The information technology sector has been India’s "sunrise industry" for nearly the last 2 decades but it finds itself at an inflection point again. While the future looks daunting, it also hold the promise of new opportunities. But one thing is for certain, the future will be very different from the present.
IT companies are now a significant contributor to India’s economy. The past ten years from 2004-2014 data shows the IT sector has accounted for 8 percent of India’s gross domestic product (GDP) and 19 percent of total exports. Revenues have surged 6 times and helped create 11 percent of jobs in urban India.
But if you contrast that to the job creation we saw in the decade before, you will see a stark difference with sector being responsible for
In many ways, IT still remains the "sunrise sector" even after two decades or so. A report by Nasscom And McKinsey shows that total revenues are estimated to touch USD 225 billion in just 3 years (2020) and total revenues could even touch USD 400 billion by 2025. The report also says Indian IT is poised to meet the number and it is equivalent to the GDP countries like Egypt and South Africa.
But all this growth could come at the cost of jobs. The Indian IT created 3 million jobs to hit the USD 100 billion revenue mark but to hit the next USD 100 billion it may create only 1 to 2 million jobs -- thanks to automation.
And this is not because of visa-restriction but because we are headed into a digital era – the threat of automation. The Nasscom-Mckinsey study expects 30 percent of the current IT jobs to become irrelevant and more than 50 percent of the workforce needs to be re-skilled.
Automation could render a whopping 260 million jobs irrelevant across the world globally, so it is not just an India story.
So, how can Indian IT professionals remain relevant in this changing environment? And how can companies tide through the changing landscape? What will the digital era mean for Indian IT?
Do discuss the way forward, CNBC-TV18’s Shereen Bhan spoke to three industry heavyweights Raman Roy, Chairman, Nasscom, R Chandrasekhar, President, Nasscom and Rishad Premji, Chief Strategy Officer, Wipro & Vice-Chairman, Nasscom.
Below is the verbatim transcript of the interview.
Q: I know that Nasscom has put out a statement, in fact let me quote from that, you say that commenting on recent media reports of mass layoffs by IT companies, you state that reports are incorrect. The Indian IT industry continues to be a net hirer with over 1.5 lakh people being employed on a net basis each year though the focus is shifting from scale to skill. The question now is as we move in to this digital era, cloud, and so on and so forth, as the focus shifts as you point out to skill versus scale, what is going to happen to the jobs that the sector has created and I just gave a historical perspective of what has happened to the jobs landscape thanks to the Indian IT sector.
Chandrasekhar: You brought it out very clearly in the beginning that while the first USD 100 billion required about 3 million people, the next USD 100 billion is only going to require only 1.5 million people. It is not just the numbers, it is also the kind of skills that are needed. The fact that for employees to remain relevant, they need to continuously reskill themselves. That is also the reason why companies are investing hugely in reskilling existing employees. Also from Nasscom perspective, we are also putting together an initiative for imparting skills in the new areas of technology.
Q: Can you give us a number of what we have actually seen happen by way of the so called performance reviews and I know that the IT industry says don’t make too much about these performance related exits because this is a yearly process, it is a routine process, it happens every year or every quarter now increasingly but can you give us a some sense on the kind of exits or job losses that we have seen on account of the fact that people are just not being able to keep pace with the skills required?
Chandrasekhar: It is difficult to put a very precise number but if you look at the way the companies have been handling this issue, typically anything from 1-3 percent have been the percentage of the people who have been impacted by this kind of appraisals. If you look back as to what has happened in this year versus what happened in previous years, some companies it may be slightly more, and for some companies, it may be slightly less.
However, overall from an industry perspective, we are as we said in our statement not seeing any significant difference from what has happened in the past. However, if you come to the numbers, for an industry which employees nearly 4 million people, even 1 percent is a significant number. So, I think we need to keep that sense of proportion in mind when we are looking at these numbers.
Q: The question is that is this going to get much worse and that is the concern? Every sector is now looking at the IT sector, the real estate sector is looking at the IT sector to say look my fortunes are linked to yours, so give me a sense of how much worse does this get before it starts to get any better?
