Overview

Contributing over 13 percent to India’s GDP, the ICT sector and the Digital Economy are major economic drivers for the country.  India aims to grow the ICT sector to $1 trillion by 2025, or 20 percent of GDP.  According to the National Association of Software and Services Companies (NASSCOM), India’s technology industry recorded its highest-ever rate of growth by reaching $227 billion revenue in 2021, from $200 billion in 2020.  All subsectors of the technology industry, including IT and business process management, IT-enabled services, engineering research and development, hardware, software products, and e-commerce recorded double digit growth in 2021.  India imported over $2.4 billion in computer and electronic equipment (NAICS code 334) from the United States in 2021.  According to Gartner, IT spending in India will increase by 7 percent to $101.8 billion in 2022. 

The major ICT centers in India are Bengaluru (also known as the Silicon Valley of India), Hyderabad, Chennai, New Delhi, Gurugram, Mumbai, and Pune.  India has a well-organized distribution system and several established, global ICT distributors.  ICT companies can sell their products directly and through local partners, including system integrators and value-added resellers. 

While the COVID-19 pandemic has impacted India’s digital transformation, companies are realigning their IT strategies, managing operational costs, automating processes, and implementing new systems to improve efficiency.  These efforts are being realized with the help of emerging technologies such as robotic process automation, big data, artificial intelligence, machine learning, blockchain, cloud computing, quantum computing, the Internet of Things, cybersecurity, and augmented / virtual reality.

The Indian telecommunications sector is the second largest in the world, with 1.2 billion subscribers.  India’s mobile economy has been driven by widespread adoption, with wireless subscriptions representing 98 percent of telephone use.  According to Deloitte, India is expected to reach 1 billion smartphones by 2026, from 750 million currently.  India has also emerged as the second largest manufacturer of mobile handsets in the world.  India also has 788 million broadband subscribers.  India scored 49.74/100 in the Portulans Institute’s Network Readiness Index, improving its ranking from 88 in 2020 to 67 in 2021 out of 130 countries surveyed. 

To advance India’s 5G telecom infrastructure, in May 2021, the Department of Telecommunications allowed Indian telecom operators (Reliance Jio, Bharti Airtel, Vodafone Idea, and MTNL) to commence 5G trials.   Noncommercial 5G trials were conducted with allocated spectrum in the mid-band (3.2 GHz-3.67 GHz), mmWave band (24.25 GHz-28.5 GHz) and the sub-1 GHz band (700 MHz), as well as in the operators’ existing spectrum.  The Indian government is now gearing up for the country’s 5G spectrum auction.  India’s Union Cabinet approved a Department of Telecommunications proposal to conduct the auction in 2022, through which spectrum will be assigned to the successful bidders.  A total of 72097.85 MHz of spectrum with a validity period of 20 years will be included in the auction, and it will encompass all available spectrum in 600 MHz, 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz, 2500 MHz, 3300 MHz, and 26 GHz bands.  Spectrum allotted through the auction can be used for 5G (IMT-2020) or any other technology within the scope of the Access Service License. 

Policy and Regulatory Environment

India has a complex and often challenging regulatory environment.  New regulations and industry promotion schemes are announced frequently at the national level.  India recently announced new bills and guidelines impacting data protection, privacy, cross-border data flows, and data localization.  In 2018, the Indian government introduced the National Digital Communication Policy, and in 2019 it launched the National Policy on Electronics and the National Policy on Software Products.  This was followed in 2021 with the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules and the Non-Personal Data Governance Framework.  Still in draft are the National Data Governance Framework Policy, the National Cyber Security Strategy, and the National E-Commerce Policy. 

India may create a completely new Data Protection Bill after debating and consulting with stakeholders on the draft Personal Data Protection Bill 2019.  The 2019 Bill was reviewed by a Joint Committee of Parliament, which in November 2021 submitted its final recommendations and a revised draft bill.  In June 2021, the Bureau of Indian Standards published India’s data privacy standards.   

Customs duties and tax regimes are also important factors in the Indian market, and U.S. companies should consider consulting experts regarding tax issues, data localization, and broader compliance requirements in India.  Over the past eight years, India has applied customs duties ranging from 2.5 to 20 percent on imported ICT goods.  In March 2021, India instituted a digital tax, known as the Equalization Levy (digital services tax) at the rate of two percent of the amount of consideration received or receivable by an e-commerce operator from its supply of goods or services.  The levy became effective in April 2020, and India will transition from the existing Equalization Levy to a new international tax framework by March 2024.  In October 2021, India and the United States joined 134 other countries on a two-pillar agreement crafted by the OECD to address tax challenges arising from the digitalization of the global economy. 

In December 2020, the Indian government crafted a National Security Directive on the Telecommunications Sector to maintain supply chain security and avoid unsecure equipment in the country’s telecom network.  Per this directive, the Indian government declared a “Trusted Source/Trusted Product” list for Telecom Service Providers (TSPs).  In June 2021, the Indian government launched a portal for the registration and submission of required documentation by TSPs and their vendors.  U.S. telecom equipment and product suppliers must contact TSPs for supply and approval from the government on this portal to sell their products and services in India.  

