The dangers that lie beneath India's IT layoffs

  • Blog Post Date 24 March, 2017
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Maitreesh Ghatak

London School of Economics

The ongoing layoffs in India’s IT sector are at a scale that has not been seen since the global financial crisis of 2008. In this article, Maitreesh Ghatak, Professor of Economics at LSE, contends that while this is a major shock, the country’s demographic dividend, and global trends such as automation, demand an economic strategy that prioritises job creation more broadly.

The IT sector in India provides about 3.7 million jobs at present. In January, a McKinsey report estimated that half of these jobs will become irrelevant in the next 2-3 years. The process has started with the breaking news of layoffs at a scale not seen since the financial crisis in 2008. According to news reports, the top seven IT companies, which together employ 1.24 million people, will cut their workforce by 4.5% in 2017. In the last few weeks itself, thousands of IT workers have been laid off.

While this is a major economic shock, we have to put things in perspective given the scale of a country like India. About 12 million people join the job seekers´ queue in India every year. Even if the IT sector were growing at a healthy rate, it would have to quadruple in size to absorb only the new job seekers in one year. Yet, if we look at numbers provided by the Ministry of Labour of new jobs created in the last seven years (which includes years under both the UPA (United Progressive Alliance) and the NDA (National Democratic Alliance)), the highest was about a million in 2010, after which there has been a steady decline, with no turnaround, and the latest figure being merely 135,000 between April and December 2016.

And this is just the formal sector. The informal sector accounts for 84% of current jobs. So, the IT sector layoffs are a major storm, but the so-called demographic dividend in the form of a bulge in the working-age population is setting the stage for a gigantic tsunami that can only be tackled with an economic strategy that has three top priorities: jobs, jobs, and jobs.

Now, it is true that some of the long-term trends contributing to the current crisis have little to do directly with India.

The West, whose demand for skilled low-tech IT services provided the employment boom for India and China over the last two decades, is now closing doors and building walls as they grapple with the rising tide of resentment at jobs being lost to foreigners through outsourcing and to immigrants. Donald Trump´s crackdown on H-1B visas for low-end salary workers and Infosys deciding to hire 10,000 US citizens followed each other quickly, and undeniably played a role in the bloodbath that happened in the IT sector over the last few weeks.

However, while the timing of layoffs was dictated by the Trump administration and its anti-immigration policies, it is impossible to deny that even if Hillary Clinton had been elected, sooner or later the problem would have reached our shores.

The fact remains that, there is a rising trend of automation, and human labour is being replaced by robots in a range of activities. We are not talking about futuristic things happening in faraway countries. The robots we are talking about are not the cute R2D2 or the awkward but likeable C3PO from Star Wars, or the scary Terminator. Remember that annoying voice of Siri when you accidentally press your iPhone screen? Or that slightly superior-sounding voice with a fake posh English accent on Google Maps giving directions? That is the voice of automation - Siri, Google Now, Cortana, Alexa, and their siblings are taking away routine and repetitive jobs from human beings. And some of them are silent but ubiquitous - think of Uber or Ola for transportation, Swiggy for food, Amazon for online orders, or Google as the all-purpose know-all. How could we think that the army of bots and apps that govern our lives from our palms would at some point not have an impact on the labour market and cost some humans their jobs?

We cannot reverse the clock on technological change, nor can we unilaterally stop the current anti-globalisation wave in the developed world. We can however, focus on policies that place employment generation at the centre of economic policies, and have discussions surrounding the economy focus on new jobs created, as opposed to growth rates of income. Some of the government initiatives regarding raising tax revenue and helping formalisation of the economy are in the right direction. However, there is still no official acknowledgement that the most major economic initiative of the government so far - demonetisation - had a major negative effect on the economy. The new Index of Industrial Production (IIP) series clearly shows the negative effect of demonetisation on the growth of the organised sector, and these numbers do not even capture the negative effect on the vast informal sector, which is hard to measure due to data limitations, but is widely viewed as even more severe as it is more cash-dependent.

Yet job creation shows up only in chapter seven of the otherwise impressive Economic Survey. Economists at the NITI Aayog are reportedly busy reviewing how employment data is collected. While any serious review of data collection in any domain is welcome, one cannot help wondering whether the review will come up with new numbers that would suggest all izz, in fact, well. After all, an economic adviser to the government has suggested that involuntary unemployment has not gone up, but apparently voluntary unemployment has gone up dramatically, which is to say people are holding out for better offers or choosing to take time off.

I suppose those who were laid off in the IT sector did voluntarily walk out of their offices when given the pink slip, and are suddenly discovering the joys of a life of leisure or quality time with family. This is like saying we have voluntary starvation in the country because people always have the option of having a nutritious salad based on leaves and grass.

You can spin a web of statistics and say all izz well when people are hurting. You can use catchy phrases like ‘the digital economy’ and ‘Make in India’ to raise aspirations of global domination, or blame it all on past government policy. The problem, though, is that you can only do it for so long without actually delivering on job creation.

The Sensex can hit the skies, our growth figures can beat China´s, and it may keep those whose fortunes are tied to either our protected corporate sector or the bloated public sector happy and willing to wait for achche din1. However, these are not meaningful indicators of economic development unless accompanied by the creation of jobs, and rising wages and salaries enabling ordinary citizens to enjoy a better quality of life. Being laid off or struggling to find jobs while being told of wonderful times to come or that unemployment is a choice tends to make people very upset. And even though they command a small fraction of wealth or income in our highly unequal economy, they have strength in numbers. They can vote. And at some point, may be a few years down the line, they may well choose to make some politicians and their economic advisers voluntarily unemployed.

This article originally appeared on NDTV:


  1. Acche din is Hindi for ‘good days’. Achhe din aane waale hain (‘Good days are coming’) was the slogan of the ruling Bharatiya Janata Party (BJP) for the 2014 Indian general election.
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