IT sector coming of age

Sushma Ramachandran

The Congress manifesto for the Karnataka elections has highlighted the critical information technology sector of the state and makes many pledges, as such documents do, regarding employment and skill development. Apart from promising to raise job availability by one crore over the next five years, it assures that information technology (IT) will become a major driver of the state’s economy, from a $30-billion contribution to a mega $300 billion. In the light of this outlook, one needs to take a closer look at the IT industry which has been going through trying times recently. 

Though still expanding, its growth has fallen to single-digit levels. Exports are estimated to have risen by 7.8 per cent in the last fiscal while worries about employment prospects have been increasing over the past two years. It must be stressed that the IT industry is significant, not just for Karnataka, but also for the entire country, as it is a major employer and one of the biggest foreign exchange earners for the economy. But Bengaluru, or India’s Silicon Valley as it is called, remains the hub of the country’s IT industry, with about 40 per cent of software exports coming from this area alone.

In some senses, the IT industry seems to be coming of age. For instance, the largest software services company, Tata Consultancy Services, hit the headlines recently for being the first IT firm to achieve a market capitalisation of $100 billion. This means it exceeded the market cap of Accenture and also the combined market cap of Infosys, Wipro and HCL. One of the reasons for the success of TCS has been its ability to adapt better to the changing requirements for IT service providers in the global marketplace. The need of the hour is now digital services, where the demand is likely to growth twice as fast as that of the overall industry. Technologies such as cloud computing, artificial intelligence and machine learning are becoming the basis for new services. 

IT firms will now have to focus on re-training personnel to adapt to the new environment where new technologies like the ‘Internet of Things’ are coming to the fore.

The new technologies, however, have had an impact on employment in the industry. It is no longer the era of mass hiring of entry-level personnel from engineering colleges. It has become the era of re-training and re-skilling. Experts are describing the Indian industry as having aged, because it has been slow to shift and meet the demands of the global environment. The new technologies require fewer personnel, though the returns may be higher in financial terms. For instance, one company increased revenue fivefold by shifting to digital technologies, but the number of people working with them remained the same over the past 10 years. 

No wonder then, there has been tumult and unrest in the IT industry over the past two years. Employees have been forming associations to resist the downsizing that was taking place in many firms last year, something unheard of in the past when large numbers of skilled personnel were being recruited by the industry. Discontent was because layoffs ran into thousands. This was largely due to cuts in H-1B visas by the US, which remains the largest market for our software exports. At the same time, industry association Nasscom says under the new regime, it has actually become expensive to use these visas. 

As a result, only 20 per cent of the visas issued to Indian tech companies are actually being used by them. Data for the past year shows the impact of the various global changes on the industry, including the tightening of visa regulations by the Trump administration and the shift to new technologies. Total sales by the Indian IT industry in 2017-18 are estimated at $167 billion, which includes a 7.8 per cent rise in exports and 10 per cent growth in the domestic market. IT services exports are expected to rise by $10 billion to reach $126 billion dollars.

Clearly, the industry’s earlier galloping pace of growth has not been maintained, but it does continue an upward trend. In this context, one wonders whether it would be possible for jobs in this sector to double over the next five years. On the plus side, the current year’s outlook is brighter, with industry analysts expecting jobs to rise by nearly two lakh. 

In any case, the process of restructuring and re-skilling has begun in the IT industry. There is also a perception that new opportunities in the digital technology arena, along with government schemes like Digital India, will lead to the creation of more jobs in digital technologies. A report prepared by Ficci and Nasscom in collaboration with Ernst and Young earlier this year had predicted that new jobs that do not even exist right now will occupy 9 per cent of the total 600 million expected to be in the workforce in 2022. It also predicts, however, that it will take two years of slowdown as companies adjust to the new scenario before there is a pickup in growth.  Subsequently, it says, that the entire job landscape would undergo a drastic change, especially in the software and IT industry.

In other words, there will be some pain ahead, even though there is light at the end of the tunnel. The IT industry is clearly gearing up for this difficult time by trying to ensure major re-skilling of its employees is carried out. At the same time, there could be serious issues relating to those who cannot be retrained in the new technologies. Last year’s experience of downsizing carried out by major IT firms showed that there could be serious social unrest in the Bengaluru area if this is repeated. It has been reported that about 2 to 6 per cent of the IT industry workforce was laid off in 2017 as against 1 per cent usually. 

The outlook is thus bleak in the short run, but brighter in the long term. As for whether the Congress will be able to fulfil its promises of more jobs in the IT sector, the answer is clearly the same — it may be tough immediately, but is a distinct possibility in the longer run.