Indian IT industry must embrace AI, sustainability for growth

IT sector, jobs, incubators, Indian IT industry
India's IT industry needs to look beyond traditional services, and focus on cutting-edge technologies such as AI, and sustainable solutions.

India’s IT industry is experiencing robust growth and is projected to reach $138.9 billion by the end of the year, a significant increase from the $122.6 billion in 2023. According to Gartner, the sector is expected to grow 13.2%, with major contributions from software, devices, IT services, and data centre systems. In particular, software spending in India is expected to grow 18.6% in 2024, outpacing the growth in devices, which is projected to expand at 13.8%. Globally, IT spending is expected to surpass $5.06 trillion this year, an 8% increase from 2023.

Indian chief information officers are prioritising growth, customer experience, and operational efficiency. They are capitalising on software assets despite a challenging overall environment. The Gartner report highlights that recurring revenue models are crucial in optimising IT costs and boosting software spending. The Indian IT industry is currently valued at $245 billion.

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The shift to remote work has played a role in shaping IT spending. With more companies adopting hybrid and fully remote models, there has been a surge in demand for cloud-based services, collaboration tools, and enhanced security measures. This trend is expected to continue, further fuelling the growth of the IT sector. Companies that adapt their offerings to support remote work environments are likely to see increased demand and customer loyalty.

Post-pandemic boost to IT industry

The IT industry saw rapid expansion in the early stages of the pandemic as companies accelerated their digital transformation. However, the past two years have been challenging due to inflation, rising interest rates, and global uncertainties which led to decreased consumer spending, product demand, and lower stock valuations in 2022. These factors contributed to workforce reductions and a sluggish first half of 2023. Nevertheless, Deloitte reports a solid resurgence in the tech sector, with growth expected in 2024.

Tech spending in both the Americas and Europe is rebounding, with expectations of continued strength, amid signs that tech providers are nearing a market trough. A recovery in tech and tech services spending is anticipated in the third quarter of 2024, according to global tech analysts. Post-pandemic, the global tech sector is recovering, with spending in the Americas and Europe poised to accelerate, especially in areas such as cybersecurity, AI, data analytics, and data lakes. In the US, sectors such as healthcare, BFSI, and retail are expected to drive spending.

In Europe, where regulations around privacy and sustainability have tightened, investments in technologies like cybersecurity, IoT, digital twins, and sustainability services are expected to flourish. However, a potential US recession could lead to a downturn in tech and tech services spending.

Sustainability is becoming a critical factor in IT spending decisions. As companies and governments increase their focus on environmental impact, the IT sector is responding with greener technologies and solutions. Investments are being made in energy-efficient data centres, sustainable computing, and the reduction of electronic waste. This shift not only aligns with global sustainability goals but also opens new markets for innovative IT products and services.

The way ahead

IT industry leaders in India should focus on key trends and strategies. Enterprise spending on software and IT services, particularly in cloud computing, artificial intelligence, and cybersecurity, is expected to drive market growth. Companies investing in these technologies are likely to thrive. However, while the interconnected nature of the tech industry offers benefits, it also exposes companies to risks from geopolitical tensions, supply chain disruptions, and resource scarcity, as highlighted by Deloitte. Thus, firms must balance global integration with self-reliance.

Geopolitical tensions are increasingly influencing global IT operations, leading to changes in how companies approach data privacy, security, and supply chain management. With rising concerns over data sovereignty, companies are being compelled to invest in more secure and locally compliant IT solutions. This shift not only impacts spending but also the strategic decisions companies make regarding their IT infrastructure and vendor relationships.

2024 is expected to be a year of experimentation with generative AI in India, although short-term spending and revenue generation from this technology will be minimal, as Indian CIOs are still in the planning and evaluation stages, according to Gartner. Deloitte analysts advise companies to explore applications that enhance efficiency and productivity in this segment, noting that early adopters in generative AI could gain a competitive advantage.

While India’s IT services economy has significant opportunities with Generative AI, it risks missing out if it does not overhaul its conventional operating methods. Indian tech providers must rethink their paralysed mindset and slow adaptation to Generative AI, which could leave them vulnerable in a rapidly evolving economic landscape. The ongoing expectation that global businesses will continuously outsource IT services may need to be reevaluated to avoid potential setbacks.