Government Sector: Large but Fragmented Opportunity

Wednesday, 22 July 2009

The Department of Industrial Policy and Promotion, Union Ministry of Commerce and Industry awarded a 10 year eBiz project to Infosys Technologies.
Infosys also bagged a pilot outsourcing contract to provide the integrated coach management system to the Indian Railways. While the pilot project is expected to be less than a million dollars, the deal is valued at approx. $44 m. The company also recently won a Rs. 2500 m deal from the income tax department.
Early this year, Employees' State Insurance Corporation awarded a Rs. 11,820 m e-Governance contract to Wipro.
India's Ministry of External Affairs awarded a $208.1 m outsourcing contract to TCS in October last year.

The Indian Government sector has always been an attractive, but tricky proposition for service providers. Government departments have been slow on outsourcing, primarily due to their rigid procedures and unwillingness to outsource. Moreover, due to low penetration of IT, a large part of the work is performed manually and several functions are not yet centralized. This inhibits their ability to outsource BPO services.

Fragmented Opportunity

Scoping the government sector and segmenting the market is a difficult task given the vast number of entities and their wide area of operation. The entities range from village Panchayats to large PSUs such as Railways. These entities report directly or indirectly to State, Central or in some cases both the Governments.

Entities in the Government sector

Source: ValueNotes’ report on “Opportunities in the Indian Domestic BPO Market "

Currently, a large part of outsourcing in the Government sector is centered on IT related work. As these entities have different governance structures and functional agenda the propensity and need to outsource also varies substantially.

Move towards Multiyear Contracts

Today, there is a strong thrust in implementing IT to improve the efficiency of delivering various public services like land records, electoral database etc. The objective of these initiatives is centered on enhancing government-citizen interface by providing easy and quick access to data. However, this requires digitization of enormous amounts of existing data and the transformation and delivery of public services using tech-enabled platforms. As a result, majority of BPO activities, to be outsourced under these schemes will be limited to low value high volume work like digitization, data entry and preparation, basic data processing etc.

Moreover, since most of the government IT initiatives are spread across 5 to 10 years, the outsourcing opportunities will unfold gradually. Some of the government departments and undertakings have outsourced their processes to third party service providers. Though these deals are comparatively small, outsourcing will gain traction over time.

The contracts offered range from call center to back office services like data entry, verification etc. Most of the contracts are typically spread over 3 to 10 years. We believe that the value share of long term, high value contracts offering end to end services, in the overall market will steadily increase in the near future.

With the digitization wave, increased automation and greater acceptance of outsourcing in Government departments, the opportunity will rapidly increase in the next few years to come. However, unfolding of the opportunity will be determined by both the success of current initiatives in outsourcing as well as the capability of service providers to address the unique needs of this large but fragmented market.

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