INDUSTRY & SERVICES

INFORMATION TECHNOLOGY AND INFORMATION TECHNOLOGY ENABLED SERVICES (ITES)

In India, information technology and electronics are still the fastest growing segment, both in terms
of production and exports. With complete delicensing of the electronics industry with the exception
of aerospace and defence electronics, and along with the liberalization in foreign investment and
export-import policies of the entire economy, this sector is not only attracting significant attention as
an enormous market but also as a potential production base by international companies.
High offshore component of delivery and superior execution in multi-location delivery continue to be
key differentiators. Broad-based industry structure; IT led by large Indian firms, BPO by a mix of
Indian and MNC third-party providers and captives, reflects the depth of the supply-base. While the
larger players continue to lead growth, gradually increasing their share in the industry aggregate;
several high-performing Small and Medium Enterprises (SMEs) also stand out.
With a large pool of skilled manpower-chartered accountants, doctors, MBAs, lawyers, research
analysts-India would be able to add value to the global KPO business and its high-end processes like
valuation research, investment research, patent filing, legal and insurance claims processing, online
teaching, media content supply, among others. Skilled manpower and multi lingual capabilities
combined with the advantages of lower costs can help the country to emerge as a frontrunner in KPO,
globally. Increasing adoption of technology in the domestic industries is already beginning to reflect
in their enhanced performance and competitiveness.
As a proportion of national GDP, the sector revenues have grown from 1.2 per cent in FY1998 to an
estimated 5.8 per cent in FY2009. Net value-added by this sector, to the economy, is estimated at 3.5-
4.1 per cent for FY2009.
ITES-BPO Sector
The Indian IT-BPO sector has built a strong reputation for its high standards of service quality and
information security - which has been acknowledged globally and has helped enhance buyer
confidence. The industry continues its drive to set global benchmarks in quality and information
security through a combination of provider and industry-level initiatives and at strengthening the
overall frameworks, creating greater awareness and facilitating wider adoption of standards and best
practices. The Data Security Council of India (DSCI) was launched in 2007 to institutionalize efforts to
further enhance the information security environment in India.
Indian IT-BPO grew by 12 per cent in FY 2009 to reach US$ 71.7 billion in aggregate revenue.
Software and services exports (includes exports of IT services, BPO, Engineering Services and R&D
and Software products) reached US$ 47 billion, contributing nearly 66 per cent to the overall IT-BPO
revenue aggregate. IT-BPO exports (including hardware exports) reached US$ 47.3 billion in FY 2009
as against US$ 40.9 billion in FY 2008, a growth of 16 per cent.
Domestic Market
In FY 2009, domestic market (including hardware) grew at nearly 19 per cent in INR terms to
reach US$ 24.3 billion; domestic software and services market reached US$ 12.5 billion.
Technology adoption in the domestic market also reported steady gains in FY 2009. This
segment is expected to reach US$ 24.3 billion in FY 2009, reporting healthy growth across all
key segments.
Domestic IT services spends are estimated to grow 20 per cent to touch US$ 8.3 billion and are
showing strong signs of increasing sophistication as building enterprise IT infrastructures and
applications, networking and communication become key priorities for India Inc.
Software and BPO spending growth in the domestic market is being supported by increasing
adoption. While the software product segment registered a growth of 15 per cent (US$ 2.3
billion), domestic BPO segment recorded the fastest growth of about 40 per cent to reach US$
1.9 billion.
Hardware segment reached US$ 11.8 billion in FY 2009, a growth of 17 per cent over FY 2008.
Employment
Direct employment in Indian IT-BPO sector crossed the 2.2 million mark, an increase of about
226,000 professionals over FY 2008; indirect job creation is estimated at about 8 million. IT services
(incl. engineering services, R&D, Software products) exports, BPO exports and Domestic IT industry
provides direct employment to 947,000, 790,000 and 500,000 professionals respectively.
Computer Industry
During the year 2008, total PC sales with desktop computer and notebooks taken together, were 14
lakh units. The sales of desktops stood at 1 million units while notebooks recorded a consumption of
0.35 million units.
