5 reasons why Indian IT giants are laying off employees

The bad news though is that the worst is yet to come.

 |  4-minute read |   11-05-2017
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The $150-billion Indian IT sector has not just been an important contributor to the country's GDP and global exports, but has also been at the vanguard of white-collar job creation in an otherwise jobless growth of the past two decades.

For years, campuses across India have relied on the mass hiring by the likes of Infosys, Tech Mahindra, Cognizant, etc as the placement hub for India's large crop of engineers. But, of late, the sun has stopped shining on the sector. Major recruiters like Wipro, Infosys, Cognizant have been seen significant reduction in their workforce. The bad news though is that the worst is yet to come.

For various reasons, we may see massive layoffs in the IT sector. Here's why:

1. The rise of automation

Over the past few years, automation has gathered pace and, in the coming time, it promises to replace many jobs, especially of repetitive and mundane nature.

The competitive advantage in favour of automation has been increasing with technological advancement reducing cost, improving performance and wider applicability becoming possible. The Indian IT sector faces a serious challenge from automation as the nature of most jobs here is "mundane". Besides, human discretion and intelligence are low enough to be easily replaced by automation.

2. 'Freeze' on hiring Indians abroad

India's abundant labour force had made it less expensive to hire Indian expats for projects abroad. But the tide has turned against this trend with US proposing to raise the minimum income requirement for H1B visa to $130,000 from existing $60,000. Australia, Singapore and many other popular lucrative markets too have introduced procedural changes making life difficult for Indians. Getting a work visa has been made both time-consuming and costly.

This will affect one of the most lucrative opportunities that our IT workforce enjoyed, and make it more difficult to employ middle-level employees whose higher salary expectations are difficult to fulfil within India in an industry, where mass hiring at the bottom (to keep the cost low) is the norm.

it-sector_051117090202.jpgPhoto: Indiatoday.in

3. Rises of protectionist politics in US, Europe

The rise of protectionist politics in advanced economies has increased the pressure on companies there to outsource contracts to local companies, instead of firms in India. This is making growth prospect more difficult for Indian IT companies.

The proposed reduction in corporation taxation in the US as well as France will also further incentivise more of the IT big shots to shift back some, if not a major portion, operation back to the US. All this again doesn't bode well for jobs in the Indian IT sector.

4. Corporate governance and Indian IT brands

Indian IT's fabled rise was built on the foundation of outstanding corporates who won the trust and respect of their stakeholders at home and abroad through admirable corporate governance.

But even as the industry needs the goodwill in these difficult times, the Indian IT bellwether have had a rather tough time negotiating corporate governance troubles.

While TCS has seen Tata Sons being mired in a dirty and ugly boardroom struggle, Infosys, after years of being led by unsatisfactory successors to its founders, found a decent performer in Vishal Sikka. But the respite seems short-lived as the current leadership has been engaged in a power-cum-perception struggle against Infosys old guard, notably Narayana Murthy, who has levelled and repeated some serious charges against the present leadership.

All this, to some extent, reduces the competitive advantage that came from impeccable brand image of the leaders in Indian IT sector.

5. Sluggish global economy and low demand

As such, the big ticket projects are far fewer in number now with the global economy slowing compared to the initial decade of the millennium when Indian IT sector came of age.

The relatively lower growth has translated into lesser demand and more competition for lesser projects, leading to more stress on the margins and further pressure to cut on workforce cost. We may also see more of the IT biggies cutting back on their bench strength as part of their cost-cutting measures.

Thus, in the short- and medium-term, Indian IT sector is in for some rough times, but their are silver linings too. The push to increase digitisation in India will, over a period of time, lead to a large local market opening up.

Also, automation presents an opportunity for the Indian IT industry to move up the value ladder and make India the hub of high-end IT sector jobs. The greater challenges for Indian expats to work in the US and other countries can compliment such a push by bringing in many fairly experienced and well-skilled IT professionals back home, making talent for such an upgradation widely available at a reasonable cost.

But such transition, even if at all it happens, will take time to materialise. In the meantime, we must brace up for the massive layoffs.

Also read - Why IT companies like Cognizant and Wipro are laying off employees

Writer

Apoorva Pathak Apoorva Pathak

The author is alumni, IIT Roorkee and writes on politics, economy, policy.

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