India Market Watch: India to be Third Largest IT Market, Reforms Planned During Union Budget

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India to be the Third Largest IT Market in Asia-Pacific

IT spending in India will grow by 8 percent in 2016 and 2017 – twice the rate of growth of the Asia-Pacific (APAC) region. A study by Forrester Research shows that expenditure in technology in APAC will moderate to 4.5 percent growth in these two years to reach US $693 billion in 2016 and US $727 billion in 2017. Further, mature markets such as Japan and Australia will grow at half or less than half the rates of growth seen in India, China and some ASEAN countries. Software and services will lead growth trends followed by hardware. Japan will be overtaken by China as the largest regional IT market, India will move to third place, and South Korea and Australia will be fourth and fifth respectively.

This forecast by Forrester includes telecom services (US $196 billion) as it dominates the technology market, followed by computer equipment (US $142 billion), communications equipment (US $110 billion), software (US $105 billion), technology consulting and systems integration services (US $69 billion).

Analyzing the growth pattern in India, domestic spending is now projected to grow by 10 percent by Nasscom – much lesser than the earlier prediction of 15-17 percent and actual growth of 14 percent in 2014-2015. Given this scenario, the Indian government’s Digital India, Start-up India and Smart City plans will provide the much needed boost to domestic spending on IT infrastructure and ease doing business in the technology sector. This will help maintain India’s growth projections above the APAC average.

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Boeing Looks to Manufacture in India

US aircraft manufacturer Boeing intends to invest and engage in a long–term commitment to build aerospace capacity in India. Dennis A Muilenberg, President and CEO of Boeing stated that he plans to build a talent base, an established supply chain and advanced capabilities in the long run.  He praised Prime Minister Narendra Modi for making India favorable for foreign investments and for initiatives like Make in India.

India has extensive potential in skill development, capabilities, infrastructure and partnerships. The rising GDP, the supply chain and the working population of the country are the right ingredients for long-term investments. If ongoing negotiations on manufacturing the Super Hornet fighter jet in India is successful, it would mark a great opportunity for Boeing. Developing the fifth generation F-series aircraft in India is also an area for the company’s future investment. In addition, Muilenberg also mentioned that the key step would be to move from a buyer of technology to developing indigenous manufacturing capability.

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Reforms Planned During Union Budget

The annual Union Budget session will begin from 23rd February. The Railway Budget will be presented on February 25th, the pre-budget economic survey will be presented the next day and the General Budget will be tabled on February 29th. Parliamentary Affairs Minister Shri Venkaiah Naidu announced that the first part of the Budget Session will end on March 16th and the second half will convene from 25th April to 13th May.

The Confederation of Indian industry (CII) has made a few suggestions for the upcoming budget session. Capital expenditure on key important projects such as the roads, railways, agriculture and power need to be increased extensively. Suggestions have been made to create a National Asset Management Company (NAMCO) to take off non-performing assets (NPAs) from the banks’ balance sheet. This step will restore the banks’ credibility and health. NPAs constitute over 5 percent of the banks’ total advances.

Finance Minister Arun Jaitley has announced that the government intends to administer critical tax reforms both in direct and indirect taxes. If there is a reduction in the corporate tax rate and incentives are rationalized, then there is a potential to transform investment opportunities in India. The CII has suggested reduction of corporate tax from 30 percent to 25 percent. While phasing out the incentives, investment prospects should not be affected.

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