10 and FY17. IT service exports was the major contributor, accounting for 56.41% share in the total IT exports during FY17. BPM accounted for 22.22% of total IT exports in the year. Banking, financial services and insurance is a key business vertical for the IT-BPM industry. Non US-UK countries accounted for just 21% of total Indian IT-BPM exports during FY17. The sector accounts for largest share in total services exports (38%).

FDI up to 100% under the automatic route is allowed in the following sectors namely; data processing, software development and computer consultancy services, software supply services, business and management consultancy services, market research services, technical testing and analysis services. 

100% FDI is permitted in B2B E-commerce, however no FDI is permitted in B2C e-commerce. As per these new guidelines on FDI in e-commerce, 100% FDI under automatic route is permitted in marketplace model of e-commerce, while FDI is not permitted in inventory based model of e-commerce.

FDI inflow worth $64.1 billion has been observed in the services sector (Banking, Insurance, Business, Outsourcing, R&D, Courier, Technology Testing Analysis) during the period April 2000 – December 2017. FDI inflow of the value US$ 29.9 billion has been recorded in computer software & hardware segment during the period April 2000 – December 2017.

The ‘Digital India’ campaign has put India on the path of becoming a digital economy and the outlook seems promising. IT megaprojects such as nationwide broadband highways, universal mobile access and public internet access program are in the pipeline under the Digital India initiative. The National Optical Fibre Network aims to connect all 2,50,000 Gram Panchayats in the country with high speed broadband.

IT solutions in the domains of education, healthcare, urban planning and financial inclusion are focus areas of the program and this is creating several opportunities for the IT sector. India’s IT – BPM industry amounts for 56% of the global outsourcing market size.

Owing to the presence of skilled manpower, India is home to a large number of IT professionals. Indian IT & BPM industry is expected to rise to $300 billion by 2020.


 

SELECT GOVERNMENT INCENTIVES

National Policy on Information Technology 2012 aims to increase revenues of IT and BPM industry to US$ 300 billion by 2020. The policy also seeks to achieve the twin goals of bringing the full power of Information and Communication Technology (ICT) within the reach of the entire country and harnessing the capability and human resources of the country to enable India to emerge as the Global Hub and Destination for IT and BPM Services by the year 2020.

Key policies have been initiated by the government like the National Cyber Security Policy, National e-Governance Plan (NeGP) and the National Technology Parks (STP) Scheme. These help to protect information and information infrastructure in cyberspace, to provide more transparency in the governance system, to strengthen and enhance India’s position as the Global IT hub and to use IT and cyber space as an engine for rapid, inclusive and substantial growth in the national economy and to provide more concessions and exemptions.

Certain provisions under the 2016-17 Union Budget are:

  • Abolishment of the Minimum Alternate Tax (MAT) and Dividend Distribution Tax on Special Economic Zone (SEZ) developers/units, reduction of MAT rates, carry forward of MAT credit without time limits and lowering of the withholding tax rates on software
  • Promotion of Free and Open-Source Software (FLOSS) to advocate transparency and IT security among various e-governance and ‘Digital India’ initiative
  • Clarity on the classification of software either as ‘goods’ or ‘services’ to eliminate the dual levy of service tax and Value Added Tax (VAT), as an immediate remedial step
  • Activation of Wi-Fi at 400 railway stations, introduction of the online recruitment process to bring about 100 per cent transparency, etc.
  • Set up of a $2 billion Innovation and Technology Venture Fund to co-invest with private venture capital funds on a matching basis in local technology start-ups

 

SELECT EXPORT MARKET REGULATIONS

The US Customs and Border Protection (CBP) site has a number of Informed Compliance Publications (ICPs) in the "What Every Member of the Trade Community Should Know About: ..." series. The link given below provides information on the enforcement of Intellectual Property Rights of software and others. This link further provides details

https://www.cbp.gov/sites/default/files/assets/documents/2017-Feb/enforce_ipr_3_0.pdf

The UK government has a different set of regulations when importing from EU countries as against the non-EU members. The link below gives reference to importing from both.

https://www.gov.uk/starting-to-import

Also, when UK businesses buy services from outside the UK, a rule called the ‘reverse charge’ applies. The link helps traders calculate the same.

https://www.gov.uk/starting-to-import/vat-on-services