Global inflation following the war in Ukraine is driving IT majors into slowdown, forcing job losses; more difficult times to follow
The dismissal of Meta and Twitter workers, now mass resignations and closure of its offices for a week, signify deeper economic malaise, as the IT majors are facing difficult situations due to income loss, rising inflation and Ukraine War-led global tensions and recession fear.
Elon Musk, who took over Twitter for $44 billion on October 28, says the company is losing $4 billion a day. Even the Indian sector is feeling the heat and with a view to reducing fab getting rid of workers under the ruse of moonlighting, a common phenomenon so far that benefitted the industry in cost-cutting as well as prospecting others expertise.
Cautious economists visualise the setting in of a looming recession in the US and growth slowdown across the technology, making investors apprehensive. In September, the US unemployment rate dropped to 3.5 per cent, matching the lowest level since 1969 but there are fears of it being a short-term affair. If the primary sector is in crisis, can a secondary IT sector thrive?
It singles out even the Indian IT sector, whose margins have thinned. All majors are on job cuts in the name of moonlighting, putting the blame on the workers. Even PayTM stocks tanked as Japanese SoftBank sold 2.9 crore shares. The purchasers are French Societe Generale, Morgan Stanley Asia Singapore and European BoFA Securities.
Almost all majors like Microsoft to Amazon have gone on to cut strength and freeze on hiring. Microsoft has given pink slips to about 1000 employees, Netflix sacked about 500, Snapchat 1000. Amazon has reduced its workforce to 27000 but denies any firing, saying it happened through normal attrition.
These are in addition to the announced Meta reduction of 11000 workers, 13 per cent of workforce amid TikTok assault and Twitter’s 7500. The two companies are having sharp cuts in advertising and other incomes of late. It has also lost $31 billion in privacy update payment with another software major.
A global funding slowdown is leading to an evolving crisis for companies cutting back on costs and apparent stiff competition leading to layoffs. Entire IT sector is facing a problem post-pandemic, and being a secondary sector finds the heat more as it gets less outsourced work, forcing it to restructure for sustaining itself. In this scenario, the IMF has cut India’s economic growth estimate for FY23 to 6.8 per cent but still it is better than most other countries.
The sector is in a wait and watch mode, believing that the US recession may have least impact on them. But actual experiences may vary. Most Indian companies — Infosys, Wipro, TCS and even the educational platform Byju — are reducing their staff numbers.
Infosys confirms employees losing their jobs due to moonlighting or dual employment a month after Wipro sacked nearly 300 employees. Infosys says that it hired 40,000 freshers in the first half of the current financial year. Part of it is to match regular attrition. It says that it is financially sound and its profits soared to Rs 6021 crore from Rs 5360 crore. It is banking on US and European banking, manufacturing, retail, healthcare and utility firms. But its profitability is stated to be coming down. Its overall earnings have come down by 3.6 per cent in a year. HCL Technologies reduced hirings to about 2,000, also had lower margins at 17 per cent.
The IMF baseline survey says growth slows from last year’s 6.1 per cent to 3.2 per cent this year and 2.9 per cent next year, downgrades of 0.4 and 0.7 percentage points from April. This reflects stalling growth in the world’s three largest economies -- the US, China and the Euro area — with important consequences for the global outlook.
In the United States, reduced household purchasing power and tighter monetary policy will drive growth down to 2.3 per cent this year and one per cent next year. Inflation this year is anticipated to reach 6.6 per cent in advanced economies and 9.5 per cent in emerging market and developing economies. It has impacted cost pressures from disrupted supply chains and historically tight labour markets. Some US companies are facing almost Enron-type accounting failures, says Bloomberg.
The IMF is candid that the global situation, including in the Asia-Pacific regions, looks murkier, business growth dim facing tougher situations. A plausible alternative scenario in which risks materialize, inflation rises further, and global growth declines to about 2.6 per cent and 2.0 per cent in 2022 and 2023, respectively, would put growth in the bottom 10 per cent of outcomes since 1970.
If the IMF is correct the coming days may see more difficult times, more layoffs and an overall murky situation across the world in which India would have to chart out a different course through boosting of consumption and industrial production.
(The author is a policy analyst)