Roy: We don’t think it is going to get any worse. As Chandrasekhar said, 1 percent is a significant number and it is a bell curve. If you look at it, there are outstanding performers and there are performers who do not quite match up. We as an industry actually, skill our workers, we take raw material, put them through our training unlike international markets where people become revenue generating in three to four weeks; in India it takes up to 9-12 months of training done by our member companies to make them revenue generating.
Q: That was the past and the present. What kind of investments are we now going to be forced to make in a digital era?
Roy: That is exactly what I am coming to. Now there is a work force and you gave the numbers of the Nasscom-McKinsey report that says 30 percent of those jobs in the present scenario will become irrelevant. Our member companies are investing money in retraining that workforce, in some of our larger companies up to 50 percent of the people have already been touched by some sort of retraining programs. So, that is happening. Now, the input that we take from colleges and universities, they also have to up their act to be able to bring us future ready resources.
Q: One of course is that you need more employable talent but also in terms of additions from campus hiring, we are not going to see the kind of numbers that we have seen in the past.
Roy: We are not till it reaches a stage where they are able to provide the future ready resources. There is a particular add-on, a particular polishing that the industry did for the resources that were available. The world has undergone a change, there is a new game in town and you have to up the act and the educational institutions also have to up their act.
Q: Mr Chandrasekhar pointing out that on an average companies are letting between 1 and 3 percent of the total employee base go due to performance related exists. Can you give me a sense of what has happened at Wipro and can you also give me a kind of investments and time that Wipro is investing in its people to be able to retrain them? I have an example of Cognizant, they have put down a number of being able to retrain or the need to retrain 100000 employees. Can you give me a sense of what is happening at Wipro for instance?
Premji: I want to point out that this year really is no different than any other year. Most large mature companies go through an annual appraisal cycle where they evaluate the performance of individuals and people who aren’t able to make the cut in terms of being able to move into new skills, get retrained, reskilled or are really poor performers are found alternatives, there is nothing new, there is nothing step change about this year compared to any other year. So, I am a bit puzzled by the amount of attention it is suddenly hogging over the last few weeks in the media. I don’t think it should be read out of context compared to a regular appraisal cycle.
Second, the demand for skills is changing. Organisations certainly are preparing to upskill their people. The one thing that is changing is the model is moving more and more into a pull model as opposed to a push model.
We as a company for example have setup a virtual and physical space where people can come in, explore technologies, get trained, get certified, actually crowd source projects internally within the company and that is not unique to us. I think a lot of large typical Indian IT services companies are driving that model of reskilling and retraining.
So, the recognition that new skills are required, the recognition that some people can clearly make the cut to those new skills and providing them the opportunities to make that transformation.
Q: Can you tell me how much money you are investing in being able to upskill people and are you within the broad parameters – the average of having to lay off between 1-3 percent of your workforce because of performance related issues?
Premji: We would be within that range. Those are broad ranges but we would be within those ranges. In terms of quantum of people, we have trained about 40000 people last year on digital technology. We now have over 60000 people trained on digital technology.
I am representing NASSCOM here and so this is quite representative of other large organisations as well. This is not unique to Wipro.
Q: The other aspect that perhaps we need to spend a little time on is this business of how productivity and revenue growth is in that sense getting more and more decoupled. Utilisation rates are perhaps at an all-time high at least at the peak that we have seen in the last five years for most IT companies, the bench strength has gone down quite significantly. Do you believe that this is going to be something that we will continue to see now?
Premji: Utilisation levels are strong and organisations are driving productivity. As you articulated the model is moving to be more and more non-linear. Platform is becoming a more integral part, commercial constructs are changing to be much more output and unit based. So, the model will move to be more and more non-linear and that is a natural tendency of where the industry is evolving to. I would also submit that don’t confuse employment generation with health of the industry and the health of organisations as well.
Roy: If you look at the industry level growth numbers that we released for the last year, our revenue grew by 5.4 percent, our people grew by 8.2 percent, which means as against the historic fact where they were linear, the headcount would go along the same way as the revenue, we are now seeing the first greenshoots of non-linear growth. That mathematically means that per head revenue from the industry of 4 million people has actually gone up. If it has gone up it is a different skillset that is coming into being.We are seeing projects that get upto 50 percent more per head because it requires a different skillset and that is coming out in the numbers, that is coming out in the reskilling, that is coming out to what the future is.