IT industry records the best performance in 4 years: IDC

BANGALORE: Domestic spending on IT products and services grew by 30 per cent in fiscal year 1999-00, reveal a study conducted by IDC India. Based on a series of regular research done all through the year, IDC has estimated that the domestic IT market in India stood at Rs 16,538 crore (approximately $3.9 billion) in 1999-2000. This represents the highest annual growth rate since 1995-96, an IDC release said.

This is the first time in five years that the annual growth has shown an increasing trend. The early nineties were particularly good for the industry as the annual growth rates showed continuous improvement year after year and reached a whopping 58.9 per cent in 1994-95. It was after 1996 that the continued political uncertainty and a virtual economic recession started taking its toll. During this period, although the IT sector continued to grow higher than most other sectors of the economy, the growth rates were under tremendous pressure, the IDC statement said.

The release noted that IT industry performed very well despite the fiscal year being a hard one for the economy in general. The year began with the Kargil crisis, which threatened to have a grave impact on the economy. This was followed by the Lok Sabha elections, which brought economic activity to a virtual standstill for almost a month. Nevertheless, the impact on the economy as a whole was minimal, the release said.

In the third quarter of the financial year, the Y2K issue kept some major purchase decisions on hold for some time. According to IDC, this, however, did not affect the IT market negatively as the decisions were only postponed, not scrapped altogether. However, the IT industry had to face a major crisis in the second half of the year when the availability of key components was severely affected. This resulted in price increase, but the overall demand was so strong from the market that the industry continued unabatedly on its growth path.

Continued buoyancy in the home market was perhaps the single largest driver for the IT market, particularly PC shipments and related peripherals. IDC estimated that PC shipments to the Home segment grew by over 88 per cent in unit terms. Shortage of components did affect the market for locally assembled PCs, but the overall demand from the home segment continued to be strong despite an increase in prices.

There was also an improvement in spending by large and medium businesses and the government segment, which kept the demand for servers and workstations flowing. The Internet boom also had a positive impact on the overall IT industry. While Internet access was an important purchase decision criterion for the home segment, investments by Internet Service Providers and other Internet companies to set up their infrastructure emerged as an important accelerator for domestic IT spending.

It was the hardware sector, which recorded the highest growth rate during the year. Consequently, the share of hardware in total IT spending jumped from 53 per cent in 1998-99 to over 56 per cent in 1999-00. This was a clear deviation from the past, when the share of hardware was on a decline due to rapidly falling prices.

Personal Computers drove the growth in the hardware sector. PC shipments crossed the one million mark for the first time, as 11.25 lakh units of Desktop PCs were shipped during the year. Shortages of components and a faster transition to higher generation processors were instrumental in restraining the average sales value of PCs from falling. As a result, the growth rate of Desktop PCs by value was slightly more than that by units; a trend very different from what has been observed in the past when declining prices kept the value growth under pressure.

Given the current buoyancy in the market, IDC expected the market to sustain this level of growth at least for a couple of years. This would make India one of the fastest growing IT markets in the world, if not the fastest, the release said.