From sunrise to sunset: India’s IT sector loses shine as jobs dry up

Even as the government pledges billions for tech innovation, IT giants freeze hiring, leaving graduates in the lurch.

Despite an impressive post-COVID growth, the Indian IT sector is witnessing an unforeseen hiring slump. | Photo Credit: REUTERS/Stringer

In her interim budget speech this year, Finance Minister Nirmala Sitharaman announced the establishment of a Rs.1 trillion corpus to boost innovation and research in sunrise domains, that is the start-up and tech industries. “For our tech-savvy youth, this will be a golden era,” Sitharaman said.

What may have dulled the sheen of this golden era is the jobs drought that India’s prized tech sector is now witnessing.

From a fairly impressive comeback following the COVID-19 pandemic, the hiring slump in the IT sector is being referred to by white-collar job portals as “unprecedented” and “a near freeze” at the bottom of the pyramid. Infosys and Tata Consultancy Services (TCS) have given campus hiring a skip for a second year running and the tech industry has a talent glut from successive batches of graduating engineering students.

What makes the situation more precipitous from a job’s perspective is a lowering of attrition rates—the IT and Information Technology Enabled Services (ITES) sectors saw a drop in attrition from 27 per cent in 2022 to 16-19 per cent in 2023. This implies that there are no new jobs, fewer employees are quitting, and there is no rush to fill existing positions either. The hiring freeze is hitting where it hurts—everywhere.

In August last year, specialist staffing firm Xpheno and other job portal sites warned of a 40 to 50 per cent drop in hiring for the current fiscal year. That is now being revised to “low-to-no freshers and entry-level hiring action in India”. It also means collateral damage on job openings for allied spaces like start-ups and other tech-related businesses; data from job portals point to a 78 per cent drop in hiring for software companies and a 73 per cent fall for start-ups, over the last two years.

In 2023, gross IT hiring addition hit an all-time low of 14 per cent, down from a peak of 40 per cent in the first quarter of 2022. Numbers collated by the Naukri JobSpeak Index for December 2023 show that white-collar hiring in India witnessed a 16 per cent decline in December compared to a year ago, with IT contributing to a significant drag on overall index numbers. The sector witnessed not just a 21 per cent drop in hiring from December 2022 but even marked against the previous month of November, numbers had fallen 4 per cent.

In other words, there are significantly fewer jobs in the IT sector than a year ago, and they are falling as we speak.

What is going wrong?

The IT sector is an intensely cyclical industry, closely tied to the ups and downs of global economic trends. This means when things are bad globally, they reflect quite immediately on the IT space. When things do recover, the IT sector tends to be more mid-cycle in reflecting that revival. What many experts and perhaps even the IT companies did not see coming is the ferocity of the dip in business prospects.

According to industry body Nasscom’s estimates, the Indian technology industry’s revenue is expected to grow 3.8 per cent to reach $253.9 billion in FY’24. That is less than half of last fiscal year’s growth rate of 8.4 per cent. In terms of jobs, the industry body estimates an addition of about 60,000 jobs—a nearly 80 per cent drop from the previous year’s addition of 2,90,000 jobs.

The top players in the IT industry have shown a decrease in the number of employees. | Photo Credit: K. Pichumani

Business trends are tricky. 2023 was a sign of the slowdown in business, and some estimates point to a troubled run through 2025. When India’s top three IT majors, TCS, Infosys, and HCL Technologies, announced their July-September quarter results for FY’24, there was a sequential and marked decrease in their total employee headcount in the last three months. Infosys announced, quite explicitly, that the company intended to continue abstaining from campus recruitment this time, as it aims to “enhance utilisation”.

For starters though, a dose of realism while talking about the industry’s prospects would be helpful. In February 2023, a reputed global brokerage said they were “believers” in the IT sector and the ability of these companies to sign billion-dollar deals was core to that thesis.

