Overview Of The Indian IT Industry


India is called as the back office of the world because of the IT and ITes industry. Realizing the potential that the IT-ITes sector offers, the government is working towards building infrastructure for this sector. In the last few years, the Indian IT-ITes industry has moved towards the higher end of the value chain of taking up projects with the global behemoths. This sector was significantly affected by one of the severe contractions in decades. The growth of the sector had gone down from around 30+ % to high teens. But the sector looks promising and there are signs of recovery and hope.

India has grown indeed from being a major driver to one of the largest players in the offshore world. The supply side elasticity of skilled English speaking manpower of India is unmatched by any other country providing such services. Today Indian service provider community is not just seen as IT service vendor but as a "Strategic Business Partner". The value proposition has shifted from labour arbitrage to skill availability.

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Indian IT and ITES contributed to about 3.5% to 4.1% of India's GDP in FY09 in terms of net value added and employed close to 2.2 million professionals. It recorded a turnover of USD 60 bn in 2009, with exports contributing to over 70% of industry revenues.

The industry has grown at a CAGR of close to 30% between 2004 and 2009 and has a growth potential of over 25% per annum, and can thus, become a significant contributor to the economic growth of the country.


IT/ITes becomes a strategic sector as it is estimated to contribute to around 1/3rd to the GDP growth in the period 2009-12. Availability of skilled human resources along with appropriate skill building initiatives thus becomes the crucial need.

Current Status of Human Resource And Skill Availability:

The market size of the industry is constantly increasing even at the face of economic slowdown and the industry which employed around 0.8 million in 2004 is employing around 2.2 million in 2009.

Source: NASSCOM and IMaCS analysis

Availability of skilled personnel which is the most important necessity at the moment may be not met even in the midterm (i.e., 2009)

Source: NASSCOM institute of applied manpower research

As we can see from the above diagram, the manpower gap can be around 235 million in the IT sector and around 262 million in the ITES sector as of 2009. Addressing this gap is of utmost importance to the country today because of India's need to maintain the market share in the Global IT-ITes sector.


There are many issues as far as HR and skill formation are concerned. They can be categorized into two

Skill requirements are different for different services:

Though IT and ITes are spoken of in the same breadth, they both have a very different skill set requirement. This makes the policy making to meet the objective even more difficult.

Skill requirements are dynamic:

Whether it be in IT or ITes skill requirements are changing according to the times. Things like cloud computing and Green IT in IT and increasing importance to KPO's impacting the skill requirements in this sector.

Scale of change necessary:

The skill gap is quite huge and the implementation of any change needs to match this scale.

The formal and informal education sector inadequacy in India:

Though the formal education provides skills required to specific fields of study and the informal sector supplements it with certain specific courses and training but both of these together are at present unable to meet the skill requirements necessary for the ITeS sector.


According to the forecasts, the size of the Indian IT-ITes market will go to around USD 281 bn by 2022 growing at a CAGR of 12.8%. The HR and skill requirements for such a scenario in 2022 are given in the table below:







FY '08

FY '22


FY '08

FY '22




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Source: NASSCOM and IMACS analysis

As the above table suggests, India would require a total of 7.5 million skilled personnel in this sector by 2022 against the 2.2 million personnel it employs in 2008. To meet the incremental requirement of 5.3 million in the total as of 2022, India needs to develop its talent pool. India also needs to expand its IT and ITeS industry to tier2 and tier 3 cities which would serve towards achieving competitiveness and inclusive growth.

Industry's say

Though the software industry has been zipping through the fastest lanes, with many multinationals streaming in India, the industry has already found a thorn in its flesh in its path to glory. And that thorn is nothing but the acute shortage of manpower.

The myth of abundant manpower: It is very rife that India is replete with low cost but high skilled manpower. It does no longer hold true. According to a survey by an IIMA faculty every year India faces shortage of 5000 IT professionals.

So IT industry has the following takes regarding the manpower requirements:

Is starting to feel the pressure owing to demand supply gap in availability of skilled workforce

Constant increase in wages is an indication of supply shortage. Industry is losing its cost advantage owing to increase in wages

Feels the necessity to enhance the skill building initiatives in IT and ITeS

Industry initiatives:

Now-a-days all large organization have their in house training centres. But, expert trainers are scarce in India as the qualified faculty for Computer Science or in industry experience is limited.

Industry is recruiting graduates other than enginners. The proportion of arts and commerce graduates engaged in software development has increased from about 5% to 10% currently to about 15% to 20%.

Government Initiatives: A number of steps have been taken by government to meet the HR requirement in the IT industry. Some of these are:

Upgrading of regional engineering colleges to National Institute of Technologies (NIT)

Setting-up of Indian Institute of Information Technology (Design & Manufacturing) at Jabalpur and Kanchipuram

Working with state governments to enhance quality of technical education; and Launching of umbrella program for quality improvement in technical education (PQITE)

Introduction of subjects as per industry requirements

Ways to meet up the HR and skill requirements

The success story of the industry would rely on developing a high calibre talent pool - NASSCOM's 'Perspective 2020',

Meeting the Need

Some basic steps can be:

Growing the base of graduates and expanding the share of those entering the workforce

Generating awareness and employment preference amongst the working graduates, even in Tier II and smaller towns

Expansion into Tier II and Tier III cities

Improving the recruitment conversion ratio through changes in the education system

Thus we see, that addressing this gap needs specific skill development programmes and changes in the formal education system

Reforms Required In the Education Sector

As discussed throughout this report, the Indian IT-ITES sector faces a skill crunch and a big reason is the current state of our education system.

