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IT spending as stimulus

V. Sridhar
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Gartner Inc.’s report projecting 7 per cent increase in govt. IT spending comes as good news for the industry

Government IT budgets have never mattered as much as they now do in determining the fortunes of IT service providers across the world. When the IT services industry was growing at the scorching pace that it enjoyed during the decade before the global economic meltdown began five years ago, it could afford to be choosy about government contracts. This was not only because government contracts were perceived to take longer to consummate — arising obviously from the generally higher standards of accountability when compared to the private sector — but also because such contracts are characterised by lower margins, delayed payments and generally more cumbersome procedures. But the retarded growth of the global economy, which has resulted in the scaling down of projects, lower margins and a generally longer decision-making cycle means that they no longer enjoy the luxury of picking clients.

It is in this context that the recent report by Gartner Inc., which projects a 7 per cent increase in government IT spending, comes as good news for the Indian IT services industry. Gartner, the international technology research and advisory, on Friday, said it estimates Indian government spending — inclusive of Union, States and agencies of the Union Government — to amount to $6.4 billion (about Rs. 39,216 crore). Last year, government spending in IT, which Gartner defines as including hardware, software, external IT services and telecommunications and the cost of personnel in all these activities, was estimated by the consultancy as being $5.92 billion (about Rs. 36,275 crore).

Of course, as always, IT services will account for the biggest portion of the government budget. Gartner projects that this segment, which includes implementation and IT outsourcing (including business process processing), would grow by 7.7 per cent in the current year, reaching $1.4 billion (Rs. 8,579 crore).

Anurag Gupta, research director at Gartner, points out that the government spending on BPO is projected to grow 15.5 per cent during the current year. Government spending on IT staff within government organisations is projected to grow 13 per cent during the current year. This spending is mainly as salaries and benefits to staff, for planning, developing and maintain information systems within the government sector, Gartner notes.

Expenditure on software deployment within government is projected to grow at 10.5 per cent in 2013, touching $709 million (Rs. 4,344 crores), compared to $642 million (Rs. 3,934 crore) in 2012. Gartner reports that growth in this segment is likely to be led by “vertical-specific software”, applications that are unique to specific industries. “These are standalone applications that are not modules or extensions of horizontal applications,” Gartner explains.

The Indian IT industry, which during its dream run was scornful of the prospect of catering to the government sector, now clearly sees this segment as providing a measure of stability in a volatile world in which currency volatility is only one aspect of the rising level of risk.

Support for Aadhaar

This explains the Indian IT industry’s vociferous support for the controversial Aadhaar project, which is only one of the 31 “mission mode projects” initiated by the Indian Government in the last few years.

In April, the Department of Electronics and IT, in a “strategic direction paper” on the GI Cloud Project — known evocatively as Meghraj — observed that while the cloud model was transforming the manner in which information is being “consumed,” the legal, contractual, economic and security aspects of the technology are “yet to attain maturity.”

It said the Meghraj, the ‘Indian cloud’, would be used by the Union and State governments for the delivery of various services.

The Indian IT services industry obviously sees tremendous opportunities in such schemes.

Significantly, S. Gopalakrishnan, Executive Vice-Chairman of Infosys, the second biggest exporter of outsourced services from India, was appointed by the department as the head of the working group that is to set the ground rules or the policy framework for cloud services in India.

Obviously, Indian and foreign IT service providers of various hues see enormous opportunities in the rollout of such a nationwide cloud network. The Department of Electronics and IT proposes to establish Meghraj on “data centre assets” belonging to the Union and State governments.

The proposal is to connect these data centres through the National Knowledge Network, State Wide Area Networks (SWAN) and the Internet. When Meghraj matures, resulting in greater demand for could-based services, the government “may also engage the services of private cloud providers”, the paper stated.

The government, far from being the slouch that it is often made out to be, is actually the risk-taker in technology, investing public money that paves the way for the eventual entry of private ‘entrepreneurs’ after much of the risk has been stripped away.

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