The Potential Slowdown in Indian Information Technology

The Chinese growth story has been written by their manufacturing sector. Their robust infrastructure allowed them to produce the cheapest goods and become the world’s factory. Similarly, India/s growth story has been largely written by its service sector. Prominent amongst these service sector firms are information technology firms. If China has become the world’s factory, India has become their technical support helpdesk.

Almost two decades after this sector came into existence and businesses started booming; it seems to have hit a plateau. The Indian newspapers are flush with news reports that the information technology sector is looking at possible stagnation or even a slowdown. In this article, we will evaluate whether this is actually a policy and how it would affect the economy in general.

Bellwether of Indian Businesses

The Indian economy is heavily dependent on the information technology business. These businesses are the single largest creator of employment in the country. New cities have been developed thanks to the rise of the upper middle class created by employment in the information technology sector. Well-Capitalized information technology firms like Infosys and Tata Consultancy Services significantly affect the Indian bourses. Hence a slowdown in any of these firms is likely to cause a crash in the stock market.

Tightened Purse Strings

The Indian information technology is facing a global crisis for the first time since its inception. Earlier a crisis in America was offset by increasing business in Europe and so on. However, now the whole world seems to be poised for a slowdown.

The US, UK, Europe and Australia i.e. the big 4 markets for the Information Technology are dealing with looming threats of a slowdown. The multinational corporations at any of these countries do not see the kind of growth they used to. As a result, they have cut down their spending in information technology too causing a slowdown in the business.

No Demand for Body Shopping

The beginning of information technology business was easy money for the incumbents. They did not provide much value add. Rather the value was simply generated by offshoring existing jobs in the developed countries to developing nations like India.

The lower cost of labor was a competitive advantage and the earnings were generated by labour cost arbitrage. Over the years the market for such services saturated as Indian workforce expanded to millions of people.

In the present market, the business has changed. Body shopping is no longer the established business model. Information Technology companies are having a difficult time dealing with this issue. New contracts for low-skilled work are difficult to come by. Even the old ones are going away pretty fast.

Not Equipped For Innovation

Growth in the IT sector is now difficult to come by. The future of this sector lies in innovative fields like Artificial Intelligence and Robotic Process Automation. Indian companies have not made any major strides in these fields.

Companies like Infosys and TCS have started allocating a large chunk of their budget towards these newer avenues. However, a breakthrough is yet to come by. Indian companies are still laggards when it comes to high skill and high-value information technology business. This has prompted Infosys to hire Vishal Sikka i.e. an outsider who had significant experience in automation as their CEO.

However, merely hiring a CEO does not change a company’s culture. There still needs to be emphasis laid down to identify and develop talent in these newer technologies. Inability to change with the times can prove detrimental to these multi-billion dollar businesses. The structure of the industry is changing, and those who do not change with it will become obsolete very soon.

A Sea of Redundant Employees

The large workforce that these Indian companies have is going to turn into a liability very soon. Robotic process automation is leading to the creation of tools wherein people performing mundane tasks are becoming redundant at an alarming pace. This means that these companies will have to either right size themselves very fast or drown under salary expenses.

Rightsizing is not going to be an easy task either. The government of India has stringent labor laws which make layoffs prohibitively expensive. The damage that may arise to the image of these companies as well the legal costs involved will make it very difficult.

Also, a large number of employees have very little or no technical skill. A large number of them are project managers who have general management knowledge. These employees are a part of the middle management. Hence, their salaries are also significant. Reskilling these employees to make them productive, is going to be a major challenge for the Indian IT firms.

To sum it up, the heyday of the Indian information technology is over! Revenues are now harder to come by. The competition is dropping prices making profitability more difficult. Clients are now very skeptical about the people they hire. Robotic process automation is now replacing body shopping. The new era of this industry is going to upset the status quo and make survival a challenge.

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