The Indian tech sector has benefited whenever there has been significant volatility in the global economy in the last two decades or more, according to Nasscom Chairperson Anant Maheshwari.
"I would say in the broader Indian tech ecosystem, we are a composition of many different parts of the tech capabilities," Maheshwari said in an interview with Sajeet Manghat of BQ Prime. "We have broadly seen in FY23 a continued growth rate in the Indian tech industry and now, it is roughly about $245 billion, in addition to about $19 billion over the last year, and tech just continues to be as a strategic imperative"
On the recent digitalisation and artificial intelligence coming into the picture, Maheshwari, also president of Microsoft India, said the country is starting to be ahead of the rest of the world and has a very strong skilling ecosystem to drive that power.
Maheshwari said the broader tech sentiment is quite intact in the Indian tech industry and, in fact, there is an increasing acceleration of the conversations and the demand signal around tech.
"However, we are in an economically challenged environment globally," he said. "There is inflation in many parts of the world."
There are fears of recession in many parts of the world and in any such situation, there is caution and whenever caution is exercised, people do start slowing down a little bit of the tech spend, according to Maheshwari.
"There will be a little bit of a correction on the tech spend," Maheshwari said. "But if you take a broader perspective of the last three to four years and then you look forward, I would say the tech sentiment and the growth rates are quite intact."
Watch the full interview here:
Here Are The Edited Excerpts
I wanted your assessment with respect to how the Q4 has been for the industry. We have seen all the big boys and small boys in the mid-caps coming out with earnings and the consensus on the street today is primarily that there is a slowdown, maybe not that much, but it is concerning?
Anant Maheshwari: Yes, the results are coming in as we speak, and I am sure we will have more analysis on that in the next couple of weeks. But if I look at all the big and small companies that have released the results right now, I will say the broader tech sentiment is quite intact. In fact, there is an increasing acceleration of the conversations and the demand signal around tech.
However, we are in an economically challenged environment globally, there is inflation in many parts of the world. There are fears of recession in many parts of the world and in any such situation, there is caution and whenever caution is exercised, people do start slowing down a little bit of the tech spend. So, I do believe that there will be a little bit of a correction on the tech spend. But if you take a broader perspective of the last three to four years, and then you look forward, and I would say the tech sentiment and the growth rates are quite intact.
I wanted your assessment with respect to how the Q4 has been for the industry. We have seen all the big boys and small boys in the mid-caps coming out with earnings and the consensus on the street today is primarily that there is a slowdown, maybe not that much, but it is concerning?
Anant Maheshwari: Yes, the results are coming in as we speak, and I am sure we will have more analysis on that in the next couple of weeks. But if I look at all the big and small companies that have released the results right now, I will say the broader tech sentiment is quite intact. In fact, there is an increasing acceleration of the conversations and the demand signal around tech.
However, we are in an economically challenged environment globally, there is inflation in many parts of the world. There are fears of recession in many parts of the world and in any such situation, there is caution and whenever caution is exercised, people do start slowing down a little bit of the tech spend. So, I do believe that there will be a little bit of a correction on the tech spend. But if you take a broader perspective of the last three to four years, and then you look forward, and I would say the tech sentiment and the growth rates are quite intact.
The last three years have been very good years for technology because digitisation, cloud and AI or machine learning and many of the integrations that are happening on the global level as a result of Covid, which prompted many of the managements to look at fast-tracking tech, has it benefited the Indian companies. As you look into FY 24, how do you see the IT tech spends moving?
Anant Maheshwari: So, if I take a broader look of the last two decades or more, whenever there has been significant volatility in the global economy, in general and in the tailwind of that, the Indian tech sector has benefited. I would say the broader Indian tech ecosystem, we are a composition of many different parts of the tech capabilities. So, it may not be obvious when the volatility is happening, but as a large effect, it's definitely been the case.
