Explained | How will global layoffs impact India?

Source: The post is based on the article “Explained | How will global layoffs impact India?” published in The Hindu on 3rd December 2022.

What is the News?

Many U.S. multinational companies have announced massive layoffs, which already crossed 60,000 in September and October 2022.

What is Layoff?

A layoff is the temporary or permanent termination of employment by an employer for reasons unrelated to the employee’s performance.

What are the reasons for Global Layoffs?

Cost reduction: One of the main reasons why workers get laid off is because the company decides to cut back on costs in some way. The need can arise from the fact that the company is not making enough profits to cover its expenses or because it needs substantial extra cash to address paying off debt.

Overhiring during the Pandemic: During the pandemic, there was a surge in demand as people were in lockdown, and were spending a lot of time on the internet. The overall consumption saw an upsurge following which the companies went to increase their output to meet the market requirements.

– However, as the curbs were eased and people started stepping out of their homes, consumption fell, resulting in heavy losses to these big tech companies.

Fear of recession: As the demand is coming back to pre-Covid levels and seeing the debt bubble almost about to burst and fearing recession, these companies are cutting down their costs by closing down low-performing projects and laying off the excess and high-cost resources they hired to accelerate growth.

Russia-Ukraine War: The war has also contributed to these layoffs as it has made the market more volatile. This is clearly visible from stock market volatility.

Inflation: Rising inflation has also impacted several world economies severely leading to a crisis in the job market as well. 

What is the outlook for the Indian IT Industry?

The Indian IT services firms are among the largest employers in the organized 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. For instance, all top companies except Wipro saw a rise in revenue and net profit.

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.

What about layoffs in Indian Startups?

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.