It’s that bad quarter of an hour, when the tech industry turns heartless. Leading global companies from Amazon to Google to Apple have either announced widespread layoffs or hiring freezes. The latest to join the list is social media gaint Twitter, which packed home thousands of employees, including in India.
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If history is any precedent, the gloom and doom surrounding the techie sackings must end as summarily as they begin. And in no time, the happy hour hiring bout gets restored. But whether 2023 will be kind enough remains unclear and if the prevailing economic turmoil persists, it could intimidate companies to continue making tough staffing choices.
Foremost of all, fears of an imminent recession are hitting global tech companies hard. Compounding their woes are the just-concluded disappointing earnings season, falling stock prices and ad revenue. As bleak demand outlook feeds fears of impending cuts in IT budgets, the prospects for Indian IT appear equally tight.
In further bad news, the Bank of England last week confirmed that the UK could see one of the worst recessions in a century. If its fears turn true, layoffs in the world’s leading financial hub are inevitable. This will cause double-trouble for Indian firms and employees as financial sector is one of the top clients of the sector.
Though the Indian IT sector spared itself of mass layoffs as seen in the West, hiring fell among companies, weighed down by margin pressures and falling demand. Not only the attrition rates have been high with most companies recording 23-27% manpower exits during the first half of FY23, but also there have been reports of companies freezing or cutting staff bonuses, worrying about falling IT budgets in the US and Europe. For instance, both Infosys and Wipro have reportedly reduced the variable pay portion of employee compensations for the current fiscal.
Further ramming home the point that bad things often come in pairs, the Indian Startup industry too is showing signs of strain. As per Inc42’s layoff tracker, a bunch of startups, including unicorns like BYJU’S, Cars24, Ola, LEAD, Meesho, MPL, Trell, Unacademy and Vedantu have collectively laid off 15,000 and counting. It further noted that more trouble could be in store going by the dismal trail of startup funding. Having raised $4.6 billion in January, Indian startups couldn’t even cross a billion as on September.
Any hit to the IT sector could prove fatal for the economy, as it’s no longer a sunrise sector. Far from it, it’s evolved into a mega industry and is now the country’s biggest private sector employer, accounting for 12 million indirect jobs and 5 million direct jobs.
Notably, FY22 packed a punch adding 4.5 lakh -- the highest annual addition ever -- as companies stepped up hiring to meet the rising demand, according to trade body Nasscom.As Union Minister Ravi Shankar Prasad recently noted, the sector generated 8.73 lakh jobs in the last five years. Such mass job creation was left to the public sector, including railways and banks until at least the last decade.The booming IT industry changed that course and now accounts for about 12% of the total country’s workforce, even overtaking healthcare sector, which accounts for about 10%.
The economic uncertainty-fuelled global layoffs and consequent impact on domestic business comes at a time when the sector stands at another inflection point to overtake manufacturing sector, which is currently has the largest percentage of workers at about 38.5%, followed by education sector at 21.7%. This acheivement is critical for an economy that’s unable to change the sectoral mix of job creation despite undergoing changes in the structure of its national output.
For instance, the industry and services sectors, which constitutes more than 80% of the gross value added in the country, provides employment to only 54.4% of the workforce. On the other hand, agriculture, which accounts for about 18%, retains 45.6% workforce. This divergence in sectoral share in income and employment is manifested in the rising gap in per worker income in the agriculture and non-agriculture sectors, according to Niti Aayog’s recent discussion paper on workforce changes and employment.