Q&A: What is the reason behind the layoffs in IT firms in India?

This was a question that came to me from an online forum. Expanding on it, the person asked: Is it related to the H-1B visa, or some other reason? What impact will this have? My response follows

Years ago, I worked for Infosys and at that time, we had an "assigned curve" based appraisal system. I think it was called ‘CRR’ (Comparative Relative Ranking) where about

• 5% a pool of employees would get an A+
• Next 5% would get an A
• Another 50% would get a B (or B+)
• Another 20% would get a B-
• Remaining 20% would get a C (or Performance Improvement Plan – PIP)

The company had about 30-40,000 employees. At any time, few hundred employees would be under the PIP.  Many who got a ‘C’ during a cycle, strived to work hard and improve and some folks banded into PIP for two cycles in a row were asked to ‘seek other opportunities.’

No drama. No news.

Of course, the Indian IT sector was booming and many employees graded -rightly or wrongly – into the bottom rungs would voluntarily find other opportunities and resign much before being told. This was done unceremoniously, without a lot of drama.

Fast forward to current day.

• Large software service companies employ nearly 200,000 people each. The rate of voluntary attrition is at historically low percentages.
• Assuming some sort of a bell-curve grading continues, and companies expect 5-10% of the bottom-rung people to ‘voluntarily’ leave, we are still looking at 10-20,000 people (each) leaving. 
• 10-20,000 people from each of the big-5 or 6 players coming into the market is a lot of churn to handle, even at the best of times.
• The global software services market has slowed down. Most of the large software-service firms are projecting slower yearly growth.
• Thanks to Trump’s Executive actions, Indian firms are promising to hire tens of thousands of American workers.
• One could include other factors like increased automation and productivity gains that are being touted by IT leaders.
• Factor in the slowdown in American work-visa (H1) issuance, protectionism in Australia, England and elsewhere that lessens global mobility of people. (2017 is not likely to see as many Indian techies moving abroad)

The media is always looking for headlines. “'Indian IT firmsto layoff up to 2 lakh engineers annually for next 3 years” is exactly the kind of headline that is bound to go viral. Simple economics at work here (more views and readership = greater advert revenue).

The stories are focused ‘layoffs’ which are just one part of the equation. They are missing the big picture – a tectonic shift in the OffshoringIT Services !

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A sampling of other headlines

• So Will IT Layoffs Really Run Into Lakhs? What The Experts Say (NDTV)
• IBM India Denies Report Of 5,000 Possible Layoffs In Coming Months (NDTV)
• IT's layoff crisis may be bigger than 2008 recession (ET)
• IT industry slows, Indian companies ready for large layoffs (TOI)
• Wipro layoffs: Here's why Indian IT sector may see more job cuts in the days ahead (Business Insider)
• Why being a techie in India is no longer cool (ET)