I would say the second aspect is especially proven during the Covid times that tech is definitely an accelerating force, an empowering force for doing business in times of extreme volatility. Tech, in some ways, is the only deflationary force in an inflationary world. So, if you really put all of that together and when everybody in the world is trying to do more with less, then there are definite, broader macro-economic drivers to drive the tech usage and the tech intensity higher for all sorts of sectors globally.
Now if you look at the tech sector, very specifically, FY23 has been really a year of continued revenue growth with a very strong focus on strengthening the industry fundamentals, building on trust and some new-age skills that are required to go forward. We have broadly seen in FY23, a continued growth rate in the Indian tech industry is now roughly about $245 billion in addition to about $19 billion over the last year. And tech just continues to be as a strategic imperative. That is a critical component of innovation and transformation in all kinds of industry verticals globally.
So, I would say that as we look forward to FY24, there is a continued sentiment. We were at Nasscom executive council meeting a couple of weeks back and there was the broader sentiment that every member of the executive council had that the tech sentiment is quite intact, the demand signals are quite strong.
So, given the fact that last year, you added nearly $19 billion in revenues, that comes around 8-9% growth rate over the previous year, do you see the same growth rate continuing in FY24? Or it may taper a bit because of the challenges that you mentioned?
Anant Maheshwari: I won't make a forward-looking projection at this point in time. But if you really look at the consistency over the last three to five-year timescale and then you look forward, what I can talk about is the input signals, the drivers that you are seeing at this point in time. So, there is a lot of tech disruption that is happening as we speak over the last few months. It's really been in the headlines and that is causing every company on the planet, every enterprise on the planet to ask the question: hey, what's the opportunity for me to do different things in my business going forward?' And that then translates into them calling the tech services firms and saying, 'help me understand what I can do with this going forward'.
Now, that was the signal that I spoke just now as we were speaking to the Nasscom executive council just in the last couple of weeks, those input calls have been coming in. Those meetings are getting set up and, with every such time, it takes a little bit of time for these meetings and these conversations to translate into real solutions and those real solutions then to be converted into deal structures that then drive the revenue growth of the industry. So that's my input signal that I would have, how long it takes to convert that demand signal into the revenue signal is a little bit tough to predict at this point in time.
In the last few years, we saw digitalisation as one of the themes and we saw talent acquisition in that area. Now as we are going for FY 24-25, you have artificial intelligence coming in, you have ChatGPTs; how it will change companies and how it will change coding as well, if I can add. How do you see these kinds of disruptions impacting tech companies and are the Indian companies geared for those kinds of disruptions?
Anant Maheshwari: So, first up, you are absolutely right that there is a lot of conversation, there is a lot of trial that is happening at this point in time. Now, every company is not going to use technology just because it's in the news. They will use new technology if there is real value in their profit and loss statement, if there is revenue enhancement that they can drive. If there is a productive driver that they can have in their business, if their new business models that can emerge for them to do business. Now, all of that is real.
So, today, the companies are asking those questions about this technology, especially around generative AI, and the conversation is just about four to six months old, and therefore how does it apply to solve fundamental problems in my business? How does it apply to accelerate my business going forward? So, they have therefore started bringing in tech services firms to have those conversations.
Now, once these conversations are done and once the problem statements and the architecture are defined, you need people who are skilled to actually do this work. Where are the AI skills on the planet and if you looked at LinkedIn and see how many people are putting out their tech certifications, that's a very good indicator of where the tech skills exist. India has amongst the highest, if not the highest, AI skill sets on the planet. So therefore, India has a natural positioning of being able to serve all of these companies with talent capability that will be required to create those solutions and deliver those solutions.
Now is it enough? Unlikely. I think the entire world is short of AI talent. There is a lot of AI skilling that will need to get done. But the good news is that India is starting ahead of the rest of the world and has a very strong skilling ecosystem to drive that power. So, purely from a demand signal point of view and the requirement of skill sets, I think if you take AI, if you take cybersecurity, if you take cloud capability, the data work that needs to get done to enable all of this, India's very well positioned in terms of having those skill sets. So that's how I would think about the demand going forward. Will it have supply side effects? Very likely. There will be some supply side effects also, but people are working through it at this point in time and we will see how that shapes in the next two to four quarters.
