On the occasion of me participating in a panel discussion, there is an update on the state of affairs of the Indian economy – with a focus on the IT industry.

This panel discussion is part of a symposium on “Incredible India”. The question of the panel discussion: “Where does India stand economically today?” – Other panellists are Chaitanya Divekar, Partner at Divekar Wallstabe & Schneider Ltd., India, also Martin Wörlein, Partner Rödl & Partner, New Delhi and finally Peter Born (invited), Chief Representative Officer Commerzbank, Mumbai.

More information about the event can be found HERE

The Indian IT Economy

First of all, let’s take a look at the Indian IT economy. Basically, the growth momentum continues: The total revenue of the IT BPM industry (excluding e-commerce) exceeded the USD 200 bn mark and reached USD 227 bn. Export revenue from this industry (excluding e-commerce) was estimated at nearly USD 178 bn in fiscal 2022. These figures represent a total share of more than 50% of the global outsourcing market. In addition, more than 45 new data centers are planned to be built in the next few years until 2025.

With five million direct jobs, the IT sector is the largest private employer in India; if indirect jobs are also included, the number of jobs is around 12 million. Of course, the providers of IT outsourcing include the domestic big players such as Infosys, TCS or WIPRO. However, it is also true that the Indian model has been largely adopted by global consulting firms such as Accenture, IBM, Deloitte and EY. These Western players operate huge facilities in India. At the beginning of 2020, there were more than 1,400 IT development centers of major Western players in India (about 70% owned by large American companies) with a total of more than 1 million employees (source: Ken, Indian news website.

Let’s compare these figures with those in Germany; overall, the figures don’t refer to the same year, however, the order of magnitude becomes clear: The ICT export figures, which include software and IT hardware in addition to IT services, were 37.4 billion in Germany in 2017. The total value contribution of the software industry was 152.6 billion euros (5.2 percent of GDP) and direct value added was 62.3 billion euros (2.1 percent of GDP). With approximately 645,000 direct jobs (1.5 percent of all jobs in Germany) and 1.9 million indirect jobs (4.5 percent of all jobs in Germany), the percentage of direct jobs is slightly above the European average. (Source: Fraunhofer Study, 2021).

What’s interesting is that many Indian employees are now directly employed at the parent company in Germany. Many of them came to Germany with a Blue Card. According to the Federal Statistical Office (Destatis), around 70,000 Blue Card holders were registered in the Central Register of Foreigners at the end of 2021. By far the largest number of them came from India (28 per cent or 19,900 people).

India’s economy in general

India’s economy ranks fifth in the world in terms of nominal gross domestic income with about USD 3,390 bn (for comparison: Germany: USD 4,086 bn). GDP by purchasing power parity is 3.5 times higher, at USD 11,900 bn (Germany: USD 5,370 bn) – and thus in third place worldwide, after the United States and the People’s Republic of China.

Nominal GDP per capita is USD 2,390 (Germany: USD 48,760; China: USD 11,200), while GDP by purchasing power parity per capita is USD 8,400 (Germany: USD 64,090).

In view of Europe’s de-risk strategy vis-à-vis China and the loss of Russia as a trading partner, India is currently being hyped as a trading partner. And this is also reflected, for example, in a comparatively stable development of direct investment (with a recognizable positive trend):

However, despite great economic successes over the past 20 years, India is often seen as an unfulfilled promise from an economic point of view. There are two main reasons for this. On the one hand, economic dynamism was rather low for many decades, so that even the high growth rates of recent times could not quickly compensate for the low starting level (see the figures on GDP per capita above). On the other hand, India has never opened up its markets as radically as one would have liked from the point of view of developed countries, such as those in Europe.

It is worth taking a fresh look at India, for this I refer to various sources, but above all to the Wirtschaftsdienst (“Wirtschaftsdienst” is a monthly German journal for economic policy.). Let’s start with the strengths, advantages.

  • India in particular has a favourable age structure of its population – also in comparison with China.
  • India trains 500,000 computer scientists, technicians and engineers every year, according to long-time Spiegel editor Olaf Ihlau. Every year, 250,000 new engineers enter the labour market. The downside here is that only a quarter of them meet the expectations of Western companies. However, this has not detracted from the steady growth of the IT industry, but it is true that there has been a great deal of investment in training and on-the-job learning.
  • The “know-how” of foreign companies is much more respected in India than in China, where foreign investors have to fear that new technologies will be quickly copied.
  • Now to the challenges.

