Saving The Best For Last

This article ocurtesy: IDC India

The Indian IT Industry has recorded the best performance in four years

according to IDC. This is commendable considering that 1999-00 flagged off with the Kargil

war and the Lok Sabha elections. But the IT industry was buoyed by the heavy buying by the

home segment, despite these setbacks.

The domestic spending on IT products and services grew by an impressive

30 percent in fiscal year 1999-00, reveal International Data Corporation’s (IDC)

latest figures. Based on a series of regular research done all through the year, IDC

estimates that the domestic IT market in India stood at Rs.16,538 crore (approx. US$ 3.9

Billion) in 1999-00. This represents the highest annual growth rate since 1995-96.

The performance of the industry is noteworthy in that it is the first

time in five years that the annual growth has shown an increasing trend. The early

nineties were particularly good for the industry as the annual growth rates showed

continuous improvement year after year and reached a whopping 58.9 percent in 1994-95.

It was after 1996 that the continued political uncertainty and a

virtual economic recession started taking its toll. During this period, although the IT

sector continued to grow higher than most other sectors of the economy, the growth rates

were under tremendous pressure.

What makes this performance even more remarkable is the fact that

1999-00 was not a very easy year for the economy in general and the IT industry in

particular. The year began with the Kargil crisis, which threatened to have a grave impact

on the economy. This was followed by the Lok Sabha elections, which brought economic

activity to a virtual standstill for almost a month. Nevertheless, the impact on the

economy as a whole was minimal.

In the third quarter of the financial year, the Y2K issue kept some

major purchase decisions on hold for some time. IDC believes that this did not affect the

IT market negatively as the decisions were only postponed, not scrapped altogether.

However, the IT industry had to face a major crisis in the second half of the year when

the availability of key components was severely affected. This resulted in price increase,

but the overall demand was so strong from the market that the industry continued

unabatedly on its growth path.

Home market to the rescue

Continued buoyancy in the home market was perhaps the single largest

driver for the IT market, particularly PC shipments and related peripherals. IDC estimates

that PC shipments to the home segment grew by over 88 percent in unit terms. Shortage of

components did affect the market for locally assembled PCs, but the overall demand from

the home segment continued to be strong despite an increase in prices.

There was also an improvement in spending by large and medium

businesses and the government segment, which kept the demand for servers and workstations

flowing. The Internet boom also had a positive impact on the overall IT industry. While

Internet access was an important purchase decision criterion for the home segment,

investments by Internet Service Providers (ISPs) and other Internet companies to set up

their infrastructure emerged as an important accelerator for domestic IT spending.

It was the hardware sector, which recorded the highest growth rate

during the year. Consequently, the share of hardware in total IT spending jumped from 53

percent in 1998-99 to over 56 percent in 1999-00. This was a clear deviation from the

past, when the share of hardware was on a decline due to rapidly falling prices.

Personal computers drove the growth in the hardware sector. PC

shipments crossed the one million mark for the first time, as 11,25,235 units of desktop

PCs were shipped during the year. Shortages of components and a faster transition to

higher generation processors were instrumental in restraining the average sales value of

PCs from falling.

As a result, the growth rate of desktop PCs by value was slightly more

than that by units; a trend very different from what has been observed in the past when

declining prices kept the value growth under pressure.

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Given the current buoyancy in the market, IDC expects the market to

sustain this level of growth at least for a couple of years. This would make India one of

the fastest growing IT markets in the world, if not the fastest.

- Courtesy IDC