Cash & Liquidity ManagementInvestment & FundingEconomyIndia’s Q2 GDP falls but tech sector thrives

India’s Q2 GDP falls but tech sector thrives

India's gross domestic product (GDP) growth failed to meet expectations in Q2 as it slumped to 5.7%. However, India's IT industry is thriving. It contributes roughly 10% to the country's GDP and makes up about 25% of exports.

India’s gross domestic product (GDP) growth failed to meet expectation as it slumped to 5.7% during Q2 this year, government data reported yesterday. This compares to Q1 growth figures of 6.1% this year and 7.9% for Q2 last year.

Many analysts expected GDP figures to rise following the government’s crackdown on black market cash in 2016. The World Bank predicted that India’s growth rate to recover throughout 2017 and gradually increase to 7.7% in 2019-2020.

Breaking growth down by industry, manufacturing saw the biggest growth slow down expanding at just 1.2%, compared to 10.7% the year before. Growth in the financial services, insurance, real estate and professional services sectors also fell from 9.4% to 6.4%.

Indian IT – an economic beacon

Despite the growth slow down, India is still the fastest-growing large economy in the world, with its $150bn information technology (IT) industry heralded as a beacon of the economy.

India is building a global presence in areas such as artificial intelligence (AI), big data, robotics, cloud and the internet of things (IoT).

Digital modernisation in the West is increasingly being supported by business process outsourcing (BPO) companies, with many innovations in UK companies being driven by Indian expertise.

Bhupender Singh, CEO of Intelenet Global Services, says: “70 years of independence has seen India transform into a global powerhouse. Indian technology innovation now positively impacts companies around the globe, and in particular, the UK and US are growing as recipients of Indian IT outsourcing investment.

“Nearly all Western companies are on the journey towards digital transformation, but going digital is much easier said than done,” he adds.

India’s technology outsourcers have moved on from simply delivering routine tasks. Often, clients expect outsourcers to know their business and the opportunities for innovation better than they do, comments Singh.

“India has become a powerhouse of digital transformation, with it currently being the world’s largest global sourcing destination. The IT sector contributes around 10% to the gross domestic product and nearly 25% of the country’s exports. The UK and US are facing a shortage of skilled tech workers, and so access to India’s highly skilled talent pool is essential,” Singh adds.

A thriving ecosystem

India’s success in tech is partly due to the nation being home to one of the world’s most active start-up ecosystems, with equity deal activity increasing for the fourth consecutive year in 2016, according to data, analytics and technology trend spotting firm CB Insights.

Deal activity is particularly concentrated with 79% of deals being won by start-ups based in Bengaluru, Delhi, and Mumbai over the last five years.

Bengaluru is also home to India’s most well-funded start-up, e-commerce site Flipkart, which has raised $7.2bn in funding since 2011.

Flipkart’s most recent funding stream was a second tranche of Series J funding in August, when it raised $2.5bn from SoftBank Group, according to CB Insights.

It’s no surprise that start-ups in India are attracting increasing international investor attention, with deal activity in the country hitting a record 965 deals in 2016, CB Insights figures show.

While most of the top ten most active investors are Indian, the list also includes New York-based Tiger Global Management and Hong Kong’s SAIF Partners.

US investors have seen 800 disclosed equity deals to Indian start-ups since 2012 — more than four times the number of deals by investors from Singapore, the second most active foreign investor into the Indian ecosystem, CB Insights found.

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