India’s IT sector currently employs ten million people with the nation’s internet economy estimated to reach $161.26 billion by 2018.
Part of the nation’s IT strength stems from its position as the world’s “back office”. India has long been the most attractive choice for European and American companies looking to cut costs by outsourcing services.
This trend – commonly labelled ‘offshoring’ – currently generates over $150 billion in annual revenue and employs around four million people in various capacities. These capacities include software building and testing, data analysis and customer support.
This sector, however, looks increasingly vulnerable to the growth of automation and artificial intelligence. Developing technologies such as machine learning threaten to replace Indian workers with computers which do not need a pay cheque.
A 2015 study lead by the National Association of Software and Services Companies along with Nasscom and McKinsey India found that 50 to 70 percent of workers’ skills would be irrelevant by 2020.
Many have attributed India’s exploding middle class – now outpacing that of China – to the growth of the IT sector. “Without the IT industry,” a leading Indian headhunter told NPR, “we would not have built such a huge middle class in India.”
The fear is that this engine of economic growth could now be stripped of its fuel.
An industry founded almost overnight from a disruptive technology, now potentially faces being disrupted itself by the next wave of innovation. All over the world more versatile and better positioned startups are beginning to offer innovative technologies that could replace the core of India’s IT sector, cheap labour.
The first sign of this trend could be seen in the recent waves of employee layoffs. As part of its annual performance appraisal, Wipro fired around 600 employees with the number potentially reaching 2,000.
Another IT giant, Cognizant Technology Solutions, recently offered top executives – directors, associate VPs and senior VPs – a voluntary separation package as part of its plan to shift operations to automation and digital technology. Around 1,000 jobs were also reported to be at risk at IT consulting firm, Infosys.
The long-term prospects do not look particularly attractive if Indian IT firms are not able to adapt quickly to industry trends. McKinsey India recently reported that at least 200,000 software engineers in India will lose their jobs each year over the next three years.
“India is debating”, commented the NY Times, “whether an industry that has long served as a gateway to the middle class is preparing to shed jobs en masse”.
Optimistic industry figures have voiced their vision of a newer, more dynamic Indian IT sector, but it remains to be seen how such a vision will be achieved when the very foundations of India’s IT sector – cheap low skilled labour – could be made redundant.
Perhaps the industry’s best hope is that if it is to be disrupted, it is disrupted by one of India’s own 4,750 tech startups, or one of the new 7,500 Indian startups expected to emerge by 2020.