The United States is headed toward a recession, and it is already impacting the technology sector. This year saw US tech companies laying off 136,000 people with 42,000 people losing their jobs in November alone. Given how interconnected the world is today, a global economic slowdown is inevitable, and layoffs too are not far behind.
In fact, India is already witnessing layoffs across big tech firms such as Meta, Amazon, Twitter, and start-ups such as Byju's and Unacademy. About 66 percent of Indian CEOs expect this trend to continue in 2023 along with an economic downturn. But how severe is this likely to be? Is there hope for recovery for the Indian tech sector?
Recession and Recovery
India’s GDP grew by 8.7 percent in 2021-22. But the post-pandemic boom is fading, inflation is at an all-time high, and there is an unexpected war in Europe, resulting in the economy slowing down. Goldman Sachs recently slashed India’s GDP growth prospects to 5.9 percent. India’s population is still growing exponentially, which means that the employment crisis in the country is going to get worse. Reports indicate that by 2050, India will need to generate 280 million jobs for its sizeable youth population.
But the news is not all bleak. The GDP is likely to slow down in the first half of 2023 in line with the global recession. But it is expected to pick up pace in the second half as the world recovers, and the export market and investments improve. In fact, the World Bank raised India’s FY 2023-24 GDP growth forecast to 6.9 percent. Headline retail inflation is likely to drop to 6.1 percent next year from 6.8 percent this year. According to the Indian Staffing Federation which represents more than 100 recruitment and flexi staffing companies, the domestic IT and ITes industry is set to hire close to 1 million people by the end of 2023, though one is not sure at what seniority or level.
The Post-Pandemic Reality
Despite the chances of the economy recovering, there is no denying that the global tech sector is in a state of flux right now. The pandemic was a shot in the arm for the digital economy, and most tech companies scaled up rapidly and in fact hired indiscriminately. Now that normal life is resuming, they are unable to sustain their expanded human resources and operating budgets. The economic disruption of the pandemic has been severe and will be experienced for a long time, with rising inflation and interest rates adding to the sector’s troubles. The war in Ukraine has resulted in severe energy and inflation crises which have exacerbated the stress it is under. India, with its large technology workforce, is not immune to these market conditions.
Further, the Indian startup sector with a work culture of its own and unreasonable salaries in many cases is now seeing pushback from investors. Profitability is the key ask and entrepreneurs are looking at remodelling their operations. Add to this is the long drought that the US stock markets have faced with regard to IT stocks which is mirroring on the Indian bourses as well.
Outlook for Indian IT
In the US, layoffs are not restricted to the MAANG companies, even large and stable companies such as Microsoft are witnessing their slowest growth in five years. In India, however, most layoffs are taking place within startups and companies that scaled up rapidly during the pandemic. These organisations are not only witnessing a slowdown in demand but are also under pressure from investors for better profit margins.
Large, traditional software companies with the biggest workforces are stable and have been conducting routine performance-related separations only. The mid-sized IT sector particularly those who have been in business for two or three decades have solid balance sheets that are able to weather the storm.
There is also some optimism from experts who feel that there is a possibility of US companies shifting some projects and deliverables to lower-cost markets like India as they go into a recession. This will no doubt boost demand for talent. There is also a surge in hiring freshers with a 61 percent increase in corporate intent to hire fresh graduates. Best of all, recruitment freezes and layoffs in India have not been uniform with segments like e-commerce, financial services, and manufacturing continuing to hire fresh talent. In fact, over the last couple of years, these segments have seen increasing demand for super-specialized skill sets.
This is not to say that the Indian tech sector will not face any challenges in 2023. As the world now emerges from the clutches of COVID-19, there is bound to be some degree of workforce rationalization. The economic slowdown is now a reality, and the effects will be felt across all sectors including IT. Cutbacks and hiring freezes in the US will impact those working in US companies here and startups and neo tech companies will have no choice but to downsize to boost profit margins amidst a recession. These factors will have a ripple effect across the sector. But it is important to remember that such downturns are periodical in nature and occur every few years while the world adjusts to a new economic reality.
The Future Of Work
The greater challenge before Indian companies is the changing nature of work and the long-term battle for talent. Two-thirds of Indian knowledge workers are likely to change jobs in the next year citing burn out, and lack of connection with their organisation’s management. Modernising the HR function is now a critical priority. Talent management processes and policies must be digitised and brought up to date to make organisations process oriented rather than people dependant. Work management systems must be overhauled and equipped with clearer WBS’ and entry/exit criteria to leverage multiple talent pools. The rapidly growing gig economy is a significant talent pool that organisations cannot afford to ignore, and they must modernise their talent strategies to include gig workers and freelancers.
The surge in fresher hiring will also lead to a surge in attrition as the average retention for a fresher is one to two years only. As the digital landscape evolves and matures, the Indian tech sector will see an intensifying war for skilled talent. There will be a firm focus on T-shaped skillsets, or skills, knowledge, and expertise in a breadth of areas related to their performance and success. Technology professionals must expand the breadth of their competencies to include related skills that complement and supplement their core competencies, because individual performance and contribution will be of utmost importance. On their part, organisations must provide training and upskilling opportunities with clearly defined career growth paths to retain the best talent.
This is the great reset for the Indian tech sector. The ongoing workforce rationalisation will streamline the talent pool, retaining only the skilled and qualified. This is an opportunity for the sector to reconsider and modernise its HR strategies in keeping with the demands of a post-COVID-19 reality, and to prepare for the economic boom after this hopefully short recession.
Prakash Nair is Vice President, Talent Function, SunTec Business Solutions. Views are personal, and do not represent the stand of this publication.
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