Why Indian IT industry hit the pause button
The growth of IT industry has become stagnant in last few months. The advancements of AI and automation has impacted the traditional IT services business. The double-digit salaries for IT employees have also become stagnant.
Growth soared during the mid-1990s, the average annual growth was triggered by the Y2K problems. Even the Indian government had to embrace a neoliberal strategy for the industry. The IT industry's masterpiece helped in reforming the Indian economy. The industry later became Indian's economic prowess. The government offered infrastructure support, tax benefits which helped the IT companies in recording better profits.
The government benefits led the IT companies in turning the industry into outsourcing cheap labor for offshore clients. The Indian companies recorded big profits by outsourcing the employees to the US. While the model was profitable, there were few factors that made it vulnerable. The high dependency on the US economy made the outsourcing business t
The dependency made the IT industry go down during 2007-08 due to recession in the global market. The developments during the tough period were posed as the challenges in front of the IT industry. The industry had just started recovering from the global crisis but soon in 2014-15, the growth started slowing down.
Even after a decade after the global crisis, there is no sign of robust recovery. In addition to the low market demand, Indian firms servicing US clients are facing issues. The H-1B agenda by the Trump administration has heavily affected the Indian firms working in the US market. The US administration has accused these companies of misusing H-1B for sourcing cheap labor.
Trump administration has increased the minimum salary requirement for H-1B workers. At the time when Indian IT industry is already going through low margin and cost issues, the new rules for H-1B will add to the operational cost for these companies. The foray into software and IT-enabled service expert is remarkable. The growth has considerably slowed down.
The latest data by Nasscom suggests that the last financial year had only 150,000 new IT jobs as compared to 230,000 jobs that were available in 2014. While the Indian IT industry has never been a major employer, the contribution to the country's GDP was ahead of its contribution to employment. Even the contribution to the national economy has drastically come down in last few months.
The adoption of automation and AI by the offshore businesses have affected the traditional services of Indian IT firms. The industry was very much dependent on IT services and BPO services a few years back. Going forward, the Indian firms need to change their focus from traditional services to advance solution development to recover the losses.
- Rajat Kabade