Indian IT Melting Pot: Heyday Gone, Industry Has to Find New Growth Oasis

The Minister's point was that free of policy chains and taxes, and left to its own devices, the IT industry has reached a position of global envy on its own steam.

Two decades later, still on its own, Indian IT has again managed to find new ground; only this once, that place is dark, murky and foreboding.

A sector that has sent more Indians overseas to the West than any other mutation now finds itself stricken by an omni-headed virus – a sluggish global economy and stilted IT spends; over-hiring and lack of upskilling; absence of new product lines; and increasing instances of international military skirmishes.

The inevitable has arrived and Indian IT is in the crosshairs – growth is receding, order books are down, profitability is pulling off the vanishing act, and new hires are at all-time lows. To begin with, the global BFSI (Banking,

Financial Services and Insurance) vertical, Indian IT’s go-to for sales, making up nearly 40 per cent of all orders, is in turmoil. Consumer-facing firms, similar to those in tech services, media, communications and auto, are also stuttering.

In her Budget speech on July 23, Finance Minister Nirmala Sitharaman spoke of an upcoming ‘golden era’ for tech workers in the country. Her words will have to be taken with a pinch of salt, given the on-ground IT jobs scenario, as also the global economic outlook.

For one, the International Monetary Fund says: “Global growth is projected to stay at 3.1 per cent in 2024 and rise to 3.2 per cent in 2025. Elevated central bank rates to fight inflation and a withdrawal of fiscal support amid high debt weigh on economic activity.”

The  World Bank also voices an eerie sentiment: “In 2024-25, growth will underperform in 60 per cent of economies, comprising 80 per cent of the global population. Downside risks predominate, including geopolitical tensions, trade fragmentation and higher-for-longer interest rates.”

Massive Revenues and Credibility At Stake

These obstacles leave India’s US $245-billion (Rs 19,60,000 crore) infotech industry wrestling to find pathways for growth, with most historical sales avenues getting elusive.

At stake is something way beyond numbers, for not only are profit figures and global credibility on the line, livelihoods are in disarray for over 30 lakh Indian infotech workers. Add in the Business Process Management (BPM, read ‘call centers’) space and the number crosses 55 lakh.

Industry leaders Tata Consultancy Services and Infosys Technologies gave campus hiring a skip for a second year running in 2024, with the industry witnessing fat benches and a talent glut from previous hires of graduating engineering students.

This is in stark contrast to the impressive comeback seen after the COVID-19 pandemic, and things have been gloomy since then, with an unprecedented hiring slump many are calling a ‘freeze’.

‘Freeze’ and ‘meltdown’ are mere words, but the impact of these was quite numbing for the people involved, especially as an Indian IT job was considered the best ‘prospective groom’ quality for decades.

There was a reduction in the workforce at IT firms in fiscal 2024, with five of the ‘Top 6’ reporting a collective decrease of 73,600 workers. TCS revealed it had shed 13,249 employees, Infosys 25,994 and Wipro a further 24,516. Only HCL Technologies bucked the trend, showing a minor increase of 1,537 employees on its rolls.

Upskilling On Backburner?

Most IT companies worldwide, including Indian ‘Big Guns’, did not change with the times, following the proven and profitable, not investing in or cultivating newer capabilities.

Cloud Computing, for instance, was a giant leap some years ago, but many Indian firms gave it a miss. It was puzzling and incomprehensible then; it is impaling in its impact now. As for the next big global opportunity, Artificial Intelligence (AI), India is lacking there too.

Today, Cloud giants like Google, Microsoft and Amazon influence decisions globally, altering the business landscape.

Those IT firms that embraced digital services are likely to reap the benefits, but those who focused on harvesting the old crop will face tough times. Over the next few years, Indian IT may see a major shift in rankings and profit positions.

Industry leader and former CEO of HCL Technologies Vineet Nayar feels new-age and digital services will decide the future of IT firms. “People are going to reduce spends on traditional back-office support and increase investments in digital services.

In particular, Generative AI will be critical – needing onshore, consulting, technical capabilities and domain knowledge – very different to the existing ‘Indian IT model’. Structural changes will, therefore, be required to capture the imagination of the customer,” Nayar feels.

That being said, there continues to be demand for traditional services, but it is quietly falling. Globally, CTOs (Chief Technology Officers) are reducing spending on Old-Gen services and increasing focus on digital.

The writing on the wall is clear – if an infotech firm’s service portfolio has a larger percentage of digital offerings, there will be a tailwind; if traditional services are heavier on the IT serving tray, they will battle headwinds.

Is Indian IT Facing A Recession?

The jury remains out on whether Indian IT is facing a ‘recession’ of sorts. Some point to job losses and softer hiring trends as a clear indicator that the answer is ‘Yes’. Others insist that with changing trends, upskilling is under way at top firms and, hence, scream ‘No’.

IT strategy consultant Supriya Sreenivasan sums it up: “There’s no definitive date for the end of the IT ‘recession’ and resumption of hiring. Anyway, the IT industry isn’t experiencing a full-fledged recession in the same way as the broader economy. There is a slowdown in hiring and tech firms have laid off people, but this is more a correction after a period of hyper-growth, not a true recession.”

Most of Indian IT’s once-hot stars are mouthing similar statements, assuring that this is but a blip that will give way to the ‘normal’ soon. But how that normal comes about is the moot question, for there is no real boomerang in sight as far as the global economy is concerned.

It is a wicked paradox – it was IT that shrunk the Global Village and distributed unbelievable rewards; now, it is IT firms which have to battle that shrinkage and its cascading fallout.

The writer is a veteran journalist and communications  specialist. All views expressed are personal.