unemployment | How will global layoffs impact India?

GS 2

Why did many U.S. tech companies let their employees go? What are the trends on jobs, attrition, operating profit margins among IT firms like TCS, Infosys and Wipro? Why is the start-up sector already hurting? What will happen if a worldwide recession sets in?

WHY IN THE NEWS : Over the past few months, a slew of U.S. multinational companies including tech giants Amazon, Meta, Intel, Twitter and financial behemoths like Citi and Morgan Stanley, announced massive layoffs.

·      According to a global placement and coaching firm, the layoffs crossed 60,000 in September and October. These developments are bound to have an impact, on India’s export prospects, especially in the information technology (IT) sector.

Why are layoffs becoming common?

·      A potential economic recession is a big red flag.

·      With inflation soaring in most parts of the world, central banks have been scrambling to rein it in by increasing rates so as to make it more costly to borrow and consume. This will eventually affect economic growth and jobs.

·      The International Monetary Fund (IMF) has cited forecasts for global GDP growth in both 2022 and 2023 as gloomy, given the pandemic and ongoing Russia-Ukraine war. Setting aside the 2008 financial crisis numbers, estimates for this calendar and the next by the IMF are the weakest since 2001.

Outlook for the Indian IT industry

·      The Indian IT services firms are among the largest employers in the organised sector and any global economic trend is bound to have an impact on their growth projections.

·      Managements look at headcount numbers critically when they want to cut costs and protect profit margins as they are accountable to investors. Though there isn’t a discernible trend yet, there are a few signs which may signal what is to be expected in the next few months.

·      All top companies except Wipro saw a rise in revenue and net profit. Wipro’s net profit slid 9% from a year earlier for the quarter ended September.

·      The attrition rates, or the number of employees per 100 quitting on their own, of the top two firms, TCS and Infosys, show that these rates are still high, which means that there is enough business for the sector for competitors to draw away employees with promise of higher salaries.

·      Media reports have said that Infosys aims to pay out 65% of the variable pay to employees for the July-September quarter, compared with 70% in the April-June quarter, because of ‘pressure on margins’.

What about start-ups?

News of layoffs in the Indian start-up front is predominantly in EDtech, or the educational technology front.

v A lesser share of internet users visiting educational websites since the decline of the pandemic is cited as one reason.

v The Indian start-up layoff tracker by Inc42 showed that more than 15,700 employees had been laid off in 2022 given tightening funding conditions. Byju’s, Chargebee, Cars24, Ola, Innovaccer, Udaan, Unacademy and Vedantu are names that have been in the news for layoffs, according to Inc42.

v The tracker showed that the edtech sector has laid off the most employees – 14 start-ups had laid off 6,900 employees in 2022.

Are jobs being added in the U.S.?

·      When layoffs take place in some parts of the U.S. economy, job additions also take place simultaneously in other parts.

·      In the U.S., as per the Bureau of Labor Statistics data, as of November 4, employment in healthcare saw the healthiest increase at 53,000. Manufacturing added 32,000 jobs.

·      For Indian IT firms, roughly about one-third of revenue comes from financial services — over the past six months, this sector has seen little change in terms of job additions in the U.S. economy.

What happened in India during earlier global recessions?

·      While companies seldom publicly announced layoffs, they would all look to ease out staff who were lower down the performance ladder.

·      Companies that were in a particularly bad patch cut bench strength. Then again, if a person was about a month old on the bench (i.e., without projects), he or she may have been asked to sign up for some training courses etc. If the professional spent more than three months on the bench and had not landed a project, the system itself would ease him or her out.

·      What happened in the aftermath of the 2008 recession that stretched well beyond 2-3 years is that companies would start slowing down headcount addition. Planned additions from campus would decline or offers would be made but absorption into the company could well take 9-12 months from the time of offer.

Source: TH

Team Manvendra IAS