COVID impact: Infotech firms moving to new normal amid layoffs, salary cuts

The brutal brunt of the COVID-19 outbreak is resonating across India’s leading IT-BPM US $191 billion industry, which has a workforce of 4.6 million

coronavirus impact, coronavirus, COVID-19, IT sector, layoffs, salary cut, Information Technology
The online survey covered 1,124 companies across 11 industry sectors in 25 major cities. The survey was conducted between May 1 to May 10, 2020. Illustration: iStock

Several industries across the world are resorting to layoffs and pay cuts to stay afloat even as the economy is in the throes of a recession induced by the COVID-19 pandemic.

One such sector is Information Technology, which, according to analysts, is expected to be significantly impacted across the board — small-scale firms and top players alike.

Rohit, a Pune-based IT sales executive, who joined Fareportal, an American travel technology firm in January this year, was expecting to repay his marriage loan, and shore up his monthly pay corpus via ticket commission, considering the attractive incentives offered by the company. However, in just three months, his dreams turned to dust after he was abruptly terminated by the New York-headquartered company.

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“In my case, they probably used my probation period to relieve me. They have sacked 300 other employees in our Gurgaon and Pune offices as well, without offering a valid reason,” said the 29-year-old, who is struggling to grapple with the sudden loss of his regular income.

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“I’ve kept this disturbing news away from my parents who live with me since other companies are not hiring until June or more,” he said, with a deep sense of frustration.

“I am not angry since anger will not feed me nor my family. I am worried, how do I run my home? My wife is a teacher on contract. My colleagues are in a worse situation. They have kids and are anxious about school fees. It is painful because the organization has let us down in this crisis,” said Rohit, who approached the All India Forum for IT/ITes Employees (FITE) in Chennai, along with his colleagues to demand for a three-month compensation.

In a bid to help Rohit and many others like him, the FITE has written to the Labour Secretary of Haryana to urge the government for intervening on the employees’ behalf.

Another IT sector employee hit by the lightning bolt is the 32-year-old Chennai-based JG (name withheld on request). A contract employee at a reputed global American IT company, found out that she was being released from her project with a publishing client on the morning of April 3. Her ID was deactivated within hours and she was requested to contact her parent (vendor) company for further details.

“This came like a bolt out of the blue. It was unexpected since the process was underway for me to onboard the IT company in April. I was relieved without any warning. It is unfair but I guess when clients ramp down on projects, contract employees are the first to be terminated,” said the 32-year-old, who is a single mother of two kids.

Related news: COVID impact: Indian economy loses $4.64 billion on each lockdown day

“I do not have any hope of a new assignment anytime soon since recruitments have been frozen until June,” said JG.

The brutal brunt of the COVID-19 outbreak, which has caused more than 100,000 deaths globally, is resonating across India’s thriving IT-BPM US$191 billion industry as well.

Employing a workforce strength of 4.6 million, the sector which had generated exports of over US $147 billion in FY2020 seems to be buckling under the COVID impact, witnessing a spate of mass layoffs among the smaller and mid-size firms, a prominent surge in the number of benched staff, paid leave cancellations, salary cuts, and freeze in new recruitments.

In Karnataka, Parallel Wireless, an American software solution provider for the telecom industry, terminated 15 employees in their India offices; Hula Infotainment, a 3D CGI production house laid off 30; IVT Co, an IT solution and services company has laid off 22 employees, and two others invoked a 50 per cent salary cut, while not paying the March salary to all the employees.

The Centre of Indian Trade Unions (CITU) has taken up cudgels for these 400 plus IT/ITeS employees, writing to the Labour Ministry, to intervene on their behalf.

It is not just the small-scale IT firms but top IT players such as Tata Consultancy Services (TCS), Infosys, HCL Technologies, and Wipro, who are expected to be significantly impacted, say analysts.

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These companies earn 21 to 32 per cent of their revenue from the banking, financial services and insurance verticals, with the USA accounting for over 50 per cent of their top line. IT vendors exposed to verticals such as retail, travel, banking and securities, manufacturing are expected to witness a volatile period and growth can be affected leading to job cuts. Currently, there are no reports about major layoffs from these leading IT companies.

