Domestic IT spending to breach $92 billion: Gartner

India will consume technology products and services to the tune of $92.7 billion in 2021, growing by 8 percent over the previous year's $85.9 billion, according to forecasts by technology research advisory Gartner released on Wednesday.

"In 2021, the April to June quarter was terrible because of the local lockdowns and restrictions across the country," Naveen Mishra, Senior Research Director at Gartner, told EnterpriseStory. "From a technology perspective, this has impacted the overall demand scenario."

More than 60 percent of the IT spends are from large enterprises, with mid-market and SMEs accounting for the rest. While large enterprises returned to spend on technology, SMEs' digital journey will begin in 2022 after their revenues stabilise, Mishra said. However, there is a demand recovery afoot.

"This is the second year of the pandemic, and organisations have developed resiliency and learnings from the previous wave," Mishra said. "This has helped them recover quickly. However, there are sectors that are still contact-based like travel and tourism, physical retail and manufacturing, where demand recovery will be slower than other industries."

The Gartner forecasts for 2021 and 2022 are based on India's growth projections like gross domestic product, and how industries are investing in digital transformation. "Companies have a one-to-three year digital journey planned in the second half of 2021. A lot of these projects they are working on will easily spill over and continue in 2022," Mishra explained.

The IT services and business process outsourcing (BPO) industry typically accounts for 12 to 15 percent of IT spending in India. The telecom and communications industry, and banking, financial services and insurance (BFSI) industries are the top industries that consume technology products and services.

Here are five key findings from the latest numbers:

1. Devices consumption grew 7.5 percent over 2020

With the pandemic, Gartner has observed increased consumption of laptops in metros and large cities, and smartphones in tier-2 and tier-3 cities. Revenue for the category will grow to $41 billion by the end of 2022, which will be a 6 percent compounded growth rate over five years. In the past year, the growth has occurred without new product launches.

"COVID-19 has actually moved offices and schools to home," Mishra said. "Before COVID-19, Gartner was seeing a lot of acceleration in smartphones. But with the pandemic, there have been a lot of laptop purchases for education and home offices. We also saw purchase of mobile phones for education purposes in tier-2 and tier-3 cities for digital learning."

2. Tepid growth in spends on data centre systems

This has typically been an expenditure for office infrastructure. But as Indian enterprises underwent revenue declines because of COVID-19, IT budgets were limited. "This became the last priority for them to invest in," Mishra noted. If there are existing assets that enterprises have been using for five or six years, they continued using it and extended maintenance and warranty with extra payment.

The segment includes products like servers, storage systems, and network equipment. "New purchases have not happened in India," Mishra explained. "Enterprises are not investing in on-premise infrastructure, or are delaying the refresh cycle. This is reflected in the data centre systems segment."

But that money is now going towards investments in public cloud, by using Infrastructure as a Service (IaaS).

3. IT services to close in on $20 billion in 2022

As enterprises move to the public cloud, the traditional data centre expenditures will increasingly move to IaaS. This will show in the domestic IT services segment, Mishra said. This will grow by nearly 10 percent by the end of 2021, by Gartner's estimates, and by another 9 percent in 2022. Cloud is a major contributor to the IT services segment.

"Many of the enterprises that were earlier reluctant to invest in public cloud began to move to it rather than buy new servers," Mishra said. Even non-technology enterprises like ICICI Bank, HDFC Bank, Maruti Suzuki India, and Mahindra & Mahindra are increasingly moving to public cloud service-providers.

4. Telecom industry is not contributing to growth

There is a 4 percent fall in the communication services segment, which has been below $25 billion for three years in a row from the highs of $30 billion in 2018. While the telecom sector is seeing growth in volumes, there is a huge competitiveness from a pricing perspective in India, especially on the consumer side. "While consumption has increased, the net-revenue realisations has been flat or in decline," Mishra said.

5. Enterprise software to become $10 billion market by 2022

Traditional database software companies like SAP and Oracle still dominate the mix, but India is hungry for enterprise software across industries. This segment is expected to be $10.5 billion in 2022, which will be a 13 percent compounded growth from the pre-pandemic base of 2019.

“There is a huge focus after COVID-19 around remote management, automation, which is becoming a focus area," Mishra said, citing analytics and business intelligence software as popular purchases.

But the fastest-growing sub-segments are automation, remote control and management, and security. "These are segments in which customers are spending with new realities. There are emerging players in automation, and security is growing rapidly at 30 to 50 percent year on year," he added.