Source: Gartner (November 2021)

Note:  Total Spending refers to capital expenditure (procurement + investment)

Leading Subsectors

Digital Transformation:  According to the 2022 NASSCOM Tech CEO Survey, over 70 percent of Indian CXOs believe that 2023 is poised to be another banner year for the industry amidst growth in technology spending and the broader economy.  The industry has set itself an ambitious target of $350 billion in revenue by 2026, growing at a rate of 11 to 14 percent.  Major drivers of this growth include digitalization and the modernization of services.  The banking, financial services, and insurance, manufacturing, retail, consumer packaged goods, media, and entertainment industries are all adopting digital innovations to transform their business models.  Enterprises are adopting new tools and technologies such as chatbots, natural language processing, robotic process automation, cognitive analytics, security operations centers, Internet of Things, 3D printing, data analytics, cloud computing, artificial intelligence, connected vehicles, blockchain, and augmented/virtual reality to improve services and experiences for their customers.

E-Commerce

India’s e-commerce market is one of the fastest growing in the world, and according to NASSCOM, it is expected to reach $100 billion by 2025.  Amidst the COVID-19 pandemic, the e-commerce sector recorded a growth rate of 39 percent, reaching $79 billion in 2021.  This included hyperlocal delivery, digital education services, food delivery, digital health services, digital media and entertainment, and online payments.  India has emerged as a preferred destination for e-commerce due to its large consumer base, diverse demographics, low-cost digital infrastructure and services, and supply chain ecosystem. 

Cybersecurity

With a score of 97.5/100, India ranked as the tenth best country in the world in the International Telecommunication Union’s Global Cybersecurity Index 2020.  India’s total enterprise information security and risk management spending increased by 10 percent from $1.9 billion in 2020 to $2.08 billion in 2021, according to the Data Security Council of India.  Revenues in India’s cybersecurity services and products industry have grown 40 percent annually to $9.85 billion in 2021 as the country’s digital economy and critical infrastructure sectors continue to expand.  The Data Security Council of India predicts industry revenues will touch $15.4 billion by 2023.  Leading industry sectors driving cybersecurity growth are banking, healthcare, insurance, capital markets, and critical information infrastructure such as energy, oil and gas, defense, transportation, and telecommunications.

FinTech and Digital Finance

India is one of the world’s fastest-growing financial technologies markets.  Digital payments are the primary driver of growth in this sector, followed by digital lending and other tech-enabled financial services.  According to Invest India, the Indian FinTech market is currently valued at $31 billion and is expected to grow to $150 billion by 2025.  FinTech transactions are poised to reach $138 billion in 2023, more than double the $66 billion in transactions that occurred in 2019.  As India’s central bank and regulator of payment systems, the Reserve Bank of India has taken measures contributing to the evolution of the FinTech ecosystem in India, recognizing its importance to the growth of the Indian economy.  

Opportunities

In December 2019, the Indian government rolled out the National Broadband Mission to enhance digital communication infrastructure with an investment of $100 billion, including $35 billion for telecom towers, $30 billion for optical fiber infrastructure, and $35 billion for spectrum and research and development.  India plans to use optical fiber infrastructure for the rollout of 5G services, which offers opportunities for U.S. companies to supply optical fiber cable, 4G/5G radio equipment, radio frequency frontends and antenna sub-systems, small and large 5G cells, wireline and radio access network solutions, and transmission links.

As part of the National Policy on Electronics 2019, the Indian government launched several schemes for the promotion of electronics manufacturing under its “Make in India” strategy.  With an investment commitment of $30 billion, India aspires to become a global hub for Electronics System Design and Manufacturing as the country’s demand for electronics hardware is expected to reach $400 billion by 2025.  The Indian government allocated $7 billion in incentives for electronics manufacturing, $10 billion for a semiconductor and display ecosystem, and $13 billion for allied sectors, including advanced chemistry cells, auto components, telecoms and networking, and solar modules.  India’s production of electronics grew from $29 billion in 2014 to $75.7 billion in 2020 and is projected to reach $300 billion by 2025.  Revenue from the sale of mobile handsets is expected to triple in 2025 over 2020 levels.  The government wants suppliers to provide affordable 5G handsets and mobile devices to further its Digital India initiative, presenting an opportunity for U.S. exporters to supply electronic components, semiconductor/display fabrication units, assembly/test/marking/packaging units, specialized subassemblies, and capital goods.

In November 2020, India launched a draft data center policy and aspires to become a global hub for the data center industry with investment of $4.9 billion by 2025.  India’s leading companies have announced plans to set up data centers, though many U.S. cloud service providers already serve Indian enterprises.  Indian businesses are rapidly digitizing their operations and adopting cloud services to minimize costs.  This opens the door for U.S. companies to supply data center hardware, computing resources, data storage systems, network infrastructure equipment, and submarine cable networks. 

For more information, contact Commercial Specialist Sudhir Kesharwani.