Key Markets
The US (60 per cent) and the UK (19 per cent) remained the largest IT-BPO export markets in FY
2008, the industry footprint is steadily expanding to other geographies - with exports to continental
Europe in particular growing at a CAGR of more than 51 per cent over 2004-2008.
Exports
IT-BPO Sector contributing 66 per cent to the overall revenue aggregate, exports remained the
mainstay of the Indian IT-BPO growth story.
IT services (excluding BPO, product development and engineering services), contributed 57
per cent to total exports to reach US$ 26.9 billion.
BPO services exports, up by 18 per cent, was the fastest growing segment across software and
services exports driven by scale as well as scope.
Software and services exports accounting for over 99 per cent of the total exports, reached
US$ 47 billion and directly employed over 1.7 million professionals in FY 2009.
Software product development and engineering services-Complementing the strong growth in
IT services and BPO exports was the continued growth across software product development
and engineering services, which also reflected India's increasing role in global technology IP
creation. Export revenues from these relatively high-value-added services such as engineering
and R&D, offshore product development and made-in-India software products grew at 15 per
cent, and clocked US$ 7.3 billion in FY2009.
Broad-based growth across all the segments of IT services, BPO, Software products and
engineering services, is reinforcing India's leadership as the key sourcing location for a wide
range of technology related services with increasing traction in RIM & application
management and widening service portfolios.
Recent Initiatives in Information Technology Sector
National e-Governance Plan (NeGP): The Government of India accords high priority to improve the
quality of the citizens by providing basic services at their doorstep and has formulated a NeGP
covering 27 mission mode projects and eight support components to be implemented at central, state
and local Government levels, at an estimated cost of US$ 4.71 billion.
Department of Information Technology has issued guidelines for Capacity Building and Institutional
Framework for e-governance under NeGP.To view guidelines Click here
State Wide Area Networks (SWANs): The Government has approved a scheme for establishing
SWANs across the country in 29 states/ 6 UTs with a total outlay of US$ 682.27 million over a period
of five years. During 2008, SWAN has been implemented in 5 states / UTs.
Department of Information Technology has issued guidelines for Technical and Financial Support for
establishment of State Data Centre (SDC).To view guidelines Click here
State Data Centres (SDCs): SDCs have been identified as one of the important elements of the core
infrastructure for supporting e-Governance initiatives under NeGP. It is proposed to create data
repositories/data centres in various states/UTs so that common secured data storage could be
maintained to serve host of e-Governance applications. The scheme for establishment of SDC in 29
states and 6 UTs has been approved by the Government in 2008.
Department of Information Technology has issued guidelines for Technical and Financial Support for
establishment of State Data Centre (SDC).To view guidelines Click here
Common Service Centres (CSCs): The objective of CSCs is to develop a platform that can enable
Government, private and social sector organizations to align their social and commercial goals for the
benefit of the rural population in the remote corners of the country through a combination of IT-
based as well as non-IT-based services. CSC requests for proposals (RFPs) have been issued for 25
states /UTs. Of these, 23 states / UTs have completed the service centre agency (SCA) selection
process covering 1,02,827 CSCs.
Department of Information Technology has issued guidelines for Technical and Financial Support for
establishment of State Data Centre (SDC).To view guidelines Click here
National Knowledge Network: National Knowledge Commission has recommended setting up of
high-speed digital broadband network with adequate capabilities and access speed to encourage
sharing of resources and collaborative research. The primary objective of the proposed integrated
National Knowledge Network is to provide gigabit broadband connectivity to all institutions of higher
learning and research in the country. An allocation of Rs. 100 crore was made in the year 2008-09 for
implementing the scheme.
Electronics Hardware Manufacturing: Electronics hardware manufacturing continues to be a
thrust area for the Government. The special incentive package scheme (SIPS) to encourage
investments for setting up semiconductor fabrication and other micro and nano technology
manufacture industries in India. The scheme has received very positive response from prospective
investors. Sixteen proposals involving an investment of the order of Rs.1, 55,000 crores, over a
period of 10 years covering setting up of semiconductor fab, LCD panel manufacturing and solar
photovoltaics including polysilicon, have been received under the scheme.
