Has the Indian IT bubble burst?

Chennai: “Please find another job as the project is scrapped”. These heartbreaking words have become the new normal in the IT sector in the past few months, leading to months of anguish, self-questioning and sleepless nights for techies.

Looking at the environment of job opportunities, salaries and wealth generation in the Information Technology (IT) sector, 14-year-old Prathyusha decided she would be an engineer. She worked for it, pestered her father to pay exorbitant fees and hit cloud nine when she finally got recruited in a top IT company in OMR. But, her dreams were shattered in 12 months when she was told by her team leader to look for a job elsewhere as their project had been shelved, thanks to global recession and clients scaling down of operations.

In another incident, Gautham Ramachandran, who invested everything his family owned to complete his education and even packed his bags for a posting abroad, was totally devastated after Donald Trump’s call for a review of the H1-B visa. Now, Gautham works for a startup company in Egmore at a salary of Rs 7,000.

Even the techies at higher levels are not spared. In fact, they are the worst affected. Richa Chandra, a manager signed a multi-crore project that crashed in weeks and with the project, crashed the future of an entire team led by her and half a dozen sub-teams.

With multiple industries in India suffering the domino effect due to falling markets, the shrillest buzz in the financial corridors of the country is driven by a fear of the collapse of the IT industry. Many believe it is already here and that the thunder of crash is deafening.

Just till the other day, the IT industry accounted for approximately 67 per cent of the US $124-130 billion market, employing a workforce of about 10 million, most of them in the age group of 25-40. The industry has led the economic transformation of the country and altered the perception of India in the global economy.

Now, every other day, we read in newspapers and hear reports on television of layoffs, offers of employment being withdrawn and foreign projects being scrapped.

For the sector as a whole— including large, medium and small IT firms but excluding MNC captive centres - the growth in 2017 is expected to be a mere 5.3 per cent. That is a steep drop from the 8-10 per cent that the industry was expected to do.

Informed sources from the IT industry said the recruitments have come down by a huge margin. For instance, TCS was recruiting around 50,000 people every year, of whom 25,000 were freshers. The total number of recruitments came down to 25,000 in the last two years and now it stands at 12,000 per year, while the number of engineering graduates in a year are about 1.5 lakh.

The three major contributors to the current crisis in the IT sector according to experienced industry players are silent layoffs, reduction of recruitment pattern and most importantly lateral entry stoppage.

“One of the main issues is that IT is not a standalone sector and depends on other industries like insurance and banks. So, they decide the success of the sector,” said Santhosh Kumar, IT specialist.

He further added that the hardcore industries that are suffering a major setback have reduced their technological spending. Also, global companies aware of India’s current crisis negotiate the rates hard.

Fewer jobs next year

Industry body Nasscom has predicted that the industry would create 20-38% fewer jobs in FY2018 compared to fiscal 2017. Against the 1.8-lakh jobs it had added in FY17, IT sector would create 1.3-1.5 lakh new jobs (lateral plus campus) in FY18. At its peak, the sector added nearly 2.40 lakh jobs a year, it said. TCS and Infosys, which account for around a fifth of India’s software exports of $116 billion, saw employee headcount reduced by 1,414 and 1,800 respectively in the April-June quarter. Wipro, which announced its quarterly results recently reported a 1,309 rise in headcount.

Effect on salaries

The salary of any employee in an IT company is divided into three- basic (50%),
variable on performance of individual (25%) and variable on performance
of company (25%). “When IT was booming, nobody knew about the salary break up. With current crisis and each company facing losses of at least 6%, the salary is reduced in the third component,” said an IT official.

Effect on campus recruitments

Weak earnings and visa curbs have forced IT companies to go easy on campus hiring, prompting engineering colleges to consider reducing seats in some streams with low recruitments. An official of placement cell said all the companies have reduced their hiring by 15-20% this year due to which there is about a 40% drop in placements. “While Brexit is one thing, automation and concerns over H-1B visa are adding to the lack of jobs,” he said. Sources from IT industries said that many times this year students were recruited in April and their jobs were stripped within three months due to loss of a project. Also, some companies started taking in freshers on part-time jobs to reduce costs.