Will that lead to an AI skill war between companies? As companies go out and look for this talent because as you said, have the largest pool, but we also are deficient in that way, right?
Anant Maheshwari: So, I wouldn't use the word war.
I would say talent war and we saw that happening a few years back and as a result, we saw that attrition levels were going through the roof for many of the IT companies.
Anant Maheshwari: No, I think I leave those monitors to the consulting industry and the media to define whether it's a war or not, But I would just say there's always a demand for talent and especially the Indian tech sector has always led with creating that ecosystem and driving the continued skilling for talent.
Talent will remain a differentiator. That's very clear. Every company will continue to build on the foundation they already have. And we have seen that happen from the providers perspective also as that skilling happens. So, I definitely believe that India is very well positioned at this point in time to continue to build that talent pool going forward and support the world. We at Nasscom truly want to continue to establish India as the trusted tech ecosystem for the planet.
Maybe 20 years back when we started off, the IT industry was doing maintenance work, then it graduated itself to developing ecosystems, then digitalisation full stacks, a core IT for many of the companies and now we are moving towards much more specialised AI, data cloud computing and cyber. Do you see this path going to be the way for many of the IT companies and how many IT companies within Nasscom are preparing themselves for this kind of transition because it's a difficult transition, but it is a high value transition that many of the companies are looking at.
Anant Maheshwari: So first up, I would just say your thesis: does every services firm, every tech firm need a very strong capability and strategy on cloud, AI, data, cyber, is that required? I think most people would agree that the answer is yes. That they do need that continued strategic driver.
However, I would not, from a timeline perspective, say that this is only for the future. I would in fact say that it is already happening. It has happened and the Indian tech firms are already amongst the leaders globally when it comes to solving for cloud, AI, data and cyber demand signals that have been there for the last few years. So, to me, we are starting on a very good foundational stuff that the tech ecosystem has already seen from India and now we need to continue to scale it because we are in leadership positions in many ways and really a global peer to solving some of these toughest challenges.
This raises a couple of things more for the industry as well. IT industry was considered the preferred employer and the biggest employer for talent and skills. Do you see that tapering down happening there given the fact that now skill-based talent has much more way to go ahead rather than a normal talent and how Indian I.T. companies are looking at skilling to paraphrase it. In the pharma industry, we see companies spending a percentage of their revenues on R&D. We will now see companies spending a percentage of their revenues on skilling. Is that going to be a trend going forward?
Anant Maheshwari: I would say it has been a trend for the last 20-odd years or so.
But not talked about much in that sense, right?
Anant Maheshwari: So, the Indian tech ecosystem, and especially Nasscom, if you really look at our priorities for the last many years now, skilling has been a key pillar for Nasscom. The tech skilling is a key pillar and the entire tech ecosystem in India, both the Indian tech firms, the global platform majors, the emerging SAS companies, everybody has been contributing with their own IP, with their own courses, with their own capabilities to scale the Indian tech ecosystem and that's been very successful.
It has also been in partnership with the government a very strong capability around future skills that has been created by Nasscom over the last few years and is now seen as an industry-wide platform in driving a lot of that capability.
I was just reading some news... that in the last few months, there actually has been an uptick of a lot of people signing up for these courses for advanced tech training. Now it basically means that the existing talent is upgrading themselves and that is a reality for each one of us. It's for you and for me that all of us will have to continue to upgrade our skills on an ongoing basis in whatever field we operate. And leveraging tech in our respective fields is going to be a big part of that skill upgradation that we will continue to do and the same is happening in the Indian tech industry.
Let's not forget, we have the largest tech talent pool on the planet. We continue to have an input into it which is amongst the largest and the world is changing to even people who may or may not have the full skill sets to be able to leverage tech going forward. So, my sense is that yes, the nature of the courses and what we actually do will continue to evolve depending on the technology that we have.
