IT Services Vendors in India: Tapping into the Rapidly Growing Domestic Market

In this blog, we explore how global companies in ICT are shifting focus from outsourcing to tapping into India’s domestic market due to its rapid growth. To learn more about the next era of India’s economic growth, join TBR for a live discussion and Q&A Thursday, Oct. 31. Join TBR’s Professional Services team as they highlight whether local IT services vendors can capture opportunities from the Big Four, which vendors will lead the market overall and more. Save your seat today!

Global Companies Across ICT Industry Are Positioning for an Increase in Local Opportunities in India’s IT Services Market

As India’s growth has outpaced that of all other major countries for the better part of the last decade, global companies are shifting their focus in India from only outsourcing to realizing the country’s domestic market potential. India-based IT services vendors have seen a significant increase in domestic projects, particularly in 2Q24. For example, Tata Consultancy Services’ (TCS) domestic revenue increased 59% year-to-year and 14.1% sequentially, while Infosys’ increased 17.1% year-to-year and 45.5% sequentially.

According to TBR’s Spring 2024 Global Delivery Benchmark, “We expect India to gradually expand its global economic profile, attracting vendors from across the ICT industry to invest and position themselves for locally sourced opportunities.” As always, our analysis starts with the strategies, investments and performances of leading IT services companies and consultancies.

This year, Capgemini and Cisco have increased their reach with India-based clients. Capgemini has accelerated its hiring pace in India to support domestic IT services demand growth. HCLTech partnered with KPMG to combine its technology services with the consulting firm’s business expertise to meet India-based client demand for digital transformation projects. Additionally, Kyndryl has signed a deal with Canara Bank in India, while Wipro also has recent domestic deals with Anna University and Rajalakshmi Institutes.

In addition to the rising need for IT services in India to serve the local economy, a key driver of the trade interest in India is the desire to reduce dependence on China while geopolitical hostilities are on the rise. Although both demand and interest in trade in India are growing, India’s infrastructure and income disparity consistently remain limiting factors to India’s growth.

Infrastructure Challenges and Investment

Amid growing trade, India’s current transportation networks are often too small and in poor condition. India’s roadways lack the amount of space needed to keep traffic consistently flowing, resulting in gridlock and high transit time and restricting operational efficiency in the economy.

Additionally, road damage due to flooding and washout is frequent during the monsoon season, as is damage to other infrastructure. Simply put, India is growing faster than its infrastructure can reasonably withstand, even with extensive infrastructure spending. India’s digital infrastructure also has some challenges, as evidenced by internet shutdowns, including one in Manipur following anti-government protests that blocked internet access for 212 days, affecting 3.2 million people.

Since 2015 the government of India has worked to build more robust digital infrastructure to benefit all populations with the Digital India initiative. In 2016, the government launched the Unified Payments Interface (UPI), a digital payments solution for interbank and person-to-person payments, providing security for transactions in the informal economy. The International Monetary Fund (IMF) reports over 8 billion transactions occurred each month in 2022, transforming an economy that had primarily relied on cash. JM Financial, an investment bank in India, estimated before the release of UPI that over 95% of transactions were completed in cash.

Perhaps equally transformative is the digital ID system, Aadhaar. Upon Aadhaar’s release in 2009, one in eight citizens had verifiable identification. Verifiable identification improved access to financial institutions, with the percentage of India citizens with a bank account growing from 25% to over 80% currently. The IMF states that, “India’s digital public infrastructure, built within the regulatory system, has enabled its citizens to achieve access to the formal economy through a verifiable digital identity; participation in the nationwide marketplace through a fast payment system; and secure welfare gains in finance, health, and commerce through data empowerment and data sharing.”

IT Services Vendors’ Investment

IT services vendors have also seen the value in professional training and development. Vendors have increased investment in talent and innovation in the local Indian market, especially through centers of excellence (CoEs) in 2Q24.

Capgemini has established a CoE in Uttar Pradesh with the Noida Special Economic Zone to develop skills in AI, machine learning, financial technology and robotics for unemployed adults and youths in need. Likewise, IBM launched a CoE with LTIMindtree in India to foster innovation between IBM’s watsonx and LTIMindtree’s engineering skills. At the same time, IBM is working with India’s Ministry of Electronics and Information Technology around innovation in AI, semiconductors and quantum technologies. Infosys partnered with the Financial Times to provide training to India’s youth by utilizing the newspaper’s content and the Infosys Springboard platform.

Based on TBR’s ongoing analysis of the IT services and consulting market, we anticipate the companies that will outperform peers in the local Indian market will share three characteristics: working closely with government initiatives, investing in talent and innovation in India, and bringing new technologies to India’s market quickly. Over the next year, TBR will publish special reports about the leading IT services companies and consultancies as they take advantage of — or miss the opportunities in — a changing India market.