IN the aftermath of the global recession in 2008, there was widespread acknowledgement that India had insulated itself from its fallout for a range of reasons. The massive lay-offs that were seen in the United States did not have a chain effect in Indian industry and the Indian labour market. But the latest spate of lay-offs and speculated lay-offs in the software services industry have removed the veneer of complacency. The lay-offs in major information technology (IT) companies and information technology-enabled services (ITeS) are widely believed to be the tip of the iceberg. Insiders say the worst is yet to come. The crisis is attributed to how the industry allowed itself to develop for years, to the mutual benefit of both the supplier and procurer, catering to “services” alone rather than software product development. The “bubble” was waiting to burst as the IT giants in India focussed only on providing services, for which home-grown competition had grown tremendously.
Union Minister for Science and Technology Ravi Shankar Prasad said the lay-offs were overhyped and told a leading business daily that they were just “routine trimming”. He also said that the IT sector would generate 20 to 25 lakh jobs by 2025. The optimism, however, is not shared by IT employees, industry insiders or even trade unions. Frontline spoke to a cross section of them.
According to an industry insider who worked for two and a half decades in a leading IT company, companies were forced to change their software in the aftermath of the Y2K scare and had “body shopped” a lot of people. “It was like pressing the reset button in 2000. The industry worldwide started looking for engineers and those with a knowledge of English. India had both. The Indian talent pool got ‘body shopped’ by various agencies,” he said.
The other reason was “cost arbitrage”. While the companies held on to the core technology, they outsourced the fringe work to countries like India where they saved on labour costs and doubled the output. “An engineer in India writes a software code for a multinational company. Both make good money. It was a win-win for both. Software services companies also made money and started planning for the future,” he said.
A senior industry executive said, on condition of anonymity, that software services had been commoditised and customers preferred the bidder offering the least price. The “Trump scare”, he felt, was overhyped. The future of services meant that there would be more “smart work” involving sharper applications requiring less labour. “Companies should have asked themselves these questions they are asking now, about extra manpower on their hands,” he said, adding that overseas customers were asking more questions and delays in decision-making affected business. He predicted that the voluntary attrition rate of 15-16 per cent (of employees leaving a company) would slow down and there would also be less hiring. Companies would be more aggressive than before in “weeding out non-performers”, he said.
The ‘bench’ concept Theindustry has been reticent about sharing the number of people actually axed. But the concept of the “bench”—the list of employees who are not part of projects—is widely known, and those on the “bench” were the ones to be axed first. The industry insider explained that the bench was the product of a kind of “forward planning” where talent pools were created depending on the nature of projects received from clients. Some employees were always on stand-by mode, primarily for two reasons. Clients had to be serviced at short notice and the bench provided a cushion against the high attrition rate. Secondly, there was always the possibility of letting go of employees once a “project” was over or business stopped coming in. “The concept I think comes from sports. They are like ‘extras’. A kind of a reserve force. We don’t keep them unemployed. They are deployed as apprentices and provide skill and training on simulated projects. I know he or she may quit tomorrow if offered a Rs.10,000 hike elsewhere. That’s the way the market operates. Freshers are kept on the ‘bench’, and they are people who are paid the least,” said the industry insider.
A self-created crisis The present crisis was caused by the industry’s focus on providing software services without entering into software production. Internally, the workforce was divided into ‘teams’ with a team leader, which was a managerial form of organisation. Software engineers were not encouraged to become individual contributors. “The Indian psyche is very feudal. Organisations understood that by creating teams and team heads, they could offer career progression opportunities and keep employees happy. The work was mainly managerial. Engineers were groomed to become managers. They were promised that they would be made team leaders. Everyone was happy,” explained the industry insider.
A “hybrid” model of employment also gradually evolved in the software services industry. If a company needed 200 persons on a project, it would keep 150 in India and the rest would be sent abroad. Customer contact was established and the client kept happy. It was also an employee motivation tool as there was the anticipation of being sent abroad some day. Sending Indian software engineers abroad also worked out cheaper than hiring foreign nationals. All that was to change with the Donald Trump regime’s new H1-B visa rules and its “buy American, hire American” thrust.
Appraisal and ‘separation’ The time for lay-offs was ripe, and the tool used to facilitate it was “performance appraisal”. Companies preferred laying off middle and senior level managerial staff such as project heads who would be seen as least productive to the organisation. “In exit criteria, performance appraisal comes handy,” the industry insider said. The wage bill of the employees listed for axing as a percentage of the total wage bill was also considered a factor in deciding how many should be laid off. As there were no term-based contracts and there was only a minimum notice period, firing was easy. Organisations did not prefer to use the word “firing”.
In response to a question regarding the number of employees laid off and scheduled to be laid off, Wipro Ltd sent a statement to Frontline : “Wipro undertakes a rigorous performance appraisal process on a regular basis to align its workforce with the business objectives, strategic priorities of the organisation, and requirements of our clients. This systematic and comprehensive performance evaluation process triggers a series of actions such as mentoring, retraining and upskilling. Regular feedback and multiple opportunities are provided for improving the performance. The performance appraisal may also lead to the separation of some employees from the company and these numbers vary from year to year.”
