IT’s the global slowdown effect

Bengaluru isn’t called the back-office of the world for nothing. It’s reckoned that around 1.5 million people in the city work in the IT/ITeS sector — out of a population of around 13 million. Add to that a range of service providers like the people who provide cabs and run the office canteens.

Bengaluru may be the back-office of the world but other Indian cities aren’t very different. Hop to Hyderabad, a rapidly growing city of 10.8 million. Here it’s estimated 778,000 people are directly involved in the tech sector. Totally, across India the tech sector employs about 5.5 million people.

So when there’s a global tech slowdown, it’s got a huge impact, especially on a city like Bengaluru. Everyone from software services giants like Infosys and Wipro to the city’s host of start-ups has been hit by the downturn.

Barely a year ago, the software-service industry was in a bullish mood about all the new possibilities opening up with AI and the cloud. It looked like even with Covid-19, the industry could only keep growing at a greater pace than ever before.

Now, though, the global slowdown has hit the industry. Even top firms like TCS and Infosys have clients hoarding cash in case of harder times ahead. As a result, Infosys’ share price has tumbled from a peak of ₹1,657 last December to ₹1,228 on April 24. The company in December had 81.7 per cent of its workers on projects and the remaining were “benched’ or waiting for assignments.

TCS has slammed down the brakes on recruitment. The company hired around a lakh new people in financial year 2022 but that fell over the next 12 months to barely 22,600. Infosys has much the same story: hiring is down from 54,000 in FY22 to 29,219 in the financial year just ended.

Turn to India’s vibrant start-up sector which has inevitably been hit by the global slowdown and the prevailing uncertainty. There hasn’t been a single new unicorn in 2023. In the first three months of 2022, there were already 13 freshly minted start-ups proudly proclaiming their unicorn status.

The repercussions of the software-services slowdown will be felt all over urban India. In the real-estate sector for instance, Colliers says co-working companies picked up 2.1 million sq ft during Q1, 2023 — that was 20 per cent of total office space. The technology sector, which has always had a huge office-space appetite because it hires in such large numbers, was only slightly ahead at 22 per cent.

This change in real estate demand is a combination of factors. At one level, companies still aren’t clear how the work world will unfold in coming years. Will we start trickling back to our mega-offices now that Covid is over or will most companies adopt permanent flexible work patterns?

Co-working spaces

As a result of this uncertainty, even software-services firms are picking up co-working spaces instead of leasing themselves. At another level, obviously the hiring slowdown means they’ll need less office space right now. Colliers says large technology occupiers have also been leasing “flex spaces” because of “flexible lease terms, lower capex and modern workplace design” combined with “ongoing recessionary concerns” and tech-sector layoffs.

It won’t only be the real estate sector that will take a beating if the tech sector loses steam. Increased hiring and pay hikes mean more liberal spending all round the city and the reverse is also true. “Many companies haven’t been able to place freshers they recruited last year. This year the recruitment outlook for freshers is grim,” says Pareekh Jain, CEO, Pareekh Consulting.

Nevertheless, Jain insists the future for the Indian infotech sector isn’t as bleak as it might now appear. Firstly, the slowdown doesn’t seem to be as bad as it some had expected. It’s come down from double-digit growth for most companies to mid-single-digits (analysts were mostly hoping for high single-digit growth). Also, Indian companies have prepared for the future by building strength in upcoming sectors like AI and the cloud.

A large chunk of the software services industry’s business continues to come from the US and the UK. But Indian firms are still getting a larger chunk of the business even in markets where it’s got a strong base because it’s able to offer price advantages and it’s also aggressively moved into the new upcoming sectors. For now, though, it’s going to be wary belt-tightening all round as firms wait to see how the next months play out.

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