Analysis: India's outsourcing giants cut hiring; disheartening for economy, students

Info Edge (India)

12/06/2023 08:54

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      Hiring slowdown by outsourcing giants could affect
consumption
    

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      Engineering students worried about slowdown in sector of
choice
    

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      IT sector accounts for 8% of India's GDP
    

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      Trade body warns of 'headwinds' in current fiscal year
    

  
    By Navamya Ganesh Acharya
       BENGALURU, June 12 (Reuters) - India's outsourcing
giants are slashing hiring and getting projects done with
existing workers, a rare pullback that could weigh on the
economy and affect engineering students who have seen
information technology as the sector of choice for decades.
    The slowdown, triggered by global uncertainty in demand, is
unprecedented in an industry that is one of the biggest hirers
in India's services sector since the 1990s and provides an
assured career path and prosperity to hundreds of thousands of 
students each year. 
        "Weak IT hiring could be for two different reasons:
short-term negative demand shock or a long-term displacement
resulting from labour-saving technologies," said Rohit Azad, an
economics professor at New Delhi's Jawaharlal Nehru University. 
    "The impact of weak hiring would depend on which is the
primary cause driving it. A negative multiplier effect in the
immediate would be there nevertheless," Azad added.
    The IT sector accounts for about 8% of India's GDP versus
less than 1% about 30 years back, according to Rishad Premji,
the chairman of Wipro  WIPR.NS , one of the country's IT giants.
    Overall, the Indian tech sector employs over 5.4 million
people, according to trade group Nasscom, although the number is
dominated by the IT sector. About 290,000 new jobs in the tech
sector were created in the financial year that ended in March,
but Nasscom warned of "global headwinds" in the current year.
    With IT employees seen as big spenders on everything from
cars, durables and second homes to travel and entertainment,
they are likely to have had some effect on the sluggish 0.5%
sequential growth in private consumption in January-March.
    "Some slowdown in IT hiring intentions could contribute to
the flat-lining in consumption that is already underway," said
HDFC Bank Principal Economist Sakshi Gupta.
        There are pockets of optimism elsewhere in the services
sector - especially in accounting, where there is a surge in
hiring. But the numbers are still dwarfed by the IT industry.

    RECESSION FEARS
    IT firms, which count global heavyweights such as Apple
 AAPL.O , Citigroup  C.N  and American Express  AXP.N  among its
clients, went on a hiring binge during the pandemic that fuelled
a digital services boom. 
    However, things changed this year as recession fears gripped
the world and the collapse of three U.S. regional banks and the
forced sale of Europe's Credit Suisse  CSGN.S  to UBS  UBSG.S 
left the global financial industry shaken, making IT clients
across sectors cut spending.
    "The post-pandemic phase saw companies ramping up production
to meet new demands in the market, leading to a growth in hiring
across IT companies. This boom, however, soon fizzled out in the
face of the global economic crisis and a looming recession,"
said Sachin Alug, the CEO of staffing firm NLB Services.
    NLB sees a 20-25% drop in IT employee additions in the first
half of the current financial year, while TeamLease Digital
expects a 40% decrease for the entire year. 
    Jobs portal Naukri.com's parent Info Edge  INED.NS  flagged
in May that its recruitment business was seeing "cautious"
spending by IT customers.
    IT bellwether Tata Consultancy Services  TCS.NS  said this
month it had "recalibrated" its hiring after a drop in
attrition. It added 22,600 people in the last financial year,
taking its overall headcount to 614,795.
        Infosys  INFY.NS , another IT giant, warned in April its
annual revenue growth would hit a six-year low and refrained
from its usual practice of setting a target of fresh hires at
the start of the financial year. 
    "We have a lot of bench with us. They are ready to move into
production projects," Infosys CFO Nilanjan Roy said at the time.
    Nasscom declined comment on the hiring slowdown.
        
        DOOM AND GLOOM
    The dismal outlook is worrying many students as the IT
sector typically absorbs 20-25% of the 1.5 million engineers who
graduate every year in India and was a rare bright spot during
the pandemic, when most other industries put hiring on ice.
    "Normally, on-campus hiring is easier than off-campus. This
year, that kind of flipped," said Gautam, an engineering student
in Punjab state, who declined to be identified further. "Some
people had their internship revoked or full-time (job offers)
revoked too due to cost-cutting."
    He said some of his classmates have decided to study further
as they have lost hope of finding a job.
    IT firms such as LTIMindtree  LTIM.NS  and Wipro have been
accused by an employee's union of trying to cut costs by
deferring joining dates and slashing starting salaries. 
    That has "surely left applicants concerned about future
prospects", said staffing firm Xpheno's co-founder Kamal
Karanth, who highlighted how current hiring activity was "under
a third of what was recorded in the buoyant peak".
        LTIMindtree did not respond to a request for comment.
    Wipro did not directly address the accusations but said the
environment was different from a year ago.
    "The race to hire ahead of demand has been replaced by a
more measured approach in light of the declining attrition rates
and the ongoing economic uncertainty," it said.
    NO PLAN B
        India's engineers might find it hard to find jobs even
beyond the IT sector as startups too have been laying off
employees in recent months due to a funding squeeze.
    "Even if a few startups do absorb freshers, they would skim
the cream off the top, and not match the high volume intakes
that the IT services and product enterprises do," Karanth said.
    Some industry veterans said Indian students may be better
off looking at other industries.
    "We have significantly different opportunities that are
better sustainable as career paths" than two decades back,
venture capital firm Siana Capital's founder Siddharth Pai said.
    Pai highlighted sectors such as financial services, consumer
goods, specialised manufacturing, medicine, law, chartered
accounting and other services as more viable options.

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Indian tech giants cut back on graduate hiring    https://tmsnrt.rs/3Bp9vRF
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 (Additional reporting by Sethuraman N R; Editing by Dhanya
Skariachan and Raju Gopalakrishnan)
 ((Navamya.GaneshAcharya@thomsonreuters.com; +91 8805175330 ;))