Mumbai: According to Gartner, Indian ICT spending will surpass $54.8 billion by 2008, a rise from $29.5 billion in 2004, representing a compounded annual growth rate (CAGR) of 19 per cent.

Domestic vendors currently account for 42 per cent of the market share, as opposed to 58 per cent held by foreign vendors. Gartner made it clear that if Indian vendors don't focus on the domestic market opportunity, this percentage is expected to slip even further by 2008.

At the Gartner Summit India 2005 titled Conquering IT Complexity, Partha Iyengar, Gartner research vice president said, "The growth of the Indian ICT market will be driven by a combination factors that including an economic upswing, new government policies, FDI and more than 25 Indian companies emerging as global entities in the Fortune 500."

Gartner estimates that by year-end 2005, the ICT export industry in India will be worth $16.5 billion (IT outsourcing and business process outsourcing). Application outsourcing will constitute the major component, followed by IT services and high end business process outsourcing. By year end 2006, IT services are projected to grow at 35 percent, while BPO at 45 percent.

Market share in India for Indian v/s. multinational vendors for 2004

Source: Gartner August 2005

Iyengar highlighted that Indian companies tend to buy from global IT providers due to the perceived quality and technological capability of their solutions. Locally developed products, for the most part, are used in tactical low risk projects. Some exceptions do exist, for example, in core banking solutions and telecom, where Indian vendors have been able to hold their own against foreign competition. However, these deals are few and far between.

Gartner warned that if Indian service providers continue to pursue the export market at the expense of the local market opportunity, it will have a detrimental long-term impact on the growth of the overall ICT exports business. Gartner stated that this predicament emerges from the fact that buyers are increasingly recognising and choosing strong multinational vendor brands in the domestic market that they would prefer to outsource high-end work to. If Indian vendors have no standing in the local market and do not compete for these higher-end (transformation oriented) deals domestically, it will hamper their prospects in pursuing similar deals in international markets.

Commenting on the current state of the Indian ICT market, Iyengar said, "The domestic ICT industry has very limited choices when it comes to local vendors. This is because 60 per cent of Indian services vendors focus on the export market due to the lucrative margin, except for strategic engagements with government and MNCs."

Iyengar adds, "Indian vendors do not believe they can become the next Microsoft, SAP or Oracle, which shows a clear lack of management vision and mind-set to make long-term product based investments. But Gartner expects this to change as the domestic market will begin to emerge in the 2008-2010 period, if the overall economy continues with strong growth."