Tech adoption and work-from-home culture drive growth of India's IT sector

Covid-19 has hit Asia's third-largest economy hard but companies providing tech solutions and cloud services have benefited

The global market for public cloud services is set to grow to $331.2bn by 2022, according to IT consultancy Gartner. Companies providing tech solutions and cloud services in India have seen growth despite the pandemic driven economic-slowdown. Courtesy: EquinixShow less

While the Covid-19 crisis has taken its toll on many businesses in India, some of the information technology businesses have experienced phenomenal growth, driven by demand for tech solutions as lockdowns force employees to work from home.

Among them is Mumbai-based Flock – a virtual office app that allows users to make video calls, send messages and share files.

“Flock doubled its number of paid users in the last three quarters,” says Gaurang Sinha, a director at Flock. “As most organisations announced remote working throughout last year and with many of them continuing to work from home this year as well, we were in a position to be useful for businesses around the world.”

Flock says it saw more than 2,000 companies per month sign up on its platform last year, with India and the US being its biggest markets.

Demand for such solutions is likely to help India's wider $180 billion IT industry to grow as the pandemic continues to rage in most parts of the world, analysts say.

A report by Fitch Ratings projects that following a flat year, India's IT services sector is set to return to high-single-digit revenue growth in the financial year beginning in March 2021 “on higher demand for digital transformation”.

The growth, Fitch says, will be driven by companies' “focus on transforming their businesses digitally, moving services and work platforms online”, as the pandemic accelerates the technology adoption process.

IT companies that offer cloud-based services and automation software are expected to perform particularly well, according to Fitch.

“We believe Indian IT services companies will benefit by assisting their customers in achieving automation, adopting cloud services, migrating products and processes online and enhancing customer experiences on digital channels,” it says.

In another boost for the sector, US cloud-based software giant Salesforce said it made its first investment in India, leading a $15 million financing round for Hyderabad-based cloud start-up, Darwinbox. This is Salesforce's only investment in Asia outside of Japan, it said on Tuesday.

Darwinbox is a developer of human resources software, which includes attendance systems and hiring and employee engagement tools. The company, which counts Puma and Nivea among its clients, had seen growth of 300 per cent since 2019.

“Since the pandemic, we are seeing a shift to the cloud within a few quarters that would have otherwise taken three or four years,” Bloomberg cited Jayant Paleti, co-founder of Darwinbox, as saying.

The Salesforce investment itself is not huge, but that said, it shows that "things are starting to happen and there's a market maturity”, says Utkarsh Sinha, managing director of Bexley Advisors, a firm focused on the technology sector.

“It's a powerful sign and sends a signal” that could encourage more investment to flow into the sector, he says.

“The pandemic has shown that the physical co-location of humans is not as critical as people used to think and that there's a lot of stuff that can be done online, as long as the infrastructure is there to support it.” This is an opportunity for India to tap, he explains.

India has long been known for its back office services in the IT sector, providing low-cost solutions to the US and Europe in particular.

"The pandemic provided an opportunity for Indian chief information officers to test long-pending projects such as remote working, which delivered on-promise for many enterprises and helped them stay afloat in the most testing times"

But now, “the space that is seeing some traction and some action is folks who are building something in either the software as a service space or in enterprise cloud solutions”, Mr Sinha says.

India still does not have a “breakout” software success from the pandemic such as Zoom but the forecasts are encouraging, he adds.

Projections from advisory firm Gartner show that IT spending in India will expand to $81.9bn this year, up 6 per cent from 2020. This comes on the back of an 8.4 per cent annual decline to $79.3bn in 2020.

Although there was an overall drop in IT spend in India last year, investment in enterprise software was up 7 per cent from 2019. This segment is expected to expand by a further 13.6 per cent this year, according to Gartner data.

“The pandemic provided an opportunity for Indian chief information officers to test long-pending projects such as remote working, which delivered on-promise for many enterprises and helped them stay afloat in the most testing times,” Arup Roy, a vice president at Gartner, says. “The success of these digital innovations has brought back the focus on investments in IT.”

Software firms are upbeat as they say cloud solutions have proved indispensable during the Covid-19 crisis.

“During the pandemic, cloud has been a critical enabler for remote operations and anytime-anywhere access,” says Virender Jeet, senior vice president for sales and marketing at Newgen Software, says. “Our cloud-based revenues are growing at a healthy rate and we are getting traction in India from both new and existing customers.”

He says that this demand is coming from several industries, including banking, insurance and government organisations.

The company believes the trend will continue even after Covid-19, as it expects firms to maintain on the path of digital transformation.

“The growing traction around cloud is going to continue gaining momentum even after the pandemic, owing to its speed, agility and scalability,” says Mr Jeet.

There are obstacles though.

One of the main challenges – as companies move more of their business processes online – is cyber security.

“There are certain apprehensions about data and cyber security as the paradigm shift towards remote operations continues,” says Mr Jeet.

Experts say that this issue has to be addressed to help achieve the full growth potential of the market.

“The two most important imperatives to drive this growth forward will be the way security is handled and how we are able to build IT talent in this space,” Srividya Kannan, founder and director of Bangalore-based Avaali Solutions, says.

“There is wide consensus that when partnered with leading cloud service providers, enterprises are more secure than if they try to protect data on their own. There still is this risk of a cloud provider being compromised or of human error and the associated risks of data exposure,” she explains.

Despite this, the potential for India's cloud market to expand is huge, Ms Kannan says.

“The next wave of demand is coming up from the small and medium-sized business segment ... [which] still [has] a huge opportunity for growth,” she says. “Most business owners will rely on cloud for hosting data and this will become ... [the] foundation for the next wave.”

She estimates that more than half of companies' workloads could migrate to the cloud in the next couple of years.

However, with most workers likely to return to offices after the pandemic, there are questions about the sustainability of high-growth levels for companies whose expansion was fundamentally driven by the work-from-home scenario.

Mr Sinha at Flock remains confident, though.

“A lot of these companies may opt for a hybrid working model, and therefore, we do not see any reason for businesses to stop using platforms such as Flock,” says Mr Sinha.

He says that the firm expects “double digit growth in 2021” as it looks to tap more markets across the globe.