India Market Watch: Digital Technology Key Driver for IT-BPM Growth, World’s Cheapest Smartphone Launched

February 23, 2016 Posted by India Briefing Reading Time: 5 minutes

Digital Technology and Start-ups Key Drivers for IT-BPM Growth in India

According to a National Association of Software and Services Companies (NASSCOM) report, digital technologies – cloud computing, mobility, Internet of Things (IoT), social and big data – will drive growth in the information technology-business process management (IT-BPM) industry. Forecasts for the fiscal year 2015-2016 for India show lowered growth expected in IT-BPM with revenues projected at US $143 billion. Yet, this could reach US $350 billion by 2025 due to new business models based on changing digital technologies.

The value of digital technologies is highlighted by NASSCOM which estimates that they contributed 14 percent to total revenues of leading IT companies in 2015-2016. Further, a digitally skilled labor pool of more than 250,000 workers has been added to the IT-BPM sector. Digital mergers and acquisitions (M&As) jumped in volume and value by three times the previous year – crossing the US $2 billion mark in 2015-2016. Finally, India has become the third-largest start-up base in the world, home to over 4200 start-ups, aided by 150 plus venture capital and private equity firms, and more than 110 incubators and accelerators.

Presently, the IT-BPM sector accounts for 9.3 percent share of India’s GDP, 45 percent of total services exports, and US $7 billion in foreign direct investments (FDI). The sector is also the largest private sector employer – 3.7 million jobs and 10 million indirectly employed.

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Wage Hikes and Subsidies Could Cut Capital Expenditure in Annual Budget

Implementing the Seventh Pay Commission’s recommendations is estimated to cost the state exchequer US $16 billion in wages for India’s 10 million public servants and pensioners. Added to this, subsidies in food and farm programs will altogether cost about US $17.5 billion (Rs.1.2 trillion) – equivalent to 0.9 percent of the forecast GDP in 2015-2016. The cash-strapped railways ministry has also sought government funds to cover higher pay for its 1.3 million workers. Such financial burden could force Arun Jaitely, the Union Minister for Finance, to cut capital spending in the forthcoming budget for 2016-2017.

Capital expenditure (needed for railways, roads, ports and power projects etc.) is key for India’s economy as it triggers job-creating investments, which has been an important promise of the Bharatiya Janata Party (BJP) led National Democratic Alliance (NDA) government. Currently, consumption outpaces investment in India. A populist budget high on subsidies and federal funding (ahead of assembly elections in four states) will only heighten inflation, irrespective of its ability to boost demand. In the absence of key legislation such as the proposed tax and labor reforms, this would have damaging consequences. Moreover, India’s banks have been plagued with bad debts and therefore cannot fund new growth projects.

The Union Budget for 2016 will be presented on February 29, and another key decision for economists and analysts will be the finance minister’s fiscal deficit targets. Currently, India’s consolidated fiscal deficit exceeds six percent of the GDP and the national debt is at 68 percent – very high relative to other emerging markets. An ideal fiscal deficit posited is 3.5 percent and officials point out that this could mean raising taxes on services and petroleum products and easing tax rules on foreign investment.

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World’s ‘Cheapest’ Smartphone Launched

Ringing Bells, an Indian electronics company, on February 18^th launched the world’s ‘cheapest’ smartphone for US $4 (Rs 251) under the title “Freedom 251”. News reports indicate that the company was set up around five months ago. The phone will have a 4-inch screen, 1 GB RAM, 8GB of internal memory space and a 3.2 megapixel camera. The phone is available for sale online though the website of Ringing Bells, though the site crashed due to high traffic on February 18; the phones will be delivered after four months.

Industry analysts believe that the launch of this phone will disrupt the mobile technology market in India. The launch of the phone will aid the digitization of the Indian economy. The price will make it affordable for low-income target groups, thereby increasing the penetration of mobile technology in India. The launch of the phone could create extremely favorable market conditions for companies that bank on mobile technology for market expansion. However, it remains to be seen if the phone performs as per expectations.

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