But again, I have taken a lot of learning from the last few decades. There have been many tech revolutions in the world and the Indian tech industry has demonstrated very nicely how they have continued to skill themselves and continue to upgrade their position in the value chain in solving the biggest problems on the planet.
Do you see this also translating into a much more aggressive way global companies are going to look at global development centres in the country? Now that's a trend which has been there for many years, but of late, we have seen an increased focus on setting up their R&D centres or development centres in the country. Do you see that happening at a much faster scale now?
Anant Maheshwari: So first up, great point that you made that the India tech ecosystem is not just the Indian tech services firms. It's actually a company in automotive, in banking, in industrial, in CVG, in retail, and take any sector globally, having their core software development and tech development, which we call the global capability centres coming from India.
So, India is a very significant proportion of the software and tech talent for almost every company at a micro basis and for overall, the planet at a macro basis. So that is a reality, and everybody has now understood there are different ways to do it. Some companies outsource it, some companies do it themselves and that's a combination that will continue to happen.
What we have also seen is that the broader ERND world, for example, the engineering and R&D world has grown quite significantly. And I am picking that example because it shows that that double digit growth in FY23 to about $41 billion of the Indian ERND revenue is a very good indicator that India is not being seen just as the source of entry level... but it's a lot more downstream that the mentality has been seen a lot of core engineering and research and development is being done in these global capability centres and the Indian tech services firm.
We also see that the deals volumes are going up from where it was in FY21 to where it is today and that's continuing to increase, but that's a very good indicator that India's being recognised for higher end tech skills.
My next question was on the ERND... how do you see that segment growing? Because that's something which is now growing at a very fast rate as compared to the industry’s growth rate. And we are seeing more and more companies coming out with ERND products with their own IPs and patents and which have been adopted for global OEMs, whether it's going to be part of their digitised automobiles, or you look at any other segment of this. Is that one of the things which will be the way for some of the IT companies beyond the software services which we provide?
Anant Maheshwari: So, I think I had answered part of the question already as that example but let me continue. As I said it has grown at double digit over the last financial year and that's expected to continue to remain a double-digit growth going forward. It is a core area higher than the industry growth average for all of the Indian tech ecosystem and why is that happening? It's strong fundamentals. Its proof points of having delivered on the current sort of projects that have come in and then its capabilities because the more you do on the ERND. you are creating greater skill, you are creating higher end skills, and that will drive even more work.
So, it's a virtuous cycle that you look at it and I think that's the virtuous cycle that the industry will need to continue to operate and when I say industry, it's both the Indian tech services firms and the global capability centres and the global tech firms. I think it's happening across the board that we see and they are in many cases, some companies are starting, some companies are very mature.
So, in general, I would say there is still enough headroom to grow in that space and the key growth drivers for it, if I look at it, will remain some long-term strategic deals that are coming through. There is a widespread change and new project development in cloud and AI that will drive some of that work. So, there are very good drivers for these engineering and R&D activities.
Aside of ERND, is there any other segment which you think is growing at a much faster scale as compared to the normalised industry growth?
Anant Maheshwari: Yes, I would say the cloud and AI capabilities, data, cyber, as I mentioned earlier are arenas that will continue to see heightened interest and growth.
If we look at the last three, four years of revenue, how it's grown, where you see maximum growth has come from? I know ERND will be one of them, maybe cloud and data could be others. But are there any other segments where the incremental growth is coming from some other areas, newer areas for industry?
Anant Maheshwari: I think you call it out and I, at the risk of repeating myself, I would say cloud, AI, cybersecurity are definitely arenas and underlying all of that, you can't do too much of AI and cybersecurity if you are not doing a lot of work on data and so all of that is a big part of the demand signal.
