Indian tech sector to hit $245 bn in FY23; headwinds seen in FY24: Nasscom

While the Indian tech industry has remained resilient in the current uncertain macro environment and will touch $245 billion in FY23, the headwinds for FY24 are clear. Hurdles in the form of delayed decision making, gap in emerging tech roles, demand contraction and emerging tech regulations will impact the industry.

These have already impacted the FY23 numbers if one compares them to the FY22 figures. At $245 billion in FY23, The incremental net revenue addition, at a projected size of $245 billion in FY23, is estimated to be about $19 billion. This is significantly lower than the FY22 incremental revenue addition of $30 billion. The growth for FY22 was 15.5 per cent.

These headwinds have made Nasscom, the industry body representing the Indian tech industry, in its Strategic Review 2023 define the year as ‘Priming for a no normal future’.

The Strategic Review added that in FY23, growth has been across segments of IT services, BPM, Software products, ER&D and the domestic market. Mirroring the trend, the Indian service export revenue is expected to touch $194 billion in reported currency, up 9.4 per cent over FY22.

Going ahead, however, the industry is guarded in its response to any predictions on future growth. “The mood and sentiment that we are getting from CEOs is cautiously optimistic. We know that tech spends will grow, but we also know that the headwinds are very strong. Our members are saying that FY24 looks like a similar year but we will not go beyond this,” said Debjani Ghosh, president, Nasscom.

Krishnan Ramanujam, chairperson, Nasscom, said there are plenty of storm clouds gathering. “While it does not seem to rain yet, the fear that it will, is very palpable and very visible across the board.”

The one positive point that came amid all the layoff news is that the IT industry continues to be a net employer, with a workforce of over 5.4 million, creating 290,000 new jobs in FY23. With a 36 per cent digitally skilled workforce, the industry remains on top in terms of AI skills penetration globally, the second largest in AI/ML BDA talent pool, and the third in terms of installed supply of cloud professionals.

On the positive growth side, global captive centres (GCCs) continue to expand into India. About 40 per cent of global GCCs are present in the country today, which demonstrates a tremendous opportunity for the country to scale up. India added 65 new GCCs in the year, taking the total to 1,570-plus. Sub-sectors such as ER&D also witnessed an accelerated double-digit growth, at 11.1 per cent.

The proportion of digital tech in the overall technology services revenue has been rising year after year. From only around 26-28 per cent in FY20, to leapfrogging to over 32-34 per cent in FY23, there has been increasing penetration of digital tech in the industry.

The Indian tech startups in FY23E focused on strengthening business fundamentals and governance. India added over 1,300 startups and 23 unicorns in 2022. The country has also emerged as a hotbed for deep tech startups, reaching a total of over 3,000 in FY23, of which 485 inventive deep tech startups are developing innovative solutions.

According to a McKinsey CIO survey, 75 per cent of CIOs expect spending on digital to continue with evolving priorities based on the changing macroeconomic environment. With evolving buyer preferences, tech service providers are increasingly pivoting towards becoming transformational partners with a focus on bringing domain specialisation and impact-based commercial arrangements.

Tech industry snapshot

• 
  Revenue growth total: $245 bn; $19 bn incremental net revenue added
• 
  Export revenue at $194 bn, up 9.6% from $177 bn in FY22
• 
  Direct employment: 5.4 mn; 290,000 new jobs; 36% digitally skilled; 2 mn women employees
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  Startups: 27,000 tech startups (1,300-plus new startups, 23 new unicorns in 2022); 25% growth in early-stage funding.