However, analysts estimate that they will continue to experience a “flattish growth” in the first half of FY21 (April to September 2020), due to weakening global demand, delay in pipelines conversions, client bankruptcy and slowdown in decision-making.

In fact, the growth rate in the IT sector, which is “calibrating to a new normal”, is expected to be at its “slowest sequential pace” in 13 quarters, forecast Apurva Prasad and Amit Chandra, analysts at HDFC Securities in their IT Sector Q4FY Results Preview report. In this report, the analysts found out that the impact of economic dislocation accentuating in March has led to major supply-side transition for the sector impacting billings. The COVID-19 situation will foresee a deeper impact in the June quarter and a gradual recovery in the September quarter, they predicted.

The signs of disruption are unfolding as US-based carrier Delta Airlines has suspended several technology projects, impacting over 1,300 jobs at its outsourcing vendors in its home country and in India.

Related news: Domestic passenger vehicle sales down 51% in March: Industry body

Delta outsources contracts to Tata Consultancy Services, Cognizant and IBM. Cognizant too has withheld its annual revenue projection, while Accenture has lowered its FY20 growth forecasts by half.

Mid-tier companies such as NIIT Tech, Mindtree, and Hexaware Technologies, who were expected to face revenue drop as a large portion of their business depends on one or two global clients, are already impacted.

In the case of Hexaware Technologies, a US$793 million IT services firm, during a recent investor call, CEO R Srikrishna admitted that certain business verticals, such as travel, transportation, consumer, and health (fitness) will be impacted over the next two quarters as a result of the COVID-19 pandemic.

A week later, Hexaware Technologies is poised to slash salaries of nearly 300 employees. According to the FITE, the company has reportedly informed their benched employees that they will not be paid from April, “due to project downsizing by clients.”

A software engineer from the firm, who didn’t want to be named, said, “The HR has verbally conveyed this to us. They have cancelled our paid leaves as well. We understand the projects have been ramped down due to the pandemic but we also have our commitments. If we are being laid off, we need three-month compensation,” he said.

The HR has been unresponsive to their emails, claimed another harried employee.

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“It is a dark picture,” affirmed Prasanto Kumar Roy, former vice-president of NASSCOM.

“It is a difficult time for tech companies with shrinking revenues and no new projects in the pipeline for some time. In such a scenario, having a bench is a luxury. What is worse is that global tech enterprises too are reeling from the headwinds generated by COVID, and coupled with no visibility on the recovery timeframe, it is still a wait and watch game,” he said.

Meanwhile, small and mid-size companies will be faced with no option but scale down on employees under sustained pressure.

The IT-BPM industry’s value creators, the global-In-house centres (GICs), which have thrived in India in the past decade, are not expected to be immune to the COVID impact, said the Bengaluru HR head of a Europe-based bank’s GIC.

“There is a freeze on hiring but we are not laying off people or cutting salaries. We operate on a lean headcount to start with. We are adopting a wait and watch approach to size up the impact,” the HR said, pointing out that their biggest challenge has been to enable work-from-home technology solutions to their thousands of employees.

GICs of industries like automobiles, will be the worst hit in the COVID impact. “In the new normal, GIC’s will focus on innovations to adapt to new environments and create agile businesses,” she added.

Experts said that the COVID crisis is also expected to accelerate adoption of cloud and automated solutions as companies rush to switch to automation to lessen manual intervention.

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According to data analytics company, GlobalData: “Some will fare relatively well in the short term, such as collaboration software vendors and cloud services providers. While the IT services industry will experience short term pain trying to deliver existing projects with its clients under lock down. This will be replaced by the long-term pain of a massive slowdown in IT projects as companies scale back spending to project 2020 profits.”

As India extends its lockdown until May 3, a cloud of uncertainty and uneasiness hangs over the IT industry, as it braces for further large-scale disruption and more pain and angst in the form of job losses.

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