As part of Nasscom, you have been interacting with all the players in the industry. Which are the geographies today you see are the riskier ones from a growth perspective? The Indian IT companies are dependent on the North America geography. There are issues with Europe as well. How do you mitigate that risk from the company's point of view or industry's point of view?
Anant Maheshwari: So first up, I would say in all parts of the planet right now, it would not be fair to say at an absolute basis, a particular geography is not doing well or doing well. In every large geography, take the United States since you mentioned, there will be some parts of the country, both in terms of sub-geographies as well as vertical sectors.
BFSI for example, because that was a pain/pinpoint in Q4 for many of the companies.
Anant Maheshwari: So, let me just continue my thought and then will also bring that in. But if you really look at it, there are parts of the economy and all of that country where there is continuing to be a lot of good growth and new opportunities that are coming in.
The leading sectors that have been so far for the Indian tech ecosystem has been BFSI, it has been retail and CPG and it has been the broader tech industry globally and they still continue to have very significant demand signals.
Now within this also, there may be some companies that are going much faster than other companies. So, in BFSI, there may be a lot of banks or insurance companies or financial services companies that may go stronger than some others. In addition, you see a lot of fintech and ad tech, health tech kind of work that is happening around the world and that's being done both by companies who are tech companies and the traditional companies.
So, I would say there is a mix of signal that you would see, in general, if you aggregate that at the overall level, we come back to that broader question that we were speaking over a little while back, that the broad trendline in the broad tech sentiment is quite intact.
So, you don't see much of a challenge coming in from some of these verticals which we have been talking about like BFSI, which has been a pain point for Q4 for was all about how tech companies were able to navigate the BFSI space, especially in the US. Europe was not so bad, but Europe was a little worrying for many of them.
Anant Maheshwari: So, I think I am not going to repeat that you have used, so let me use my words, in terms of where at least as I see it, and let me give you a little bit of second-level colour as to what's happening. It's very natural that when there is volatility and there is overall caution in the economy, what changes is, enterprises and customers say I want to see the real impact of my tech projects faster and also, I don't want to give very long-term commitments on what kind of projects I will do.
So, the definition of the deal structures, the definition of the projects become a little more, what's my time to value, I want it faster, and my commitments may not be as long as I have had in the past. But is the work still there? Absolutely. So that's the change that all the companies in the tech ecosystem are going through. They also recognise that hey, we need to do maybe shorter cycle work and we need to serve and create that value faster. So, let's recalibrate ourselves and do that work. That's the demand signal. That's what is really changing.
Finally, if I were to ask you to stick your neck out and tell me how we are going to grow into FY24? We are coming out of FY23 with about 8.3% or 8.4% growth over the previous year. Are we going to see the same growth rate? Or there may be some tapering because of the volatility which you mentioned.
Anant Maheshwari: So, I would go a lot more by some of the results that we have seen. I think we have seen some of the larger eight to 10 companies have released their results. Everybody has exercised caution. All of them are saying the growth in the next 12 months is likely to be slightly lower than what it has been in the past.
I think we have got to respect that guidance. But my sense is that in the next two quarters, a lot can change because the world is reshaping a little bit in terms of how tech will get applied. I told you that demand signal of AI that is in conversations today and my understanding is that all of the tech ecosystem is very busy having those conversations.
They are full up, in terms of creating those meetings, and serving those questions that have been raised by many customers. How those questions and meetings translate into real architecture and real work will only be known in the next couple of quarters and if that picks up, then some of these forecasts and assumptions will change.
RECOMMENDED FOR YOU
Indian Market Could See Cyclical Slowdown In 2025 But Key Sectors Offer Opportunities: Goldman Sachs
Nov 21, 2024
IHCL’s New Brands Key To Achieve Ambitious Growth Plan Over Next Five Years
Nov 21, 2024
November Rain On Dalal Street? FII Selling Likely To Continue, Says Neelkanth Mishra
Nov 11, 2024
KPIT Tech MD Expects Growth To Come From US-Based OEMs | NDTV Profit
Oct 24, 2024
POPULAR