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Photo: Reuters
Photo: Reuters

India Inc 2020 IT spend will fall but cost optimisation solutions can win deals

  • Global IT spending is estimated at $3.4 trillion in 2020, a decline of 8% from 2019, according to a Gartner report
  • The Indian tech market growth will slow to 1.2% in 2020 and jump back to 8.4% in 2021, in the best case scenario

MUMBAI: The coronavirus crisis is expected to slow down spending on IT across sectors substantially, but the service providers will have the scope to build on projects that help clients optimise costs better using technology, said analysts.

According to a Gartner research on the ways businesses are likely to plan their tech spend, through 2022, potential for further geopolitical disruptions will accelerate uptake of intelligent automation of managed services by more than 25% and will spur movement of these services onshore to mature country locations.

Through 2022, steep demand growth for specialist skills in digital transformation and cloud application migration services will increase labour rates by 50%. From 2021 onward, 75% of all application service deals will be won by vendors that are prepared to commit to AI (artificial intelligence) quality and improvement for contracted services.

“In FY21, the impact on Indian IT services providers can go up to 15-30% of their revenue depending on their exposure to troubled verticals because clients are requesting for 20-30% cost reduction as well. But the overall dependence of clients on outsourcing, digital enablement and shared services is likely to increase and IT providers have scope to build on these requirements," said DD Mishra, senior director analyst, Gartner.

Gartner has revised its global IT spending forecast to $3.4 trillion in 2020, a decline of 8% from 2019. However, Mishra notes that this won’t have a particular impact on IT spend savings by those who provide the service as their costs would have shifted from on-premise operations to enabling remote solutions for employees.

According to a new research by Forrester, the Indian tech market growth will slow to 1.2% in 2020 and jump back to 8.4% in 2021, at best. This scenario becomes less likely if India’s major economic hubs remain under strict lockdown beyond June 2020. The other scenario is worse - tech spending might contract by up to 4.8% in 2020 with only a mild recovery to 1.4% growth in 2021.

Chief Information officers (CIO) and business technology budget-holders need to strike a balance between the dual objectives of saving cash and investing in adaptability to help their firms not just survive, but also adapt and grow.

“They (CIOs) have put their existing IT activities on hold and plan to recalibrate spending plans frequently. This sudden sharp contraction and slow recovery will entail contraction across all tech spending categories in 2020 and make even slow growth in 2021 arduous," noted the report.

This lower growth will affect all spending categories but hit hardware, software, and IT consulting services the hardest while technology outsourcing will remain resilient.

The pandemic will serve as an eye-opener for leaders rooted in traditional and conservative approaches to IT as they see their more digitally mature peers respond to changing environment better. In the medium-to-long term, the pandemic will force Indian firms to become lean by moving away from manual work and expensive real estate and embracing digital and automation.

"In the immediate short term, we expect some ongoing digital initiatives to accelerate — budget permitting. For example, we expect manufacturers to spend more on industry 4.0 in the medium-to-long term but spend more on building new direct-to-consumer channels in the short term. They are likely to postpone new starts until 2021," said the report.

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