Tech SMEs to contribute 7-9% of industry in FY23: Nasscom

A recently released report by IT industry body Nasscom titled "India's Tech SMEs: Rising in the Global Digital Arena" has pointed out that with growing tech demand, Indian tech SMEs could be adding nearly $15-20 billion to the overall industry revenue in FY23. This share is set to rise from pre-Covid levels of 4-6% to 7-9% this fiscal. According to the report, the tech industry today has over 10,000 SMEs that are providing either traditional or digital services to tech buyers. With the world moving towards digital, tech SMEs are also witnessing a shift from legacy to digital services and the prevalence of such digital native service providers has seen an 80% CAGR since the pandemic. "The thrust to digital services has also led to innovative digital SME betting on deep-tech solutions that either vertically integrate functions, or horizontally integrate value chains. However, for traditional tech SMEs to navigate headwinds, shift to digital is eminent," says Debjani Ghosh, president, Nasscom.

Currently over 80% of tech SMEs, still get a lion's share of their business from North America (50%), and Europe (30%). Now with an increased focus on cloud migration, SaaS, digital engineering, and advanced analytics and AI-based solutions, the share of rendering digital services as compared to traditional IT in the overall offering, is expected to grow to 21% in FY23 as against just 5% in FY20. This growth in digital has also led to the tech SMEs robustly hiring digital talent. According to the report, the Indian tech SME sector is estimated to close FY23 with 7,40,000 employees, with hiring for digital skills growing 2X faster than traditional tech talent in FY20.

However with tech SMEs' high exposure to smaller businesses (75% of the clients for tech SMEs still being with small and medium business or foreign tech SMEs) and competition coming in from East European and Southeast Asian small tech companies and tradeoffs between high-volume low-margin and low-volume high-margins, could hamper the growth of the segment. Given this, "Fast tracking innovation, supportive government policies & incentive schemes and dedicated SME – industry – academia connects will further augment the sector's growth and help achieve double digital revenue growth vision by FY30E," says Debjani Ghosh, president, Nasscom.