India’s IT Exports to Reach $210 Billion by FY25, Capturing 18% of Global IT Outsourcing

Summary

India’s IT exports are expected to reach $210 billion in FY25, capturing 18% of the global IT outsourcing market, nearly doubling its share from 13% in FY16. Growth is projected to rebound to 6-7% in FY26, led by a recovery in the US market, despite challenges like weak European demand, slow GenAI adoption, and pressure from global capability centres.

While cloud investments continue to drive IT services, the impact of GenAI automation on low-to-medium complexity tasks could reduce overall IT spending by 4-5% in the next 3-4 years. The BFSI sector remains a concern but may improve as interest rates ease in 2025.

India’s IT exports are projected to hit $210 billion in the 2024-25 financial year, securing an 18% share of global IT outsourcing, as reported by HSBC Global Research. Over the past decade, India’s IT exports have nearly doubled, increasing their global market share from 13% in FY16 to the current 18%.

HSBC analysts Yogesh Aggarwal, Prateek Maheshwari, and Sagar Desai predict 6% to 7% growth in FY26, an improvement from the 3% to 4% seen in the past two years, driven largely by a recovery in the US market. However, weak European demand, uncertainty around GenAI adoption, and challenges from global capability centres (GCCs) could limit this growth.

Challenges and Trends

1. Slow IT Export Growth: Nasscom reported that India’s IT exports grew by only 3.3% in constant currency in FY24, significantly lower than the 11.4% growth seen the previous year, marking one of the industry’s weakest performances.
2. US vs Europe: The US market shows positive demand due to improving economic conditions in sectors like banking and retail. However, Europe is experiencing a decline, offsetting US gains. The top IT firms reported incremental revenue gains of only $1.5-2 billion in the last two years, compared to the historical average of $5 billion.
3. GenAI Adoption and Challenges: While GenAI projects have advanced beyond proof-of-concept (PoC) stages, revenue generation remains modest. Industry experts suggest GenAI adoption is slower due to concerns like data privacy, particularly in large global banks using cloud-based GenAI platforms.
4. BFSI Vertical: According to Mrinal Rai of ISG, the banking, financial services, and insurance (BFSI) sector faces slower deal ramp-ups and constrained discretionary spending. However, easing interest rates could improve the outlook for 2025.
5. Cloud Multiplier Effect: HSBC highlights the threefold cloud-to-IT services multiplier, where $1 spent on cloud services generates $3 in downstream IT services, critical for Indian IT firms.
6. GenAI Impact on Traditional IT: The growing automation capabilities of GenAI pose a challenge, especially for low-to-medium complexity coding tasks. HSBC estimates that 20% to 25% of IT services work could see a 20% to 30% cost reduction, leading to a 4% to 5% potential decline in IT services spending over the next 3-4 years.

Outlook

While India’s IT exports are set for steady growth, the evolving GenAI landscape, European market challenges, and GCC competition pose risks. The US recovery and advancements in cloud technology will remain key drivers for India’s IT sector going forward.