Talks about a slowdown in growth and job losses have become ubiquitous, with reports of unemployment and factory shutdowns make front page news often.
According to Kris Gopalakrishnan, co-founder, Infosys, the slowdown India's information technology (IT) sector has been an exception, and the sector will be able to weather it well.
Speaking to Moneycontrol at the sidelines of the Confederation of Indian Industry’s (CII) 15th India Innovation Summit in Bengaluru, Gopalakrishnan, former president of the CII and founder, Axilor Ventures, said, “I have seen the slowdown in two parts – global and domestic.”
When it comes to the global slowdown, the demand seems to be coming down around the world and it is affecting companies, especially those that are looking for funding. There are some that are doing well despite the slowdown, especially IT firms.
“For example, Indian IT services companies were doing extremely well,” he pointed out.
“However the question is whether this slowdown may impact IT services going forward. Having said that, the IT services industry is probably one of the strongest in terms of financials and has weathered several slowdowns in its journey,”said Gopalakrishnan.
He also said that Indian IT firms are highly profitable and are mostly zero debt with lot of cash in their balance sheet. In addition, they also have the experience of having faced multiple downturns in the 90s and the first decade of the century.
Gopalakrishnan said, “The sector has seen multiple slowdowns with good leadership capabilities in these companies. So I’m very optimistic about the IT industry, which is still a growing industry according to NASSCOM data.”
He also said that the IT sector is also not affected by the decline in growth in the country due to factors such non-performing assets, which has dried up the credit. This has affected the sectors that are geared towards the end-consumer such as our automotive and real estate peers, which are also one of the largest employers.
“For IT, revenue from the domestic market is small and does not impact them,” he explained. For most IT services firms in India, revenue from India operations account for about less than 10 percent of the overall revenue.
However Gopalakrishnan said, this slowdown across sectors is temporary and will see a growth of 7-8 percent in medium to long term. "It could be 10 percent if we can put our weight behind it," he added.
But the challenge does lie in hiring. Take for instance engineering. Gopalakrishnan said, “There are, say, there are about 14 lakh engineering graduates every year and they want to be recruited by the IT industry. The sector hires only about two lakh people.”
“For the rest job opportunities lie elsewhere,” he pointed out.
According to him, India is witnessing a case of underemployment, where people are expecting certain remuneration and are not getting it as they are not looking at the right employment opportunity.
“The jobs are not in the IT industry. Most of the jobs are created in the services sector such as logistics that includes food delivery,” he added.
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