Forrester View

India mid-year IT spending outlook

Massive budget increases underpin aggressive hiring and spending. By John McCarthy (above) with Oliver Young.

Recently, Forrester completed its first-ever survey of more than 700 Asia Pacific businesses and government agencies. Firms in India are clearly setting the investment pace. An astounding 67 percent of firms are increasing their IT budgets compared with 2004, while only 8 percent have decreased budgets. The vast majority of spending is going towards new initiatives and investments. In general, results point to a two-speed India, where one group is investing in IT for the first time, and the other is upgrading existing infrastructure and replacing outdated systems. The major themes and spending reflect this, as integration and security top many wish lists.

The overall Indian IT spending environment is rapidly expanding

In June and July 2005, Forrester surveyed 700 Asia Pacific (APAC) businesses and government agencies on their IT budgets and expenditures. (In June and July 2005, Forrester surveyed 700 technology decision-makers at Asia Pacific organisations. Firms represented a mix of verticals including: financial services, primary production, high-tech production, professional services, and government organisations. Slightly more than 75 percent of respondents were from firms with between 1,000 and 4,999 employees, 14 percent of respondents came from firms with 5,000 to 19,999 employees, and the remaining respondents came from firms with 20,000 or more employees.) Of those respondents, 60 percent were from India, and 38 percent of respondents represented the senior-most IT decision-makers at their company or government agency. To benchmark APAC organisations in a global context, Forrester used the same questions asked of North American and European technology decision-makers in June 2004 and November 2004.

IT budgets are up, way up

Indian firms have seen phenomenal budget increases over 2004 and are way ahead of their North American, European, and APAC counterparts (see Figure 1-1). Sixty-seven percent of respondents have seen increases, while only 8 percent decreased budgets. This increase is more than double the North American increase, and is well ahead of all other nations: ASEAN countries reported a net 35 percent of firms increasing budget; Japan, a net 22 percent; and Australasia, a net 20 percent. This level of growth tracks overall economic growth, as India, Asia’s third largest economy, has been growing nearly 7 percent a year since 2002, and a very impressive 9.6 percent for the first part of 2005, according to the Reserve Bank of India.

IT staff is increasing in step

With such a bullish increase in budgets, it is not surprising to find that Indian IT staffing is up as well. Again, Indian firms find themselves well ahead of North American firms, European firms, and APAC firms when it comes to IT staff hiring (see Figure 1-2). The majority of respondents—63 percent—are holding IT staff flat, and this is in step with other nations; however, 38 percent are increasing their IT staff, while not a single respondent reported downsizing.

Figure 1-2: Which of the following best describes the current status of your full-time IT staff?
	Hiring	Holding Flat	Downsizing	Don’t know
India	38%	63%	0%	0%
North America‡	21%	67%	9%	3%
Europe§	15%	65%	17%	4%
(percentages may not total 100 because of rounding)
Base: 48 technology decision-makers at Indian enterprises
‡Base: 867 technology decision-makers at North American enterprises
§Base: 510 technology decision-makers at European enterprises

Figure 1-3: In 2005, approximately what percent of your company’s overall IT spending will go to new investments?
India	34%
North America*	24%
Europe†	28%
Base: 43 technology decision-makers at Indian enterprises
*Base: 574 technology decision-makers at North American enterprises
†Base: 337 technology decision-makers at European enterprises
Source: Forrester’s Business Technographics® July 2005 Asia Pacific Enterprise Spending And Governance Survey
*†Source: Forrester’s Business Technographics November 2004 North American And European Benchmark Study

New IT investment is high

In addition to strong IT staff demand, new IT investment, a key measure of the value of IT spending, is also pointing towards a steep IT adoption curve for Indian firms. All things being equal, a company that spends less of its overall IT budget on ongoing IT operations and maintenance than the peer group average will have better business results than one that spends more—even if both companies spend the same proportion of their revenues on IT goods, services, and staffing. For this reason, leading CIOs have a goal of driving down the ratio of IT spending on ongoing IT operations and maintenance relative to revenues. See the May 24, 2005, Best Practices ‘US IT Spending Benchmarks For 2005.’

On an average, 34 percent of spending is earmarked for new IT initiatives that typically drive innovation and process refinement (see Figure 1-3). In many cases, Indian firms—predominantly in manufacturing—are investing heavily in IT for the first time, while many others—predominantly in finance and insurance—are seeing strong revenue growth, and applying this revenue to IT as well. The new IT investments that will be funded lean heavily in two directions—ERP implementation and infrastructure investment.

Servers, security and integration top an aggressive initiatives list

Indian organisations expect to make investments in security, integration, and servers during the next 12 months. Application integration, ERP implementation, and PCs also top their wish lists.

Security and application integration top list of priorities

When we asked organisations what their major themes for the next 12 months would be, the winners were significant security upgrades and application integration, with 80 and 78 percent citing them as priorities respectively (see Figure 2). Close behind were upgrading systems management and infrastructure consolidation. These priorities again point to a polarisation among Indian firms, as many are dealing with basic infrastructure and systems management, and others are dealing with more mature problems like security upgrades and replacing legacy systems.

Integration is the leading software initiative

During the next 12 months, 74 percent of respondents will be increasing spending on applications and labour to integrate systems and data (see Figure 3-1). ERP package software implementation will see the next highest spending increase, with 64 percent of firms increasing spend. Application software licenses and development spending increases are close behind with 62 percent of respondents. On an average, only 5 percent of firms are decreasing spending in each software category, and spending far outpaces North American and European firms.

Server hardware is the focus of infrastructure interest

Infrastructure spending will focus most heavily on server hardware and PCs and workstations during the next 12 months, with 83 and 77 percent of firms increasing spending respectively for each of these categories (see Figure 3-2). This far outpaces North American spend, where only 36 to 37 percent of firms will increase spending in each of these categories. The most notable difference, however, is the percentage of firms that will greatly increase spending. For server hardware, for example, 47 percent of Indian firms will spend much more, compared with only 6 percent of North American firms.

For more information, contact Forrester India Country Manager Sudin Apte on sapte@forrester.com or phone 020 25674390/91.