Explained | How will global layoffs impact India?

Why did many U.S. tech companies let their employees go? What are the trends on jobs, attrition, operating profit margins among IT firms like TCS, Infosys and Wipro? Why is the start-up sector already hurting? What will happen if a worldwide recession sets in?

The story so far: Over the past two months, a slew of U.S. multinational companies including tech giants Amazon, Meta, Intel, Twitter and financial behemoths like Citi and Morgan Stanley, announced massive layoffs. According to a global placement and coaching firm, the layoffs crossed 60,000 in September and October. These developments are bound to have an impact, on India’s export prospects, especially in the information technology (IT) sector.

Alphabet CEO Sundar Pichai had warned of a coming winter in the tech sector earlier this year. In an all-hands meeting in September this year, one of his responses to staff queries on budget cuts was: “We don’t get to choose the macroeconomic conditions always.” A potential economic recession is a big red flag. With inflation soaring in most parts of the world, central banks have been scrambling since March this year to rein it in by increasing rates so as to make it more costly to borrow and consume. This will eventually affect economic growth and jobs. The International Monetary Fund (IMF) has cited forecasts for global GDP growth in both 2022 and 2023 as gloomy, given the pandemic and ongoing Russia-Ukraine war. Setting aside the 2008 financial crisis numbers, estimates for this calendar and the next by the IMF are the weakest since 2001.

The Conference Board measure of CEO confidence showed top honchos in the West haven’t been this downbeat since the 2007-2009 recession. The survey asked 136 CEOs what economic conditions they are preparing to face over the next 12-18 months. An overwhelming majority— 98% — said they were preparing for a U.S. recession; while 99% said they were preparing for an EU recession.

The Indian IT services firms are among the largest employers in the organised sector and any global economic trend is bound to have an impact on their growth projections. Managements look at headcount numbers critically when they want to cut costs and protect profit margins as they are accountable to investors. Though there isn’t a discernible trend yet, there are a few signs which may signal what is to be expected in the next few months. All top companies except Wipro saw a rise in revenue and net profit. Wipro’s net profit slid 9% from a year earlier for the quarter ended September.

The attrition rates, or the number of employees per 100 quitting on their own, of the top two firms, TCS and Infosys, show that these rates are still high, which means that there is enough business for the sector for competitors to draw away employees with promise of higher salaries. At Infosys, the attrition rate declined marginally to 27.1% in July-September 2022 from 28.4% in the previous April to June quarter; at TCS, the attrition rate crept up to 21.5% in the July-September quarter from 19.7% between April and June. As for operating profit margins (OPM), Infosys saw its OPM improve to 21.5% in July-September from 20% in April-June, but both 3-month and 6-month OPMs had dipped compared to a year earlier; TCS saw its OPM rates rise to 24% in the three months ended September compared to the last quarter (23.1%).

Media reports have said that Infosys aims to pay out 65% of the variable pay to employees for the July-September quarter, compared with 70% in the April-June quarter, because of ‘pressure on margins’.

News of layoffs in the Indian start-up front is predominantly in EDtech, or the educational technology front. A lesser share of internet users visiting educational websites since the decline of the pandemic is cited as one reason. The Indian start-up layoff tracker by Inc42 showed that more than 15,700 employees had been laid off in 2022 given tightening funding conditions. Byju’s, Chargebee, Cars24, Ola, Innovaccer, Udaan, Unacademy and Vedantu are names that have been in the news for layoffs, according to Inc42.