The Indian software-as-a-service (SaaS) ecosystem is growing aggressively. Digitisation along with the pandemic provided a push to the SaaS market. In a recent Motilal Oswal report, the Indian SaaS ecosystem is projected to increase its global share by 4-5%, translating to a $50-70 billion revenue opportunity by year 2030.

In the SaaS model of software, also known as cloud computing, licencing and delivery of software is leased on a subscription basis. Indian SaaS start-ups are maturing at a rapid pace, attracting increased interest at all phases of the investment process. They help to increase capital efficiency, create talent pools, and improve growth prospects for both employees and employers, making them highly transformative in driving value development. In the past few years, Indian SaaS ecosystem has witnessed a lot of growth as more than 35 Indian SaaS enterprises had $20 million or more in annual recurring revenue (ARR) in 2021 and investments in the space increased by 170% over 2020 reaching $4.5 billion in 2021.

The Software and Services Sector is a leading sector in India aiding India’s cost competitiveness in providing IT services 3-4 times cheaper than first world counties. The sector also is the biggest employment generator providing direct employment to over 4.47 million people. By extension, the SaaS sector can play a huge role in helping the government achieve its ambition of becoming a $5 trillion economy. In an address in 2021, Finance Minister Nirmala Sitharaman also acknowledged the potential behind SaaS platforms and decided to look into the hurdles the industry is facing, and propose solutions to cater the sector’s growth.

Cloud services can accelerate delivery of services in an unimaginable manner, and further even aid in transforming the public sector’s service delivery. The GOI has already initiated projects such as ‘MeghRaj’ for accelerating service delivery. To further promote the sector, the government also launched the National Policy on Software Products (NPSP) in 2019. NPSP and the various programmes under it have proved to be instrumental in the growth of the SaaS sector. Indian Software Product Registry (ISPR), under NPSP, has aided in creation of Indian Software Product Companies (ISPC) to bring all software products at one single platform. This has supported SaaS companies to easily register and gain access to the Government eMarketplace (GeM). In addition, the government has announced a number of incentives-based-challenges for software companies to build a variety of software products that address socio-economic issues such as challenge CHUNAUTI 2.0 which was aimed to support start-ups with special focus on women-led start-ups working on innovative technology and products in sectors like Education, SaaS, Finance, Wellness, etc. Furthermore, a Start-up Accelerator Programme of MeitY for Product Innovation, Development and Growth called (SAMRIDH) was also launched to support start-ups and connect them with Centre of Excellences, Technological Incubation and Development of Entrepreneurs (TIDE) programme, Next Generation Incubation Scheme (NGIS), and more.

After the United States and China, India has the world's third-largest SaaS ecosystem. As a result of concerted government and university efforts, countries like the United States and Israel have created a comprehensive SaaS infrastructure. Despite the fact that the Indian SaaS market is quickly developing, there is still plenty of room for expansion. In addition, India has the potential to carve out a distinct niche in horizontal infrastructure software, vertical business software, and SMB-focused SaaS firms.

This has been co-authored by Bhamini Rathore and Kanika Verma.