Bengaluru: Thirteen years after the winds of liberalization first swept across the Indian economy, Thomas Friedman took a Lufthansa flight to Bengaluru where he visited the offices of Infosys Ltd to discover that the world is flat.
Beside a giant flat screen at the headquarters of what was then India’s technology bellwether, Nandan Nilekani, then chief executive officer (CEO) of Infosys Ltd, told the American author: “Tom, the playing field is being levelled.”
In his best-selling The World Is Flat: A Brief History of the Twenty-First Century published the next year, Friedman marvelled at the many quiet revolutions beneath this tectonic shift. Among them: Outsourcing, in-sourcing and offshoring.
Thirteen more years later, in May 2017, another CEO of Infosys addressed the company’s annual sales conference in San Francisco. The tone was sombre: “If you can’t fly, then run; if you can’t run, then walk; if you can’t walk, then crawl; but whatever you do, you have to keep moving forward,” Vishal Sikka quoted US civil rights activist Martin Luther King in his speech. Most Infosys engineers were merely crawling, the company’s first non-founder CEO did not fail to mention.
When it comes to delivering high-value services to clients, Infosys has lagged. It’s not alone. With anaemic growth and declining profitability (see table 1), India’s information technology (IT) industry is in the doldrums. Flat now recalls the growth of India’s $150-billion IT industry, rather than a new-world topography.
For the first time since 2009-10, Tata Consultancy Services Ltd (TCS), Infosys and Wipro Ltd, which make up a quarter of the IT industry’s total business, grew slower than the industry’s 8.6% growth in constant currency terms in 2016-17. Constant currency eliminates the effect of currency movements.
Profitability, too, took a hit at the largest IT companies, which employed 3.9 million people as at the end of March 2017, lobby group National Association of Software and Service Companies (Nasscom) said in May.
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Consequently, the technology sector is in the midst of its biggest retrenchment season. Seven of India’s biggest software services firms are planning to ask at least 56,000 engineers to go this year—a number that could grow if more bad news comes in.
The expansion of the Internet in the past decade has led to wider adoption of artificial intelligence, allowing companies to lease computing power by the hour. This has upended Indian IT’s model of deploying armies of engineers in low-wage countries to write software codes and manage technology infrastructure for their clients in the US and Europe. The latest challenge is protectionism in the US, which has squeezed work visas for low-wage Indian IT engineers working with clients in that country.
As uncertainties rose, investors shunned IT: In 2016, shares of TCS fell 3.2%, Infosys by 8.5% and Wipro by 15.33% even as the BSE Sensex rose 2%.
“Indian IT firms started out as custom software houses. They created a unique delivery model where 75% of the work could be done in India using low-cost but highly skilled computer scientists. This task is increasingly done by machines using artificial intelligence (AI), thereby not requiring the high volume of engineers,” said Vijay Govindarajan, Coxe distinguished professor at Tuck Dartmouth College’s Tuck School of Business.
“Big is no longer beautiful,” added Phil Fersht, CEO of US-based HfS Research, an outsourcing research firm. “What required 50 programmers, analysts or accountants five years ago can be done by a handful of smart thinkers and much smarter systems. If I w