Representative Image
Representative Image

As India has extended lockdown up to 3 May to contain the spread of coronavirus, the uncertainty over the business activities and manufacturing output has deepened further.

Goldman Sachs, a global investment banking firm, has last month said the unprecedented health crisis would shrink the global economy two percent this year. The company had also predicted that India’s GDP growth could fall to 1.6 percent as against the earlier projection of 3.3 percent. They may revise the projections later depending on the impact of the disease.

Yet, the existing concerns have raised the anxiety levels of jobseekers and existing workforce in India, especially in the Information Technology (IT) sector which employs about 4 million people and contributes around 7.7 per cent to the country’s Gross Domestic Product (GDP).

The Indian IT sector gets most of its revenue from the US and European markets. As corona pandemic has hit these countries badly, new projects may take a hit with customers postponing or deferring technology spending.

“While travel restrictions have affected even ongoing projects at offshore locations, the firms involved in Research and Development of products such as mobile phones are the worst hit as testing centres are shut,” says Rajan Srivastava, senior executive of at a multinational software company based in Delhi.

The engineering undergrads, who have bagged job and internship offers through campus placement, are also worried as many firms have cancelled the job offers and frozen the hiring.

IT, a crown jewel in India’s success story

The IT and IT-enabled services sector has remained the crown jewel in India’s success story for last three decades. It contributed immensely to change India's image from a slow developing economy to a global player in providing high-end technology solutions.

The industry, whose revenue is in the tune of US$ 181 billion in which export’s contribution is about US$137 billion, accounts for nearly 45 per cent of share of India’s total services exports. Two third of India’s IT services export relies on United States. It was estimated to reach $200 billion 2020 fiscal.

Now, smaller firms have started laying off employees while some have given unpaid leave to staff. Top software exporters – Tata Consultancy Services, Infosys and HCL Technologies — will also be impacted by the reduced technology spending by clients in the US and Europe, analysts say.

The sector will bounce back soon, say experts

There is a silver lining though. Big companies like Wipro, TCS, Tech Mahindra, Accenture and Capegemini have assured that they would honour the job offers. Their announcements are likely change the sentiments across the boards. But the IITs, IIMs and other institutions, where campus placement season begins July onwards, are worried a lot due to uncertainty.

“The companies which offer IT-enabled services will remain largely unaffected as of now. The new projects might be held up as the clients across the world would like to cut their spending. So, the first two quarters of the current financial year would be tough but then the growth curve will go upwards,” hopes R Ganapathi, President of South India Chamber of Commerce and Industries and Managing Director of Mumbai-based IT firm Trigyn Technologies.

As travel, hospitality, airlines, financial services, and manufacturing firms grapple with the upheaval wrought by the Covid-19 pandemic, the software firms catering to them will face the maximum heat. There could some pressure on pricing as well since as most clients have started seeking discount from the IT providers. Some start-ups too would find it difficult to sustain, say analysts.

But the aftermath of the pandemic will also provide an opportunity to learn and come back with new solutions. The dependence on technology in many areas is likely to jump within a year.

Mohan Narayanan, chairperson of of the pan India IIT Alumni leadership Series and former Vice President Cognizant Technologies, says, “The IT sector is always the first to bounce back after every economic doom. The year 2000 and 2008 are the best examples. The firms which offer products for healthcare, pharma, logistics, e-commerce platforms, online education, online grocery stores, surveillance, government departments, life and medical insurance would get more opportunity to grow, says Narayanan.”

“The IT firms which offer solutions for emerging challenges will have bright prospects. They would require more workforce as well,” says Narayanan.

The companies, which develop products for telecom sector especially in the wireless communications, also set to grow due to surge in demands.

“We had to deliver 5 G network to a US provider by the end of this year. Now, we have been asked to fasten our work and deliver the product which can handle twice as consumers as the previous requirement,” a senior company executive said.

The chairman of the IT industry body Nasscom and Infosys Chief Operating Officer UB Rao has stated last week, “Covid-19 is the tipping point to accelerate the shift to digital and workplace transformation. The Indian IT industry has reacted well in time. Around 80-85% of the work has moved to employees’ home. We would seek stimulus package from the government to minimize the impact. We shall bounce back soon.

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