While conceding that there existed an extraordinarily high barrier to signing these deals, the belief was some of the key players in the sector were well-positioned to take on that challenge. Frequent mentions of the term “cost take out deals” that focus on a much more strategic approach to projects imply that IT companies now need a higher level of skill, but much fewer hands to execute the deal.

By January 2024, the brokerage wrote that IT services were seeing an up-cycle following a challenging year of decline in tech spending. And even though the IT services market had a widening “leaders” and “laggards” group, large-cap IT services had been winning billion-dollar deals, so things looked fairly rosy.

However, the very next month, in February 2024 the same brokerage house took note of global IT major Cognizant’s “underwhelming” growth guidance and said this was a reflection of an uncertain demand environment, especially in the large cluster of rate sensitive sectors, capital markets, and insurance companies.

Why does this matter?

In 1999–2000, India’s exports of software services were less than $3 billion, by 2017 they grew to nearly $100 billion, and in FY’22, IT sector exports from India were close to $178 billion. From a peak of 9.5 per cent in FY’15, the Information Technology and Business Process Management (IT-BPM) sector now contributes a sizeable 7.5 per cent to India’s GDP, and a meaty 53 per cent share in India’s services exports.

Ironically, even though the IT space is termed a “sunrise” sector, with roots dating back to the 1970s and 1980s, marquee names such as Infosys, TCS, and Wipro have been a part of the Indian business mindspace for many decades now. It is also an industry that has weathered many storms. From 2001, when the then CEO of Infosys, N.R. Narayana Murthy said, “There’s fog on the windshield”, to the global crisis of 2007-08, to a COVID-induced economic slump, and now collateral damage from a tightened interest rate cycle, there is a lot that the IT space has witnessed. And there is a lot the IT space has done, contributing to growth and critically, to jobs.

The IT space may well see better times. In the present day, however, India has a job problem. More specifically, it has a youth unemployment problem. From FY ’09 to FY ’22, the Indian IT industry has been a large and meaningful contributor to white-collar job creation, with employment growing from two million to just under five million. With anywhere between 5,000-6,000 engineering programmes being offered across India, more than 20 lakh students were enrolled in both government and private engineering colleges in the academic year 2022-23. These graduating students will either remain unemployed for some time or move to spaces like manufacturing. But things are not very optimistic there either.

While the latest Annual Survey of Industries shows that jobs in Indian factories increased by 7 per cent in 2021-22 to 1.72 crore, the growth over four years has been a measly 2.5 per cent. Critics may also point to artificial intelligence (AI) as the next harbinger of jobs in IT. This is completely uncharted territory for the world and certainly for India. Companies like Infosys and TCS may be well-placed to ride the AI transformation that other companies will have to undergo.

But there is neither any clarity on what this means for the number of jobs IT has traditionally provided nor on the skilling or re-skilling requirements from tech workers. If numbers are a concrete sign, they are showing us caution and a cut-down; campus recruitment by major IT services companies in India is at a three-year low, and replacement hiring has also slowed down considerably. The focus seems to be on ensuring fewer people do more.

HSBC estimates that India needs 70 million jobs over the next decade. Against a figure like that, the fact that thousands of job openings are now sucked out from a fairly narrow organised job market pool has very serious consequences for an extremely fragile employment landscape.

Who will step up to fill the void the IT sector slump has now created? Who will step up to fill the space the IT sector growth slowdown will create for India’s economy? For a government that has prided itself on its digital-first persona, is there a clear-eyed acceptance of an escalating employment problem, now in the organised sector, just as much as the unorganised space?

There is neither any joy nor glory in pointing to the serious problems a burgeoning jobs crisis can lead to. But the solution certainly does not lie in looking the other way.

Mitali Mukherjee is Director of the Journalist Programmes at the Reuters Institute for the Study of Journalism, University of Oxford. She is a political economy journalist with more than two decades of experience in TV, print and digital journalism. Mitali has co-founded two start-ups that focussed on civil society and financial literacy and her key areas of interest are gender and climate change.