Software Technology Parks of India (STPI): Software Technology Parks of India (STPI), is a society
set up by the Department of Communication & Information Technology (DIT) in 1991, with the
objective of encouraging, promoting and boosting the software exports from India. STPI maintains
internal engineering resources to provide consulting, training and implementation services. Services
cover network design, system integration, installation, operations and maintenance of application
networks and facilities in varied areas. The scheme integrates the concept of 100 per cent export
oriented units (EOUs), export processing zones (EPZs) of Government of India and the concept of
science parks/technology parks, as operating elsewhere in the world. A distinctive feature of
STP/EHTP scheme is that it provides single-point contact services for member units.
Community Information Centres (CIC): Government has initiated the setting up the CICs in the
hilly and far-flung rural areas of the country with an objective to bring the benefits of ICT to the
people for socio-economic development of these regions and to alleviate the digital divide between
urban and non-urban areas.
Open Technology Centre (OTC): Government has initiated the setting up of an Open Technology
Centre through NIC, aimed at giving effective direction to the country on Open Technology in the
areas of open source solutions, open standard, open processes, open hardware specifications and
open course-ware.
Other Initiatives
Nanotechnology: DIT started nanotechnology development programme during the 10th plan with
an objective to create infrastructure for research in nanoelectronics and nanometrology at the
national level and also to fund small & medium level research projects in specific areas such as
nanomaterials, nanodevices, carbon nano tubes (CNT), nanosystem etc.
High-Performance/ Advanced Computing:
o High Performance Computing: In the strategic area of High Performance Computing (HPC),
Centre for Development of Advanced Computing (C-DAC) has developed in-house expertise for
design and development of parallel processing technology based HPC systems, application
development environments, system software tools and utilities, as well as development and porting
of applications. C-DAC's PARAM series of HPC systems have 60 installations worldwide.

o Grid Computing: Grid Technologies provide dependable, pervasive, secure and inexpensive access
to high-end geographically distributed computational resources. C-DAC has set up a nationwide grid
of HPC systems named 'Garuda', which enables collaborative R&D among HPC user community in
various sectors of science and engineering.
Technology Incubation and Development of Entrepreneurs (TIDE): DIT has launched this
scheme in the area of electronics & ICT to strengthen the technology incubation centres at the
institutions of higher learning. The scheme aims to nurture technology incubation and thus enable
local development of electronics and ICT products and packages in the long run. The scheme
provides financial support for nurturing the techno-entrepreneurs as well as for strengthening the
technology incubation activity at the institutions.
Multiplier Grant Scheme: DIT has initiated this scheme to encourage collaborative R&D between
industry and academics/R&D institutions for development of products and packages. The scheme
aims to strengthen industry/ institute-linkages, encourage and accelerate development of indigenous
products/ packages and bridge the gap between R&D and commercialization.
Free/Open Source Software (FOSS): A national resource centre for free and open source software
(NRCFOSS) has been set up with an objective to contribute to the growth of free/open source
software in India to research and development, human resource development, networking and
entrepreneurship development as well as to serve as the reference point for all FOSS related
activities in the country.
Creating Digital Opportunity: To enable wide proliferation of ICT in Indian languages, DIT has
taken a major initiative to make available software tools & fonts in various Indian languages freely to
the general public.
Foreign Direct Investment Policy for Information Technology
FDI upto 100 per cent is permitted for e-commerce activities subject to the condition that such
companies would divest 26 per cent of their equity in favour of the Indian public in five years, if these
companies are listed in other parts of the world. Such companies would engage only in business to
business (B2B) e-commerce and not in retail trading, inter alia, implying that existing restrictions on
FDI in domestic trading would be applicable to e- commerce as well.

Opportunities in Information Technology Sector
In the knowledge process outsourcing, India is climbing the global value chain and is expected
to add value to global KPO-valuation research, investment research, patent filing, insurance
claims processing, online teaching and legal process outsourcing.
Increased M&A driven by need for global service delivery capabilities
IT sector emerged as the preferred space for venture capital investments in India
Policy Framework
Information Technology (Amendment) Act 2008
Full text of the act
Information Technology Act 2000
Full text of the act
Industrial Approval Policy
Industrial Licensing has been virtually abolished in the Electronics and Information
Technology sector except for manufacturing electronic aerospace and defence equipment.
