Information technology industry body Nasscom on Thursday painted a rather gloomy picture for Indian IT companies in the short to long term, as the three leaders - Wipro, Infosys and TCS - have come out with less than impressive earnings, giving rise to concerns about job creation in the sector.
On the jobs front, Nasscom said recruitment by the IT services sector in the current financial year is expected to decline from the last year's level as the companies are facing pressure on margins, besides focusing on automation of jobs. This is the first decline since 2009.
"Hiring activity in the year before last was 2.20 lakh (new jobs created in the IT sector). Last year (FY 2015-16), there were about two lakh additions. This financial year, we are expecting it to be on the lower side of that," Nasscom president R Chandrashekhar said.
He said fresh hiring was either static or gently declining – though on a brighter note, it was not going to be in the same pace as it was, he said.
Chandrashekhar attributed the companies' focus on automation and pressure on margins for the decrease in hiring activities. "They (IT companies) are adopting higher productivity by reducing the employee strength and focusing on automation. For a country like India, automation works differently as cost effectiveness on automation is different because our economic levels are different," he said. He expects 5-10 per cent of existing jobs to be automated in the next 10 years.
While certain jobs within the industry may be automated, those which are off-shored are actually coming into India. There is a loss of jobs because of automation within India and also because of a new set of jobs which are coming due to offshoring and technology changes, he said. However, the body is still "quite optimistic" for the next two years for the reason that "our fundamentals are stronger than others (countries)".
While entry-level coding jobs will see a cut, there will demand for skills in robotics, artificial intelligence (AI), the digital space, biotech, nanotech, smart technologies, etc.
Chandrasekhar also revealed a Nasscom-McKinsey study on IT sector jobs. As per the study, the sector has 3.7 million employees now. It would need 1.2-2 million more heads to achieve the revenue target of $100 billion by 2025. According to the industry body, the companies are strengthening their existing workforce.
"From a one-time training system, IT companies will need to adopt ongoing and sustainable training while incentivising self learning," Chandrasekhar has been quoted as saying. According to the Nasscom-McKinsey study about 60-70 per cent of the existing staff will have to be re-skilled.
On the impact of the US presidential elections and fears of Republican Donald Trump winning, he said the industry does not have a view on candidate Donald Trump. "There is a big difference between candidate (Trump) Trump and incumbent (Trump). When a President becomes incumbent, the real world, governance come into picture", Chandrasekhar said.
"Indian IT industry actually helps create jobs even ostensibly in United States. This leads us to believe that we can afford to sort of wait and see the circumstances. But we do not need to panic, for sure," he said.
Brexit is indeed a worry. Nasscom warned of a lasting impact of the British exit from the European Union on India. Chandrashekar expects it to reflect in the second or third quarter results of the domestic IT firms and roll out over a much longer period.
"First and foremost, till December 2016 itself, UK said they will not invoke Article 50. So, from a technical standpoint they have not started exiting by the end of calendar year 2016. After that, it may take up to two years, of exiting from European Union," he said.
If the pound sterling depreciates further, current IT contracts, if not re-negotiated, would either become loss-making or would not yield the same kind of margins.
"In terms of large contracts made by big companies, the decision-making will slow down. Impact on some of the large deals could get impacted. Lot of Indian companies used London as base. So that will get re-evaluated," he said.
However, in the longer term, Brexit holds opportunities for India, Chandrasekhar said.