Infosys, Wipro, TechM layoffs: No easy way out of the mess as threat of hi-tech, Trump gets real
Pink slips are being handed to the employees with a demoralising advise that they hadn’t performed well. When it happens to be people in their 30s and 40s, it’s far more devastating
Last time the employees of the Indian IT industry went into a panic was when the Tata Consultancy Services (TCS) reportedly started firing hundreds of its employees in 2015-2016 leading to a new labour rights ferment in Tamil Nadu. Almost a year later, reports of widespread layoffs by IT majors have escalated fears of massive unemployment and loss of livelihoods.
The company in the spotlight this time around is Cognizant, that is reportedly sacking about five percent of its employees which will translate to about 10,000 people. This is still lower than the number of people allegedly laid off by TCS in 2015, as quoted by employees and labour unions. But the problem now is more complex because it’s not just Cognizant that’s sending employees home, but also others such as Infosys, Wipro, HCL, Tech Mahindra and so on.
The writing about the changing complexion of IT and services outsouring has always been on the wall because of the changing nature of technology and its practice. A US research company had said last year that by 2021, India would lose 6.4 lakh jobs in the sector - on an average, more than a lakh a year. However, when it begins to happen, it’s like a savage storm hitting the shore. Losing one’s job with poor prospect of finding another one is devastating. Pink slips are being handed to the employees with a demoralising advise that they hadn’t performed well. When it happens to be people in their 30s and 40s, it’s far more devastating.
In addition, that there will be fewer entry level jobs make the situation bleak for tens of thousands of aspiring engineering students. The sector employs close to 40 lakh people and the annual hire runs into a couple of lakhs.
What the companies are doing, in their perspective, is unavoidable because they have to cut the flab. But the process is unethical and against labour rules. Last year, in the wake of the TCS layoff, the Tamil Nadu government had clarified that employees can form trade unions to redress their grievances by invoking the Industrial Disputes Act 1947. Three years earlier, Karnataka had tried to lift the decade-long exemption from the Industrial Employment (Standing Orders) Act (1946) that it had granted the IT industry for more than a decade; but had to retreat within a few months under pressure. Given their contribution to the economy and the job market, and their growth potential, the state and central government have always treated them with remarkable exceptions. This blanket exclusion will certainly come under pressure if layoffs become a norm.
Not that the industry and the policy makers didn’t know that there would be an end to the IT-outsourcing and BPO (Business Process Outsourcing) honeymoon sooner than later. The forecast of losing jobs was based on the changing nature of technology in the industry. Automation can easily skim off about 30 percent routine, assembly line code-writers and another eight percent semi-skilled employees. Unfortunately, bulk of the IT-hire in India are for low-paid, low-value software writing and testing, a sizeable part of which could be taken over by machines. However, what’s of value will be big data, analytics, artificial intelligence, Internet of Things etc. Sadly, the new engineering graduates have no idea what they are and all they aspire for is to get mass-recruited for the low-value jobs that are on the chopping board now.
If machines and artificial intelligence always remained a threat to the labour-intensive Indian IT market, what’s making the threat more imminent now is the rapid roll out of protectionism by the Donald Trump administration in the US. There’s immense pressure on Indian IT companies to replace onsite Indian workers with Americans, and Cognizant is already doing it. According to the company CFO, hiring Americans for onsite assignment - instead of bringing Indians on H-1B Visa - doesn’t have major financial advantage any more. If the low value jobs of code-writing and testing can be handled by machines and onsite jobs can be managed by Americans themselves, it’s bad news indeed for Indians.
Seemingly, the Indian companies don’t care much about the job-losses because in most locations they are practically untouched by conventional labour laws and unionism. What’s more important to them is maintaining their double-digit growth and meeting the quarter-to-quarter projections. So, if Trump wants them to hire Americans, they will hire Americans. Infosys has already announced they would recruit about 10,000 people in multiple US locations, while Cognizant is also hiring Americans lest they should lose their existing outsourced projects.
With pressure of local hire mounting, many American companies that were dependent on offshore talent, including for back office work and knowledge processing, have started hiring directly. It would also translate into job losses in India. In fact, the threat is two fold - Indian companies losing contracts and hence laying off people, and Indian companies voluntary hiring Americans to keep their contracts and hence culling unwanted employees back home.
The IT-BPM (Business Process Management) industry was a godsend for the Indian economy since the 1990s. According to the National Association of Software and Services Companies (Nasscom), it earns about US $143 billion a year, out of which about US $110 billion are from exports. In fact, India accounts for more than half of global outsourcing in this sector. It’s the largest private employer in the country that also accounts for the largest share of export of services. From about 1.2 percent 20 years ago, its share of the of the GDP today is pushing 10 percent.
Conventional wisdom always advised against putting all the eggs in the same basket. Too much reliance on the American market - about 60 percent - being content with labour-contracting for immediate balance sheet requirements and not moving up the value chain have finally started biting the industry. Sacking 10,000 people means depriving livelihoods for 10,000 or more households. When the scale increases, its cascading effect will certainly hurt local economies.
Will the sector still touch the US $300 billion revenue target projected by Nasscom? Will it continue to grow at about 13 percent?
The glimmer of hope is the domestic industry which the Nasscom expects to grow at 15-17 percent this year, mainly riding on the e-commerce expansion; but if the local e-commerce industry is run over by global biggies employing predator technologies and financial muscle, India will be left with fewer options.
Here’s some food for thought: imports account for 65 percent of the Indian electronics industry, that’s projected to touch US $400 billion by 2020, at an annual growth of 25 percent - more than double the growth rate of the IT-BPM industry. Can Make in India change this? Then we can more than compensate for our projected losses. India should be ashamed of the fact it cannot survive without imports from China - from plastic disposables to telecom equipment and underground boring machines.
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