  • According to a study by the World Bank (“Doing Business”), the biggest challenges to the growth and investment of the Indian economy are the inadequate infrastructure, interventions and requirements of the state bureaucracy and widespread corruption. In addition, there are labour market regulations, which in some areas of the economy, for example, make it very difficult to lay off workers who are necessary for operational reasons.
  • The size of the Indian market is at best one-fifth of that of China. If only because of the huge difference in income, India cannot offer a direct substitute for the Chinese market. (see the comparison of GDP per capita India vs China above). This is also indicated by the fact that a large proportion of the population is dependent on state-subsidized food for their diet.
  • These above challenges are reflected in the industrial sector: the Modi government planned to increase the share of the industrial sector to 25% of GDP. According to the World Bank, however, the share stagnated between 2014 and 2018 at 15.1% and only 14.8%, respectively. As a result of the sharply shrinking economy during the corona pandemic, according to some sources, the industrial sector had 51 million employees in 2016/2017 and only 27.3 million in the period 2020/2021. An indication of improvement is provided by a recent prominent example, namely Apple’s investments. Its suppliers have expanded their production in India and apparently also reduced the quality gap compared to production in China.
  • According to the European understanding, democracy is weakening. Due to the growing restrictions on freedom of expression and freedom of the press, India is therefore increasingly being described as an illiberal democracy.
  • An additional obstacle is the low and non-increasing expenditure on research and development. In 1998, India spent 0.70% of GDP on it, at its interim peak in 2008 it was 0.86%, but in 2018 (the most recent data point available at the World Bank) it was only 0.66%. In contrast, the figures for China in the same years are 0.65%, 1.45% and 2.14%, for Germany it is 2.22%, 2.62% and 3.11%.
  • The openness of the Indian economy is another key issue for economic development. Historically, India opened up comparatively late, namely only in 1991 (China: late 1970s). India’s hesitant attitude towards globalisation was also reflected in the new economic policy “Atmanirbhar Bharat” propagated by Prime Minister Modi in 2020 during the Corona pandemic, which aims to strengthen Indian industry and achieve greater economic independence overall. Nevertheless, the Indian government concluded new free trade agreements in 2022; including with the United Arab Emirates; it is negotiating further agreements, e.g. with Australia, the UK and the EU. Experts do not expect negotiations with the EU to be concluded before 2024, although an “early harvest” agreement is unlikely.

    Another note on the structure of the Indian economy: Germany has an economic structure that is known to be dominated by small and medium-sized enterprises; More than 99 percent of all companies in Germany are small and medium-sized enterprises (SMEs), which create more than half of all jobs. This structure is by no means typical of economies; in the USA, for example, large companies play a much larger role, with 20 companies alone (sic!) generating a quarter of the country’s total corporate profits.

    This concentration of economic relevance in the hands of a few large companies is even more pronounced in India. According to a study by Marcellus Investment Managers, a Mumbai-based firm, a few companies accounted for nearly 70% of the total revenue of the Indian economy last year, up from 14% three decades ago. A striking example is Reliance Industries: With a net profit of 5.2 billion US dollars in 2019, the company was the most profitable company in India – and contributed 13% (sic!) to the country’s corporate profits. At its core, the conglomerate includes refineries as well as mobile network operator Jio. Every year since 1992, the company has been ranked in the TOP 20 companies with the highest profits.

    Last but not least, a look at a start-up industry that is gaining in importance: In The Economist of April 4, 2020, I was astonished to read that among the TOP10 unicorns worldwide there is even an Indian company (“One97 Communication”, Fintech), but not a single European company (otherwise: 4x China, 4x USA, 1x Singapore). India currently has about 80,000 startups, and about 10 billion US dollars were invested in 2019 (compared to 3.1 billion US dollars in 2012). The best-known start-ups are Ola (competitor to UBER), Swiggy and Zomato (food delivery services), BigBasket (online supermarkets), Zoomcar (car rental), Byju’s (education) or HighRadius. There are also challenges in the start-up market (RedTape Bureaucracy, Cash Burn in the face of BlitzScaling strategies, tax challenges for investors). But the start-up market is changing the Indian IT landscape.

    Der German economic newspaper Handelsblatt summed up at the end of 2021: “With a total number of around 70 unicorns, India is only behind the USA and China, which each have several hundred unicorns. By comparison, market researcher CB Insights comes up with only 19 German unicorns.”


    The author is a manager in the software industry with international expertise: Authorized officer at one of the large consulting firms - Responsible for setting up an IT development center at the Bangalore offshore location - Director M&A at a software company in Berlin.