There is no reservation for public sector enterprises in the Electronics and Information
Technology industry and private sector investment is welcome in every area.
Electronics and Information Technology industry can be set up anywhere in the country,
subject to clearance from the authorities responsible for control of environmental pollution
and local zoning and land use regulations.
Large and Medium Industries exempted from licensing are only required to file information in
the prescribed I ndustrial Entrepreneurs' Memorandum (IEM) with the Secretariat for
Industrial Assistance (SIA), Department of Industrial Policy and Promotion, Ministry of
Commerce & Industry, Government of India and obtain an acknowledgement. Immediately
after the commencement of commercial production, Part B of the IEM has to be filed. No
further approval is required. Small Scale Industries are required to register with the District
Industries Centre (DIC). Forms can be downloaded from the website of the Department of
Industrial Policy and Promotion, Ministry of Commerce & Industry.
Foreign Trade Policy
India welcomes investors in Electronics and IT sector. Government of India is striving to bring
greater transparency in policies and procedures to provide an investor friendly platform.
In general, all Electronics and IT products are freely importable, with the exception of some
defence related items. All Electronics and IT products, in general, are freely exportable, with
the exception of a small negative list which includes items such as high power microwave
tubes, high end super computer and data processing security equipment.
Second hand capital goods are freely importable.
Export Promotion Capital Goods scheme (EPCG) allows import of capital goods on payment of
5% customs duty. The export obligation under EPCG Scheme can also be fulfilled by the supply
of Information Technology Agreement (ITA-1) items to the DTA provided the realization is in
free foreign exchange.
Special Economic Zones (SEZs) are being set up to enable hassle free manufacturing and
trading for export purposes. Sales from Domestic Tariff Area (DTA) to SEZs are being treated
as physical export. This entitles domestic suppliers to Drawback/ DEPB benefits, CST
exemption and Service Tax exemption.
Supplies of Information Technology Agreement (ITA-1) items and notified zero duty
telecom/electronic items in the Domestic Tariff Area (DTA) by EOU/EHTP/STP/SEZ units are
counted for the purpose of fulfillment of positive Net Foreign Exchange Earnings (NFE).
The import of second hand computers including personal computers and laptops are
restricted for imports. However, second hand computers, laptops and computer peripherals
including printer, plotter, scanner, monitor, keyboard and storage units can be imported
freely as donations by the following category of donees, subject to the condition that the goods
shall not be used for any commercial purposes and are non-transferable:
School run by Central or State Government or a local body
Educational Institution run on non-commercial basis by any organisation
Registered Charitable Hospital
Public Library
Public funded Research and Development Establishment
Community Information Centre run by the Central or State Government or local bodies
Adult Education Centre run by the Central or State Government or a local body
Organisation of the Central or State Government or a Union Territory
Foreign Direct Investment Policy for Information Technology
FDI upto 100 percent is permitted for E-Commerce activities subject to the condition that such
companies would divest 26 percent of their equity in favour of the Indian public in five years, if these
companies are listed in other parts of the world. Such companies would engage only in business to
business (B2B) E-Commerce and not in retail trading, inter alia, implying that existing restrictions on
FDI in domestic trading would be applicable to E- Commerce as well.
Export Promotion Schemes
Special schemes are available for setting up Export Oriented Units for the Electronics/IT Sector.
These schemes are:
Export Oriented Unit (EOU) Scheme
Electronics Hardware Technology Park (EHTP) Scheme
Software Technology Park (STP) Scheme
Special Economic Zones (SEZ) Scheme
Export promotion Capital Goods (EPCG) Scheme
Duty Exemption and Remission Scheme
EOU/EHTP/STP Schemes
Units undertaking to export their entire production of goods and services, except permissible sales in
the Domestic Tariff Area (DTA), may be set up under the EOU, EHTP or STP Scheme for manufacture
of goods, including repair, re-making, re-conditioning, re-engineering and rendering of services.
