A popular meme going around post the Covid-19 pandemic relates to a request to God to reboot 2020 as the system has a virus. Sadly, India’s multi-billion-dollar IT industry couldn’t agree more as the first quarter of the year has been nothing short of inauspicious for the economy with the rest of the year only appearing even more catastrophic.
The Covid-19 pandemic has created havoc in almost every country, business sector and human behavior, giving rise to a situation no less a global war or an economic recession. Analysts predict that the $181 billion-IT industry in India could witness a significant slowdown during this financial year.
Lockdown Leads to Revenue Meltdown
Top IT services companies Tata Consultancy Services, Infosys, HCL Technologies and Wipro, among others, will be impacted by the reduced technology spending by clients in the US and Europe following lockdowns across the globe.
The global IT industry will see a decline in overall revenue by up to 3-4%, as business slows down due to the coronavirus pandemic across the world, said a new report by IDC. The research firm further stated that the impact on the global IT industries will compound as the year unfolds, in which time the exact extent of the impact on India will also be clear.
Going by these depressing global projections, and given that India is a major contributor to worldwide IT services, the slowdown in overall IT expenditure across the world may cost India billions of dollars, IDC said, predicting that while hardware businesses will face the maximum impact, the trickledown effect will also eat into the software and services industries across the world.
As a global economic slowdown has officially pegged the world to be in recession, experts believe, India stands to lose over $5 billion in IT services exports itself.
“While the actual impact of COVID-19 on India market will be evident by middle of 2020, we expect a slowdown in terms of discretionary IT spending, contract renewals and new deals getting signed as enterprises recalibrate by cost structure in coming months. Existing project executions have also taken a hit due to travel restrictions in place. IT vendors will be forced to relook at their growth targets for the rest of the year as the impact will become evident in the next few quarters,” said Sharath Srinivasamurthy, research director of enterprise solutions at IDC, in a statement.
IT industry body Nasscom said India’s software and services exports grew 8.1% to $147 billion in fiscal year 2019-2020, but the current fiscal look difficult. As Devang Bhatt at brokerage ICICI Direct said in a recent interview with Economic Times, “In the near future, IT companies could feel the heat of pricing pressure, revenue loss due to lockdown (in India and many countries globally), client bankruptcy and slower client decision making led by lower discretionary spends.”
Travel restrictions delay IT project execution
In recent weeks, Indian IT firms have already faced cancellations of projects by clients across sectors due to the reduction in air travel and closing of cities and countries to embrace social distancing to tackle the pandemic. An insider from Infosys said, delaying the execution of existing projects and hurting the ability of IT companies to ramp up projects and close deals, as crisis-hit clients delay allocation of funds. Further, pricing pressure will lead to lower deal wins and renewals.
“Existing project executions have also taken a hit due to travel restrictions in place,” Srinivasamurthy said, adding that IT vendors will be forced to relook at their growth targets for the rest of the year as the impact will become evident in the next few quarters.
For example, the ‘work from home’ concept though not new for Indian techies in practice it certainly is a testing time to see the success at this scale. IT vendors are working with clients to get special approvals, wherever needed, to have employees connect remotely to continue providing services especially in supporting mission-critical IT systems.
“Enterprises are also exploring ways of working together that leverages conversations, meetings, and assets across platforms with employees working remotely from wherever they are located to serve customers better and ensure business continuity,” he said, adding that the adoption of collaborative applications growing at a rapid pace after the COVID-19 outbreak.
Massive job loss, pay cuts
The outbreak has also led analysts to predict that nearly 2 lakh employees in India’s IT industry might lose their jobs over the next three-to-six months. Majority of these layoffs will happen in small IT firms, said HR experts. The industry employs about 45-50 lakh, of which and smaller firms account for about 10-12 lakh. The top five IT firms alone employ close to 10 lakh people.
The lockdown, and its extension, is creating major uncertainty that is impacting decisions. Smaller firms have started laying off employees with each project ramp down. Most firms have reportedly paused hiring and many startups have announced pay cuts.
Indicating that a prolonged lockdown to contain the spread of Covid-19 may lead to job cuts in the Indian IT industry, Nasscom’s former president R Chandrasekhar said in a recent note, “While smaller firms and startups which are surviving on funds infused by venture capitalists may face tougher situations if the present scenario deteriorates at the moment, for larger technology companies, beyond a point, say, three months from, they will feel the pressure and may not keep on providing subsidies to the employees.”
Chandrasekhar however believes that the work-from-home systems being adopted by several firms across the globe, including India, may have a negative impact on the industry in the short-term, but in the long run it would change the work culture which hitherto was not experienced by many of the IT firms in India. “This coronavirus has forced us to change faster than we were changing,” he said.
The present situation however is full of ambiguity. And with alarming projections showing what it may cost the world in the long run, it remains to be seen how India’s IT industry innovates and readjusts to new economic shift in order to weather the storm.