Re-inventing Indian IT

In mid-September this year, several employees at India’s largest software exporter, Tata Consultancy Services (TCS), were laid off and many more were given months to shape up or be shown the door. With the financial services sector in a tailspin and the slowdown in the US market spreading to Europe, India’s booming IT industry found itself directly in the firing line.

For the last five years, the IT industry has blossomed as companies looked to leverage India’s low-cost, high-quality base for IT services. Over the last five years, the Indian market has grown from $21.6 billion (Rs 1.04 lakh crore) to $64 billion (Rs 3.07 lakh crore), employing 800,000 people. In this time, Indian IT companies have leaned heavily on financial services and the US market (the biggest industry and geography for IT services) and now they’re feeling the heat as a slowdown in financial services begins to spread to other sectors such as real estate and manufacturing. What’s worse, a 60 per cent reliance on the US market has singed the industry, causing Indian vendors to review their plans.

Besides Indian IT companies, the overall technology industry has seen a spate of lay-offs, with companies across the board cutting down flab to stay afloat. In the semiconductor market, most design centres of companies such as Intel, NXP and Texas Instruments have frozen their hiring, while online giants Yahoo and AOL are downsizing. Nvidia, the graphic processor maker, recently added to this increasingly lengthy list when it announced plans to cut 60-70 people across its Bangalore, Pune and Hyderabad centres. “Everyone is going to look and re-look at their centres in India. There will be an even greater emphasis on cost and efficiency,” says Forrester’s McCarthy.

We continue to see a lot of uncertainty. Its heightened levels have made customers cautious,” admits Wipro’s Joint CEO Suresh Vaswani. However, his peers in the industry are much more frank about the current state of the market. “The slowdown in US is for real and it is wait’n’watch for at least the next two quarters,” says S. Premkumar, Corporate Officer & Global Head, Financial Services, HCL Technologies. A key concern, according to analysts, is the limited spending by other industries, which will prevent the Indian IT industry from recouping the losses suffered in financial services. “Financial services companies spend about 10 per cent of their earnings on IT, compared to 3-5 per cent by other industries. Indian IT can expect to face rough weather in the foreseeable future,” says John McCarthy, Vice President at Forrester Research.