Indian IT sector stares at another wave of major layoffs

It seems like the IT sector is staring at another major wave of layoffs. With Cognizant planning to layoff as many as 7,000 employees in the next few quarters and similar reports emerging about other IT majors like Infosys and CapGemini, close to 2 per cent of mid-senior level employees might face the axe. 

While the year started on a positive note for the sector with a boost in hiring of freshers, the slow growth in the industry and change in technologies has led to a large fleet of obsolete workforce. 

While speaking to WION, V Balakrishnan, Former CFO, Infosys, said the development is largely to be blamed on the slow growth and fat middle of companies. 

"I think today the growth in the industry is down. We are talking about single-digit growth. When we are talking about that kind of growth, then we should focus on containing costs. On one side customers want value for money, they spend, and on the other hand you have cost structures which is not tuned to the current environment," Balakrishnan said.

"So it is natural for companies to look internally and see how to reduce the fat in the middle. Over a period of time because of the legacy business, companies have built a lot of people in the middle layer. So that middle layer has to be reduced for them to become competitive in the market. So that is what is happening in all IT companies. They are looking at the fat middle and trying to reduce it," he added. 

While some companies are attempting to reskill the mid-senior level employees, not everyone can be reskilled. The companies are inevitably letting go of these employees, calling it involuntary attrition, citing poor performance. 

"US has largely been successful in migrating to newer technologies. Whereas India has not made the transition as quickly. I sincerely believe this is not a recession of new business opportunities, but that this is a recession of skill sets. Like when the crowd gets old their packages are huge and so productivity comes down. They cannot adapt to newer technologies easily. They naturally become a burden on the institution. For the same cost two-three freshers can be hired and productivity can be increased. Economic scenarios will come into the picture when margins are hit. Obviously when margins are hit companies will look to get more productivity out of its junior employees who can be trained easily," Sudheendra, placement expert, said. 

Added to that protectionist policies are forcing Indian IT majors to hire locally for onsite projects. In the recently held analysts meet, Infosys revealed that in the last one year 1,700 freshers were hired in the USA and Europe where salaries form a major part of the company's cost structure. 

Although the homegrown IT major say there is no mass layoffs that has been planned, the idea is to correct the current "barrel shape" structure of the offshore pyramid. 

"There is an onsite pyramid where most of the costs fly is a top-heavy pyramid. The bottom end of the offshore pyramid is more like a barrel shape and that is something which we intend to correct. One is we are increasing the fresher intake offshore that will broaden the base of the pyramid," said Nilanjan Roy, CFO, Infosys. 

But thousands of employees are a worried lot. 

Ajay, a techie in Bengaluru with 11 years experience was asked to quit from an IT major recently. 

"They said my performance was not good in the last few months. How can that happen in every project? I was doing well. They would pick on petty issues and escalate it and make it seem like we have not done our work. I am the tenth person that I know of who has been asked to leave in this manner," said Ajay. 

Anticipating the mass layoffs an IT employee association in Bengaluru has also approached the labour department seeking relief. 

"Mass layoffs in any company having more than 100 employees is a violation of Industrial dispute Act, Chapter 5b. So we have approached the labour commissioner and have received a positive response from him. We are taking it forward in that direction. The Act makes it mandatory for any company with more than 100 employees to take permission from the labour department to have mass layoffs," said Ullas, member of Karnataka IT/ITeS Employees Union. 

The fear, however, is that the trend is here to stay as it is coupled with the slump in the economy. 

Experts feel that no major hiring or job inductions are on the horizon and reskilling is the only way forward. 

"Recently the HR from a top IT firm called me and said he needed help removing employees from his company and placing them elsewhere. It is very new and unprecedented. This could become the new norm in India," said Sudheendra.