India’s IT services market grew at record pace in 2021

India’s IT and business services market grew at a record pace of 7.2% in 2021, driven by the surge in digital transformation initiatives in the subcontinent, according to research by IDC.

The analyst firm valued the market at $14.15bn as enterprises continued to increase their IT investments to improve the resiliency and efficiency of their business operations and enhance customer experience.

Harish Krishnakumar, senior market analyst for IT services at IDC India, said cloud, artificial intelligence (AI), machine learning (ML) and security continue to be priority investment areas, and businesses also increased their investments in workplace transformation projects due to adoption of hybrid work models.

“With the economy gradually recovering from the impact of the Covid-19 pandemic, there will be an increase in IT services spending in the upcoming years due to the pent-up demand caused by the pandemic and rising discretionary IT spending in certain industries,” he added.

Currently, IT services account for the lion’s share of the market at 77.6%. The segment grew by 7.9% in 2021, compared with the 5.8% growth in 2020. IDC classifies the IT and business services market into three primary markets – project-oriented, managed services and support services. In 2021, project-oriented services registered the highest growth rate at 7.9%, followed by managed services at 6.9% and support services at 6.2%.

Hosted application management and hosted infrastructure services also saw higher growth as many enterprises continue to adopt cloud and hosting services. There was also increased demand for systems integration services due to initiatives such as application modernisation and adoption of technologies such as cloud, AI and ML.

“While 2020 pushed enterprises to focus on survival and business continuity strategies, Indian enterprises continued investing in IT services in 2021 as they continued to build capabilities on digital technologies through solution or platform centric approaches,” said Sharath Srinivasamurthy, research director for enterprise solutions and ICT practices at IDC India. “We see this trend continuing as Indian enterprises will look up to their service providers as they progress towards their goal of becoming a future-enterprise.”

Major IT service providers have been reaping dividends from India’s growing demand for IT and business services.

Tata Consultancy Services (TCS), for example, recorded a 16% growth in revenues from India in its fiscal 2022. Its services business was driven by growth in retail, manufacturing, communications and media, as well as life sciences and healthcare, among other industries.

N Ganapathy Subramaniam, chief operating officer and executive director at TCS, said during the year, the company “took on technologically challenging, industry-first transformational programmes and brought to bear the full power of TCS’s capabilities and that of our partner ecosystem, to successfully deliver market-changing outcomes”.

“Our continued investments in building newer capabilities, our passion for innovation, our contextual knowledge, and most importantly, our self-belief have been key to this, and these position us very well for continued success ahead,” he added.

Rival Infosys also reported a record 19.7% growth in revenues, which reached $16.3bn last year.

According to IDC, the IT and business services market is projected to grow at a compound annual growth rate of 8.9% between 2021 and 2026, reaching $21.67bn by the end of 2026.