Before we go ahead studying the changes in the system required, we first take up the major challenges ailing this sector.

Challenges Facing the Higher Education Sector

According to the Yashpal Committee report, some of the major challenges that the higher education institutions of our country currently face are:

The Chasm that exists between theory and practice: As we all know there exists a giant gap between what is taught to students as 'theory' and what they have to face in the industry's 'practice'. This gap combined with the fragmented idea of knowledge only leads to confusion.

Divide between Research Bodies and Universities: Historically, universities used to be bodies for both research and interaction between researchers and students of the subject. But as the cost of research has risen exponentially, a clear separation has taken place of what used to be a beneficial practice for both students and researchers.

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Isolation of IITs and IIMs: The IIT's and IIM's though being the foremost institutions of our country stand nowhere in overall knowledge development as some of the world's premier bodies like Caltech and MIT.

Erosion of democratic space: Universities, in a democratic and diverse country like India used to be the places for healthy and peaceful exchange of thoughts between people of different ideals. However, rise of organized youth and the official machinery itself has eroded this property.

Reforms Required

So we have seen the challenges, but what are the types of reforms that are required to solve this problem. According to the Yashpal Committee again, these could be as follows:

Change in curriculum: First of all, we need to have the universities prepare their curriculum in such a manner that treats knowledge in a holistic manner and creates exciting opportunities for different kinds of interfaces between the disciplines

Reconnect research and educational institutions: Another thing that the higher educational institutions need to do is reconnect their research efforts with their teaching ones so as to allow both parties ample opportunity to interact and learn from each other

Broader horizons for IIT's and IIM's: The IIT's and IIM's will need to broaden their horizon to include different disciplines. Some of the IIT's are on the path of including humanities into their curriculum

Pertaining to these requirements, there are also other suggestions provided by the Task force on meeting the Human Resources Challenge for IT and IT enabled Services. These are:

Bridge gaps in formal education system to provide specific skills related to ITes / IT

Update curriculum more frequently to reflect industry developments

Change the evaluation system

Develop specialized vocational courses for ITeS / IT under the formal and non-formal systems

Establish and encourage global linkages and 'expert networks' within the formal education system

Emphasize and promote the uptake of alternative languages

Recently the government provided for Right to Education Act. Lets see how can this right contribute to IT/ ITeS sector

Right to Education Act

The Right of Children to Free and Compulsory Education Act or Right to Education Act (RTE), which was passed by the Indian parliament on 4 August 2009, describes the modalities of the provision of free and compulsory education for children between 6 and 14 in India.

The Act makes education a fundamental right of every child between the ages of 6 and 14 and specifies minimum norms in elementary schools. It requires all private schools to reserve 25% of seats to children from poor families (to be reimbursed by the state as part of the public-private partnership plan).

Gaps/Failings of the RTE

Although, the RTE is a step in the right direction, it has many gaps. These are:

Lower capacity: The tough norms have made it hard for schools to survive, resulting in closure of 25% of the 15 lakh strong private school contingent, thus lowering the overall intake capacity of our education system

Demographic Dividend: It has been estimated that a million new recruits will be joining the industry each month for the next 20 years. The act does not give any guidelines to address this pressing need

Higher cost: Strict guidelines like minimum wages for the teachers and specified area to be provided for the school grounds has made this business too costly an affair for many entrepreneurs, also with the final cost to be borne by the parents who do not get any apparent

Lower competition: The 'lower capacity' and 'higher cost' factors have combined lowers the competitiveness in the sector thus bringing the overall quality down

Higher corruption: Too much power has been given to officials like the Block Education Officers without any proper evaluation scheme which just paves the way for higher corruption in the system

Feasibility of Implementation of Right to Education Act

The act not only has gaps in its principles but also has flaws in its implementation part. The Tapas Majumdar Committee Report states an education budget 6% of the national GDP. Currently, not even 4% is spent. However, if RTE's regulations are to be taken to the word then this is practically impossible to implement if all school education is through government schools and all the teachers are to be paid salary as recommended by the Sixth Pay Commission.

There are only three ways around this problem while paying according to the sixth pay commission:

Reduce the coverage: The government can keep the budget allocation at 6% of GDP, but then cover much less than the universal coverage of children under primary and secondary schools

Raise the budget: Raise the education budget much beyond 6% of GDP, to above 15% of GDP on a sustained basis

Public private partnership: The government can pursue the goal of universal school coverage through public-private partnership (PPP)

Only the third option can work out as long term solution as the first one contradicts the regulations of the act and the second one is not possible to sustain for a long period of time.


Based on these alternatives, the two basic solutions present themselves:

A very large expansion of AS(Alternative School)/AIE(Alternative and Innovative Education) under SSA (Sarva Shiksha Abhiyan): The Sarva Shiksha Abhiyan is flagship program of the government for the disadvantaged communities where the teacher's salaries are lesser and even the budget per child is on the lower side but still we have seen major successes in this area. Replicating it for the RTE model might bring the desired results with no greater burden on the government's treasury.

Contract out the bulk of school education delivery up to grade 5 to private schools: The public private partnership can be a boon to the country's education system if the government brings them in to provide education at more basic level where high investments are not necessary.

Both of these solutions present a feasible approach towards the RTE act, however, both of these are not included in the proposed act's original memorandum, thus bringing forward the question whether the government has any practical approaches to implement this important act across the nation with a sustained effort.