Pandemic impact | Indian software sector employs more people than textiles, education in formal economy: Report

The Indian software sector now employs more people than textiles and education since the onset of the pandemic, according to a report. While the employment in the labor-intensive sector like textiles declined, demand for technology services boosted employment in the services.

The report by How India Lives, a data analytics firm, based on the data available in the Sales Pulse, tracks economic activities at the district level and taking into consideration those employees who receive EPF (employee provident fund) from companies.

Why are we talking about this?

Over the last few years, exports from the services sector ($206 billion), driven by software, are catching up with that of manufactured exports ($208 billion).

This could further increase, with the IT sector revenue expected to touch $300-350 billion in five years, according to NASSCOM estimates. The report pointed out that higher inflows of export earnings will hold Indian currency strong, thus making it too tough to revive labor-intensive sectors like textiles, which is something policymakers will need to focus on.

In addition to this, the pandemic hasn't been kind to sectors such as textiles, which is already facing competition from growing markets such as Bangladesh and Vietnam.

Large employers

The report reveals that as of October 2021, the software sector employs 2.7 lakh people, up from 2.2 lakh in January 2019. Textiles and education, which employed 2.6 lakh and 2.9 lakh people in January 2019 respectively, has now come down to 2.3 lakh in both sectors. While the numbers have come down in engineering as well, from 4.31 lakh to 4.26 lakh, it continues to employ more people than the software sector.

The largest employer in the manufacturing and services sector is consultation services accounting for about 30 percent of employees. They are followed by engineering (9.8 percent), education (6.7 percent), textiles (5.94 percent), and IT (5%).

However, the pandemic, which resulted in an unprecedented demand for technology, has changed the pecking order.

Demand for tech, textile & education not so lucky

When the world went into lockdowns in March 2020, factories were shut and companies had to downsize their team. The report revealed that employees in education (- 20 percent) and textiles (-11 percent) saw a huge contraction, whereas IT did not see much of an impact.

The report further reveals that in the two years preceding the pandemic, in April 2020, the first full month of the lockdown, the number of firms that paid EPF contributions of their employees fell by 16 percent. In the same month, the number of employees for whom the EPF contribution was paid was reduced by 30 percent over March 2020.

The last two years also saw textile companies shutting down operations and downsizing their team. According to the report, in January 2019, there were close to 2,24,000 firms in the formal textile industry. Now close to 4 percent have left the formal economy fold.