India’s outsourcing giants cut hiring; disheartening for economy, students

India’s outsourcing giants are slashing hiring and getting projects done with existing workers, a rare pullback that could weigh on the economy and affect engineering students who have seen information technology as the sector of choice for decades.

The slowdown, triggered by global uncertainty in demand, is unprecedented in an industry that is one of the biggest hirers in India’s services sector since the 1990s and provides an assured career path and prosperity to hundreds of thousands of students each year.

“Weak IT hiring could be for two different reasons: short-term negative demand shock or a long-term displacement resulting from labour-saving technologies,” said Rohit Azad, an economics professor at New Delhi’s Jawaharlal Nehru University.

“The impact of weak hiring would depend on which is the primary cause driving it. A negative multiplier effect in the immediate would be there nevertheless,” Azad added.

The IT sector accounts for about 8% of India’s GDP versus less than 1% about 30 years back, according to Rishad Premji, the chairman of Wipro, one of the country’s IT giants.

Overall, the Indian tech sector employs over 5.4 million people, according to trade group Nasscom, although the number is dominated by the IT sector. About 290,000 new jobs in the tech sector were created in the financial year that ended in March, but Nasscom warned of “global headwinds” in the current year.

With IT employees seen as big spenders on everything from cars, durables and second homes to travel and entertainment, they are likely to have had some effect on the sluggish 0.5% sequential growth in private consumption in January-March.

“Some slowdown in IT hiring intentions could contribute to the flat-lining in consumption that is already underway,” said HDFC Bank Principal Economist Sakshi Gupta.

There are pockets of optimism elsewhere in the services sector – especially in accounting, where there is a surge in hiring. But the numbers are still dwarfed by the IT industry.

IT firms, which count global heavyweights such as Apple, Citigroup and American Express among its clients, went on a hiring binge during the pandemic that fuelled a digital services boom.

However, things changed this year as recession fears gripped the world and the collapse of three U.S. regional banks and the forced sale of Europe’s Credit Suisse to UBS left the global financial industry shaken, making IT clients across sectors cut spending.

“The post-pandemic phase saw companies ramping up production to meet new demands in the market, leading to a growth in hiring across IT companies. This boom, however, soon fizzled out in the face of the global economic crisis and a looming recession,” said Sachin Alug, the CEO of staffing firm NLB Services.

NLB sees a 20-25% drop in IT employee additions in the first half of the current financial year, while TeamLease Digital expects a 40% decrease for the entire year.

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