Bullish on India: Why bankers and economists swear by India’s IT sector

Many banks, like the State Bank of India, Axis Bank, and HDFC Bank, are already using AI-generated tools to enhance their services.

India’s information and technology (IT) sector, majorly aided by innovations and funding in artificial intelligence (AI), production and services segments, is poised to grow significantly, bankers and economists said.

Experts highlighted that the aspirations of a growing India and Indians have seen a significant change and this has directly fuelled the growth in the IT sector.

“One of the fastest-growing segments in the last 10-15 years is data and IT. We have seen the advancement in people from using telephones to mobile phones,” said KV Kamath, veteran banker and chairman, NaBFID (National Bank for Financing Infrastructure and Development)

Similarly, Sakshi Gupta, Principal Economist, HDFC Bank, said that India’s growth story in the IT sector is exciting.

“India has seen massive growth in artificial intelligence and the IT industry. Professional services and consultancy are areas where India is the leader,” Gupta said.

Nasscom, an IT industry body, had said that India’s IT exports grew faster than the Indian economy in FY2022-23, despite subdued sentiment and longer decision-making cycles leading to pronounced cost-optimisation measures.

“India’s export revenue in the sector is to rise by 11.4 percent in constant currency terms to Rs 19,400 crore ($194 billion). In reported terms, it grew 9.4 percent, and, overall, India’s tech industry touched Rs 24,500 crore ($245 billion) in FY23, with an incremental revenue addition of Rs 1,900 crore ($19 billion),” the industry body said in a report in June 2022.

The International Monetary Fund (IMF) has raised its GDP growth forecast for India for 2023-24 to 6.1 percent from 5.9 percent due to the blowout growth number for January-March.

"Growth in India is projected at 6.1 percent in 2023, a 0.2 percentage point upward revision compared with the April projection, reflecting momentum from stronger-than-expected growth in the fourth quarter of 2022 (financial year 2022-23) as a result of stronger domestic investment," the multilateral agency said on July 25 in an update to its World Economic Outlook (WEO) report.

Kamath highlighted that the IT industry has seen changing aspirations from people, and this will further grow ahead.

Similarly, a chief executive officer (CEO) of a bank, speaking on condition of anonymity, said that the biggest change in the last few years in the IT sector is seen in the use of digital payments.

“The one thing which could be highlighted here in IT is digital payments,” the CEO said.

The latest development is the Reserve Bank of India (RBI)’s announcement on August 10 that it will consider conversational payments on the Unified Payments Interface (UPI) through AI.

“Conversational payments on UPI will enable users to engage in conversation with AI systems to make payments,” RBI Governor Das said at the August 10 MPC deliberations. It proposed this measure with the objective to harvest new technology enhancements for users, he added.

Many banks, like the State Bank of India, Axis Bank and HDFC Bank, are already using AI-generated tools to enhance their services.

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Challenges and overall growth

The funding winter in late 2022 and early 2023 affected the IT industry. A Moneycontrol report in January 2023 (give link) highlighted that funding to Indian startups plunged to about a fifth in the first five months of 2023, compared to the same period last year.

Kamath said that the challenges in India are mainly in the areas of entrepreneurial environment, financial and other credit constraints and the opportunities to invest.

“But in the last few years, these are the things where India has a stronghold,” Kamath said.

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Overall, Gupta of HDFC Bank said that major global economies, like the US and the European Union (EU), will see marginal and slower growth, compared to India.

“The US economy is looking at a soft landing and slowdown. And things are tight in the EU due to major economies facing several issues. Here, India is clearly looking at growing better than other countries,” Gupta said.