Trading units, however, are not covered under these schemes. 100% Foreign Direct Investment is
permitted through automatic route for the units set up under these schemes. EOU/EHTP/STP units
may import and/or procure from the DTA or bonded warehouses in DTA, without payment of duty,
all types of goods, including capital goods, required for its activities, provided they are not prohibited
items of import in the ITC(HS). The units shall also be permitted to import goods including capital
goods required for the approved activity, free of cost or on loan/lease from clients. An
EOU/EHTP/STP unit may, on the basis of a firm contract between the parties, source the capital
goods from a domestic/foreign leasing company without payment of customs/excise duty.
EOU/EHTP/STP unit shall be a positive net foreign exchange earner. Net Foreign Exchange Earnings
(NFE) shall be calculated cumulatively in blocks of five years, starting from the commencement of
production. The donation of computers, imported/indigenously procured duty free by
EOU/STP/EHTP units to recognized non-commercial educational institutions, registered charitable
hospitals, public libraries, public funded research and development establishments, etc., two years
after their import/procurement and use by the said units is permitted.
Supplies of Information Technology Agreement (ITA-1) items and notified zero duty
telecom/electronic items effected from EOU/EHTP/STP units to DTA will be counted for the purpose
of fulfillment of positive NFE. EOU/EHTP/STP units are permitted DTA access upto 50% of the FOB
value of exports subject to fulfillment of positive NFE on payment of concessional duties.
Depreciation upto 100% is permissible to computers and computer peripherals over a period of 5
years.
Export Promotion Capital Goods (EPCG) Scheme
The EPCG Scheme allows import of capital goods for pre-production, production and post-production
(including CKD/SKD thereof) at 5% customs duty subject to an export obligation equivalent to 8
times of duty saved on capital goods imported, to be fulfilled over a period of 8 years. The capital
goods shall include spares (including refurbished/reconditioned spares), tools, jigs, fixtures, dies and
moulds. Second hand capital goods without any restrictions on age may also be imported under the
EPCG Scheme. The export obligation can also be fulfilled by the supply of ITA-1 items to the DTA
provided the realization is in free foreign exchange.
Duty Exemption and Remission Schemes
The Duty exemption schemes enable duty free import of inputs required for export production. An
Advance Licence is issued under Duty Exemption Scheme. A Duty Remission Scheme enables post
export replenishment/remission of duty on inputs used in the export product. Duty remission
schemes consist of (a) Duty Free Replenishment Certificate (DFRC) and (b) Duty Entitlement
Passbook Scheme (DEPB). DFRC permits duty free replenishment of inputs used in the export
product. DEPB allows drawback of import charges on inputs used in the export product. The details
of these schemes are available on the website of the Directorate General of Foreign Trade, Ministry of
Commerce & Industry ( http://www.dgft.delhi.nic.in ).
Advance Licence
An Advance Licence is issued to allow duty free import of inputs, which are physically incorporated
in the export product (making normal allowance for wastage). In addition, fuel, oil, energy, catalysts
etc., which are consumed/utilized in the course of their use to obtain the export product, may also be
allowed under the scheme. Duty free import of mandatory spares up to 10% of the CIF value of the
licence, which are required to be exported/supplied with the resultant product, may also be allowed
under Advance Licence. Advance Licences are issued on the basis of the inputs and export items
given under Standard Input Output Norms (SION). However, they can also be issued on the basis of
Adhoc norms of self declared norms.
Duty Entitlement Pass Book Scheme (DEPB)
The objective of the DEPB is to neutralize the incidence of Customs duty on the import content of the
export product. The neutralization shall be provided by way of grant of duty credit against the export
product. Under the DEPB scheme, an exporter may apply for credit, as a specified percentage of FOB
value of exports, made in freely convertible currency. The DEPB scheme will continue to be operative
until it is replaced by a new scheme, which will be drawn up in consultation with exporters.
Duty Free Replenishment Certificate (DFRC)
DFRC is issued to a merchant exporter or manufacturer exporter for the import of inputs used in the
manufacture of goods without payment of basic customs duty. However, such inputs shall be subject
to the payment of additional customs duty equal to the excise duty at the time of import. DFRC shall
be issued on a minimum value addition of 25% only in respect of products covered under the SION as
notified by Directorate General of Foreign Trade (DGFT).
Major IT and ITES Companies in India
Tata Consultancy Services
Wipro Technologies
Infosys Technologies
HCL
Intel
GE
IBM
Dell
Microsoft