Nasscom’s bleak outlook for IT sector: From lower jobs to Brexit impact

Information technology body Nasscom on Thursday spelt out the headwinds the Indian IT companies face in the short to long term, painting a gloomy picture for the sector.

The statements assume significance as the three major IT services companies of the country - Wipro, Infosys and TCS - have come out with a not-so-impressive earnings , giving rise to concerns about the jobs creation potential of the sector.

Here are the key points made by the Nasscom on Thursday:

Hiring to decline: The most important takeaway from the Nasscom’s statements is the bleak outlook for fresh hiring. It 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 were created in 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”, said Nasscom president R Chandrashekhar, without giving an exact figure.

He said fresh hiring is either static or gently declining. It is not as if overall hiring is going down. It is not going to be in the same pace as it was, he said.

Automation is the buzzword: 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 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 percent 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 in to 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 off-shoring 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)”.

Demand for robotics, AI, digital skills: While entry-level coding jobs will see a cut, there will demand for skills in robotics, AI, digital space, biotech, nanotech, smart technologies, etc.

Re-skilling, self-learning key: Chandrasekhar also revealed a Nasscom-McKinsey study on the IT sector jobs. As per the stidy, 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% of the existing staff will have to be re-skilled.

Do not panic on Trump: Industry needs to wait and watch, rather than panic, on the outcome of the US Presidential elections Republican candidate Donald Trump is a frontrunner for the US President’s post and is widely feared in India for his stance on the outsourcing industry and existing immigration policies.

The industry does not have a view on candidate Donald Trump. “There is a big difference between candidate (Donald) 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 lead 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 it warned of lasting impact of ‘Brexit’ on India. Chandrashekar expects the 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 stand point 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 explaining the rationale.

If the currency (Pound) depreciates further, current IT contracts, if not re-negotiated, would either become loss making propositions 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.

With PTI