Is the IT industry poised to be the next victim of global employment slump?

Pink slips

The problem is compounding now that the industry that was credited for creating a large amount go jobs – information technology and related services – is facing problem of growth.

In fact, the sector is laying off people with fewer skills and has scaled down their hiring as things become more digital and automated.

Read this: Cognizant, the third largest IT employer in India, is said to be laying off 6,000 to 10,000 of its employees from a headcount of 1.88 lakh employees in the country. In all, the company employs 2.6 lakh people world over.

In many companies across the board, low performers are being handed pink slips, but so far there has been no mass lay offs at major domestic players. The biggest lay off so far by an Indian player was in 2014 when Tata Consultancy Services (TCS) handed over pink slips to 10,000 of its employees for non performance. Hiring has slowed down.

An optimistic industry

However, the trend at the global stage is different - IT giants like Cisco and Microsoft have announced to big cuts their staff. It is more than likely that a similar trend will be seen in India over the next couple of years.

Even so, industry leaders back home are still optimistic about sector’s outlook – both in terms of revenue growth and employment generation.

This is despite the fact that revenue growth in the sector has fallen from teens to single digits over the last five years and biggest players are adding fewer jobs.

The industry body, National Association of Software and Services Companies (NASSCOM) pegs industry size at $154 billion in 2017. It is growing at just 8% from estimated 8.5% in the previous year.

But industry experts maintain that growth of employment opportunities in the country will continue, albeit at a slower pace. As per industry estimates, nearly 2 lakh jobs were added in 2016 and is likely to fall to 1.7 lakh in 2017.

Compared to yearly addition of 2 lakh jobs (a million people in last five years, as per NASSCOM) the job growth is likely to fall further.

Between 2015 and 2016, job additions were growing at 6% that is likely to fall to an average 3% by 2020, industry veterans say. Not only gross additions are changing but skill set has also changed.

Changing industry dynamics

Technology disruption and its continued impact was felt in 2016 in even greater measure, brought about by the usual suspects – Internet of Things, cloud computing and artificial intelligence. 

“From the present talent pool working with the industry, 50% needs to be re-skilled as per changing industry dynamics. The layoffs you are seeing at present is because these employees are not suitable for changing client needs. Either we need to re-skill them or need to hire new people who have expertise in data analytics, artificial intelligence, data science and higher level programming skills,” says Jaimin Shah, a member of executive council of NASSCOM said.

He further adds that maximum job creation in next five years will come from startups or small and medium scale enterprises.

“Big firms have already started their migration towards digital and automation platforms. Their net addition will come down as number of people required will be less for them. However, smaller player will continue to add people for some time,” Shah says.

Meanwhile, startup story in India is growing. India has 4,750 start-ups in technology sector, one of the largest in the world.

Even so, their commercial viability has not yet been proven. IT startups have had to lay off 10,000 people since August 2015, an industry watchdog estimates. Even bigger e-commerce platforms like Snapdeal and Flipkart are facing challenges.

A change of pace

There are two ways of looking at things – job addition in India’s IT sector has declined and growth in job addition is negative. Both arguments are correct - growth in job addition has declined in the past few years because of change in technology, preferences and delivery models.

At the same, additional jobs (year after year addition in employees by the sector) are down. The sector added 2 lakh people per year till 2015, but that figure was down by 14,000 employees in 2016 and will further reduce to 15,000 employees in 2017. 

So there may be no need to panic – the IT sector will continue to hire people every year. But as the pace slows down, what will become important are skill sets and employability.