Job Crisis: Not all is lost for IT, but sectors tied to it may feel jitters

Job loss | The pandemic has wreaked havoc on the job landscape in India. According the Centre for Monitoring Indian Economy (CMIE) about 21 million salaries employees lost their jobs during April-August. There were 86 million salaried jobs in India during 2019-20. In August 2020, the count was down to 65 million after 3.3 million jobs were gone in the particular month, mostly among the industrial workers and white collar workers, as per the CMIE. (Image: Shutterstock)

Shishir AsthanaMoneycontrol Research

It keeps getting worse for IT stocks. They received a minor jolt on Monday after executive search firm Head Hunters India published a report which put the annual job loss count in the sector at about 2 lakh for the next three years. Though the scrips recovered with the IT index falling by only 0.27 percent, even a minor blip is likely to be seen in the larger context of headwinds battering the sector.

Assuming 6 lakh jobs are indeed on the line, the number constitutes about 15 percent of 3.9 million workforce which are currently employed. However, most of these jobs will either be filled by lower-cost employees or will fall redundant on account of change in technology.

Most of the job losses, as has been seen in the case of Cognizant, is in the middle and senior level positions. Recently, Cognizant asked 1,000 senior employees to take a severance package equivalent to between 6-9 months of pay. Other companies have also reported job cuts, which they term is part of the ‘performance appraisal’ process.

Since the job cuts are of higher salaried professionals, who will be replaced by swift-footed fresh engineers, the market does not seem to be too perturbed. Fresh blood that is getting absorbed in companies come in with a different skill set which is the need of the hour.

While one would like to blame US President Donald Trump for the crisis in the IT sector, the fact of the matter is Indian companies were slow to react to the changing times. As a result most of the low-end jobs, which are largely carried out by Indian IT companies are soon going to be replaced by robots.

The Head Hunters’ report points out that the industry will need to retrain 50-60 percent of the workforce as there is a significant shift in technologies. Many of those individuals who need to be retrained are in the middle and senior management space. Companies find it easier and cheaper to hire a fresh candidate than to train the older ones.

As automation takes over IT companies, the job cuts will most likely result in better numbers. But the digital technology space is still too small when compared with the total turnover of IT companies. It would thus take a few more years before digital business starts contributing to operating margins.

From a purely stock perspective, one can look at the recent developments in the IT space positively as excess flab is cut and companies are tightening their belts.

However, the job losses and slower job addition will have an impact on other parts of the economy. IT sector accounts for around 9.3 percent of the GDP, employs 3.9 million directly and over 10 million indirectly.

As the IT jobs of middle management employees are lost, banking sector which has mainly funded cars and houses of these employees will be under pressure. Home prices are likely to remain flat and might even fall as supply increases. Housing rentals are expected to be first casualty.

Real estate sector, banking, especially retail banking, tourism, hospitality and automobile sectors had been a direct beneficiary of the boom in IT space. The entry level salaries have been stagnant at Rs 3-3.5 lakh per annum for nearly 7 years now. But it was the middle and senior level employees that were driving consumption demand.

The main hit could be felt on the student loan segment. Slowdown in the US has already led to a USD 1.3 trillion education loan crisis in that country. Education loan in the US is now the second largest consumer debt, second only to the mortgage loan. India, too, has roughly an exposure of Rs 1 lakh crore in education loans with nearly 15 percent of it being disbursed in Tamil Nadu. On account of lack of jobs or low salary levels, there are more defaults being witnessed in this segment. Like agriculture loans, education loans are also becoming a political issue.

Signs of how the IT sector is gearing up to meet the challenge is visible and well tracked. But the effect of slowdown on account of job losses is yet to make headlines.