Rising inflation and currency devaluations made technology investments costlier
According to the latest data released by IDC’s Worldwide Black Book: Live Edition, IT spending by Indian enterprises and service providers is projected to grow 7.8 per cent in 2023, albeit more slowly than in 2022. Consumer IT spending (dominated by consumer purchases of devices such as mobiles, tablets, PCs, wearables, and peripherals) saw a drastic decline in Q4 2022 and turned cautious due to rising prices, pulling the growth to 2.1 per cent in 2023. Overall, Indian IT spending (which includes spending by enterprises, service providers, and consumers) is projected to grow by 4.7 per cent in 2023 to USD 86.7 billion in constant currency, lower than the 5.8 per cent growth IDC reported for 2023 in its October press release. Enterprises’ immediate concerns impacting IT budgets are inflation-driven price increases, staffing shortages, IT supply chain constraints – especially on the networking side, and the impact of the weakening global economy on expected business revenues.
Reserve Bank of India forecasted moderated GDP growth in 2023 due to the expected global economic slowdown and persistently elevated oil prices, with recovery expected in 2024. However, India’s GDP remains higher than some peer economies, owing to the importance of a large domestic consumer base and less reliance on global demand.
“Rising inflation and currency devaluations made technology investments costlier. Enterprises focused on immediate needs by either stretching or prioritizing budgets. But with worries around weakening global macroeconomic situation, spending growth has moderated,” says Vinay Gupta, Research Director, IT Spending Guides, IDC Asia/Pacific. “Enterprises still face challenges impacting their business and will look at consumption-based models to drive their focus on transformation,” he added.
With investments by enterprises and service providers, infrastructure spending (dominated by server, storage, and networking equipment) had a banner year in 2022. However, with a moderating economic outlook, spending growth will slow in 2023. Enterprises aim to drive efficiencies, optimize cost using automation tools and prioritize as-a-service consumption model for infrastructure purchases avoiding significant CAPEX investments.
Domestic IT Services spending is projected to grow 8.7 per cent in 2023, driven by enterprises’ need to increase customer engagement and satisfaction, launch new products/services, and improve operational efficiency to drive revenue growth and profitability. Enterprises’ increasing adoption of cloud and co-location services drives the managed services market. The managed services market hence resists immediate impact from adverse economic scenarios. Project-oriented services are guided by the need for system integration and IT consulting services but are susceptible to declines in business confidence.
Software spending is projected to grow 15 per cent in 2023, driven by higher adoption of cloud-based solutions. Automation-related platforms and tools, security, workplace solutions (collaboration, content management, virtual meeting, unified communications), data and analytics initiatives/projects, infrastructure, and IT operation optimization initiatives are still focused areas for enterprises despite the moderating economic growth.
Due to high inflation, dwindling retail consumer demand impacted sales of mobiles, PC, notebooks, hardcopy peripherals, and tablets affecting consumer IT spending. Mobile phones constitute the lion’s share by value of consumer technology spending in India. Mobile phone shipments declined in 4Q2022, and 2022 had the lowest shipments since 2019. Expectations are that concerns around rising prices and higher inventory in the channel will persist until the first half of 2023, with an elongated recovery after that. The sale of traditional PCs (including desktops, notebooks, and workstations) grew marginally by shipment in 2022, with similar challenges and expected recovery in 2023 as that of mobile phones.