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Issue of June 2003 
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Return to good times?

After a year of decline, IT spend likely to increase by 5 percent in 2003-04

Around the world, enterprise IT spend has been on the decline. The economic downturn coupled with inconsiderate or unplanned spending on IT in the last decade, has contributed to all this.

So what is the scenario in India? As per last year's survey (IS 2002—June issue of Network Magazine), CIOs had committed to spend an average of Rs 554 Lakh on IT-related investments. This spending was more or less equal to what they had spent in the previous year (2001-2002).

So, did Indian enterprises spend that amount? As per this year's survey, the average amount spent on IT was only Rs 468 Lakh. This implies there has indeed been a decline in IT spending. CIOs did not fully utilize the amount they had budgeted for IT related projects.

The largest spenders in 2002-03 were BFSI, Telecom/ IT/ITES, and Govt./PSU. The average amounts spent were Rs 1109 Lakh, Rs 954 Lakh, and Rs 649 Lakh respectively. All other industry verticals show modest spends.

Technology is a key component for BFSI and Telecom/IT/ITES verticals. This explains why spending on IT is high in these sectors. Also, nationalized banks have been spending substantial amounts on computerization. PSUs have traditionally been big spenders, given the need to link distant locations. And with various state governments and quasi-government institutions pushing initiatives like e-governance, technology has been of high-priority here too.

So, which were the technology verticals that received a maximum chunk of the shrunken IT budget? 68 percent CIOs said they invested in Bandwidth/connectivity last year. 64 percent in Enterprise hardware procurement, and 48 percent in Enterprise packaged software. Security comes fourth with 47 percent having invested in this area.

More or less?
We were keen to find out the number of CIOs who had spent more than the amount budgeted. Nearly 60 percent said they had spent the exact amount budgeted for IT in 2002-03. 20 percent said they had spent less, while only 15 percent claimed to have spent more than the amount budgeted.

A majority of those who had spent less than the amount budgeted are from large-sized companies (turnover exceeding Rs 500 crore). Nearly 22 percent large-sized companies spend less on IT. The reason behind this is obvious: Most of the large-sized companies already have sizable investments in IT when it comes to automating back-end and front-end processes. In this particular case, the reasoning was to build a buffer within the IT budget, to provision for any last-minute or unforeseen procurement/maintenance costs that may arise.

Even in the case of leading IT spenders like BFSI, Telecom/ IT/ITES, Govt./PSUs, more than one-fifth of companies have spent less than the amount budgeted, indicating a slowdown in IT spending.

On the rise again
The IT spend in 2003-04 is on the rise again, albeit slowly. This year companies plan to spend on an average Rs 493 Lakh, indicating a 5 percent increase in IT spending. The major spenders are again the BFSI, Telecom/ IT/ITES, and Govt./ PSU verticals.

The BFSI vertical is registering significant spends; their average budget has climbed from Rs 1109 Lakh in 2002-03, to Rs 1310 Lakh in 2003-04.

In Telecom/IT/ITES and Govt./PSU, both major spenders last year, the allotted budget is same when compared with last year. In almost all other verticals, companies are registering a small increase in the budget allotted for IT.

In terms of turnover, IT spending in medium-sized companies is expected to grow by 20 percent, while in large organizations the IT budget may actually shrink by 11 percent.

What technology?
This brings us to our next question: Which technologies are companies investing in? The top areas of IT spend, in terms of technologies, are: Bandwidth/connectivity (57 percent plan to invest), Enterprise hardware (55 percent), Storage (46 percent), and Security (46 percent). Both Storage and Security are clearly gaining prominence in the BFSI sector where information security and availability is critical.

IS 2003 objectives
  • Analyze IT spends across technology and industry verticals
  • Understand the IT-decision making cycle
  • Understand whether IT is aligned with the business objectives
  • Find out the financial matrices, if any, used by corporate India for IT investment
Research Snapshots
  • Overall IT spending in 2002-03 was Rs 468 Lakh indicating a fall in spending over 2001-02.
  • The IT spends in BFSI, Telecom/IT/ITES, and Government/PSUs sectors are significantly higher than the average IT spend. BFSI leads the lot.
  • One-fifth of the respondents mentioned that the actual amount spent was less than the amount budgeted in 2002-03.
  • The IT budget for 2003-04 at an overall level is Rs 493 Lakh indicating a marginal (5 percent) increase in IT spending.
  • While spending by BFSI, Services, and Healthcare are expected to increase, other sectors like FMCG/Consumer Durables, Telecom/IT/ITES will show a marginal decrease.
  • IT spending in medium-sized companies is expected to increase by 20 percent, while it is expected to shrink by 11 percent in large organizations.

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