Indian IT Sector to Grow at Mid-Single Digit Rate in FY25: Says ICRA Report

The Indian IT services industry is expected to record mid-single-digit revenue growth in the financial year 2024-2025 (FY25), marking a slight improvement from the 3.8% growth logged in FY24, according to a report by ICRA. The sector is anticipated to grow between 4% and 6%, highlighting a gradual recovery in demand.

Growth Outlook for FY25 and Beyond

ICRA and UnearthInsights Projections

ICRA’s growth estimates align with the forecast provided by UnearthInsights, a market intelligence firm. According to the firm, the IT industry is expected to grow by 5-6% in FY25, crossing a significant milestone of $265 billion in revenue. Additionally, the sector is projected to achieve a compound annual growth rate (CAGR) of 7-8% through 2030, signifying steady long-term growth.

Generative AI’s Role

Despite the buzz around Generative Artificial Intelligence (GenAI), its contribution to the sector’s revenue remains modest.

• Revenue Per Project: GenAI projects generate approximately $5 million to $10 million.

• Adoption Levels: Only one-third of Fortune 2000 firms have modernized their ERP platforms, with less than 10% having mature data systems to fully utilize GenAI’s potential.

Impact on Hiring Trends

The hiring outlook for the Indian IT sector remains subdued in the near term due to slow demand recovery and policy uncertainties.

Key Trends in Hiring

• Delayed Uptick: “Hiring is likely to pick up materially only by the end of H1 FY26,” as per the ICRA report.

• FY25 Workforce Projections: The sector's total headcount is expected to increase to 5.6 million, up from 5.4 million in FY24. Gross hiring in FY25 is estimated at 0.8 million professionals, with an average attrition rate of 12-14%.

• Drivers of Hiring: Demand from Global Capacity Centres (GCCs) is fueling recruitment, as their numbers have grown to 1,780 in India, contributing $75 billion in revenue and employing 2 million professionals in FY25.

Historical Context

Hiring in the IT industry had peaked during FY22 and H1 FY23 due to robust demand for digital transformation and efforts to address high attrition rates. However, the subsequent moderation in demand and better utilization of excess capacity added during FY22-FY23 has led to lower hiring activity through FY24 and Q1 FY25.

Challenges and External Factors

US Policy Uncertainty

The formation of a new government in the US could introduce policy changes, which may temporarily affect IT services demand and hiring patterns. ICRA suggests monitoring these developments closely for their impact on the sector.

Sector’s Dependence on GCCs

Global Capacity Centres (GCCs) have become a critical growth driver for the Indian IT sector, contributing significantly to revenue and employment. Their rapid expansion underscores the growing reliance on India as a global tech hub.

Conclusion: Indian IT Sector on the Path to Recovery

The Indian IT services industry shows signs of recovery with expected revenue growth of 4-6% in FY25. While hiring activity remains subdued in the short term, long-term growth projections of 7-8% CAGR till 2030 indicate a promising future for the sector. Factors such as the adoption of generative AI, the expansion of GCCs, and global economic trends will play pivotal roles in shaping the industry’s trajectory.

About ICRA

ICRA: A Leading Credit Rating Agency in India  

ICRA, or Investment Information and Credit Rating Agency of India Limited, is a renowned credit rating agency in India. Established in 1991, ICRA provides independent and professional investment information and credit rating services.  

Key Roles and Functions of ICRA:

• Credit Rating: ICRA assigns credit ratings to various debt instruments issued by corporations, financial institutions, and government entities. These ratings assess the creditworthiness of the issuer and the risk associated with investing in their debt securities.  

• Research and Analysis: ICRA conducts in-depth research and analysis of various sectors and industries, providing insights into economic trends, corporate performance, and industry risks.  
• Financial Advisory Services: ICRA offers a range of financial advisory services, including mergers and acquisitions, restructuring, and valuation services.  
• ESG Ratings: ICRA assesses the Environmental, Social, and Governance (ESG) performance of companies, helping investors make informed decisions.  

ICRA's ratings and analysis are widely used by investors, lenders, and regulators to make informed investment decisions. By providing reliable and objective assessments, ICRA plays a crucial role in promoting transparency and accountability in the financial markets.