‘Professionals, not workers’ For a sector that has been around for nearly three decades or more, the absence of worker unions is mystifying. The problem was, an industry insider said, IT employees did not regard themselves as workers but professionals because of the high salaries they received in comparison with others outside the sector. “When we go to recruit them, we tell them they are going to be spoilt by the industry and that within six months, they will earn enough to own two cars and maybe a house in some time,” he said. But things have not been all that rosy.
Tapan Sen, general secretary of the Centre of Indian Trade Unions (CITU), recalls how two years ago there was a move to retrench employees in large numbers, but the crisis was averted. On May Day this year, however, hundreds of IT workers came out on the roads in Bengaluru demanding better conditions, unmindful of threats of persecution. The employer associations, it was learnt, did not take this very kindly and told sections of the media that they disapproved of the demonstrations by the IT/ITeS Employees Centre, an organisation formed by IT employees. Sen, who is also a Communist Party of India (Marxist) member of the Rajya Sabha, said that the services sector could not expect to do well when there was a general “gloom” in the economy and growing global protectionism. He told Frontline that the real crisis was yet to begin and that many more would be laid off in the name of restructuring.
“Brexit, anti-immigration policies and growing resentment against globalisation and unemployment are symptomatic of the pressures on the job front,” he said. Quoting the Economic Survey , he said that of every $2 of value generated, $1.49 would be taken by the place of origin while 51 cents would be retained by the place of outsourcing. Foreign companies were reaping profits by outsourcing their work to software services companies in India. He said that the lay-offs were a serious labour issue and it was only now that unionisation had begun among the workers. “IT professionals undoubtedly get a good package, but they contribute much more than what they receive,” he said.
Virjesh Upadhyay, general secretary of the Bharatiya Mazdoor Sangh, who recently shot off an angry letter criticising the NITI Aayog for taking decisions on labour without consulting trade unions, told Frontline that economic policies and lack of planning made lay-offs inevitable.
India no longer a niche labour market A mechanical engineer who received training in software engineering and later joined a U.S.-based credit card company told Frontline that globalisation was a major reason for the dilution of resource availability. India was no longer an exclusive pool or niche labour market as demand had been farmed out to a larger number of countries in Asia and South America. Rising unemployment, lower wages, a recalcitrant job market, the rise of nationalism and its impact on immigrants, tightened immigration and economic policies such as reduced work visas and policy-driven salary increases (raising costs for Indian companies) were some of the factors causing the current spate of lay-offs. Automation, the classic paradigm of machines replacing man, had also put pressure on companies to retool, retrain and widen the sphere of recruitment, which was limited to engineers and software professionals. It was quite possible that in the future the industry would be characterised by high-skilled but fewer jobs, the engineer said.
Man and the machine Prabir Purkayastha, president of the Free Software Movement, told Frontline that increasing automation was the new challenge. With the expansion of digital technologies and with more power being packed into less silicon, it became technologically possible to automate a whole new range of activities. Software had replaced workers not only from other spheres but from its own sphere as well. “The skills at risk are the low-level coding skills. What was the fate of the data-punching operators is becoming the fate of low-level coders. That is the deeper underlying crisis in the software industry. A huge structural shift is being seen, where a huge bunch of people’s skills will no longer be required. Unless they upgrade and learn higher levels of work, it would be difficult to re-employ them. We are looking at much lower levels of growth and employment. NASSCOM has been saying that unless the Indian software industry undergoes a structural shift, we will be looking at much lower growth and much lower employment. It may be possible to retrain, but it also may not. Industry has very little incentive to retrain. They can get fresh people at half the cost and train them,” he said.
Precarious employment He said that a huge bulk of graduates from computer science schools would not be employable, and teachers in colleges would need to be retooled as many of them did not have the skills to keep pace with the changes. The lay-offs, he said, reflected a global trend, and Indians had for a long time projected themselves as a people who did not do high-level stuff but were available to code whatever was given to them. The bulk of low-level coding, Purkayastha said, was done by outsourced shops, like the ones in India. “It is not a problem that we can solve by shifting people to higher skills, so the idea that the software sector will provide employment needs to be revisited. At the end of it, services have a limitation. Without producing goods, how much can an economy rely on services is the question today. Protectionism as a mechanism in the advanced capitalist countries is also not going to save the situation for even those in the advanced countries,” Purkayastha said.
The key question today, he said, was employment creation. A lot of Indian work is not software but consists of business process outsourcing (BPO) and ITeS, a market that other countries are entering.
The outsourced economy, Purkayastha said, added to consumption. The only ancillary industries that grew with software were the food and transport industries—food and taxis. The idea that the outsourced model would motor the Indian economy was a rationalisation for not going in for manufacturing. He argued that there was a growing understanding that basic industrial skills needed to be developed and predicted that certain sectors would see job losses and fewer people would be employed in jobs generated by the IT sector.
“The software industry knew this day was coming, but it does not know of any other outsourcing model. There will be a disproportionate loss of jobs. There will always be jobs for a certain section—the high end, but low-end jobs will not be required anywhere. Without manufacturing, can we create the number of jobs that India requires? I doubt it. Industrial production has not picked up despite the ‘Make in India’claim,” he said. He added that the government had no response to the problem as it did not believe in planning but put its faith in the market alone. Precarious employment, he said, was going to be the new future.
At a major jamboree organised by the Ministry of Labour and Employment to celebrate three years of the Modi government, a picture of optimism was presented. The crisis in the IT sector was not even mentioned.
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