The artificial intelligence (AI) boom creates key challenges for the Indian sector of information technology.
Covid-19 gave the Indian IT industry a boost, but now things are going the other way because clients are spending less because they don’t know how the global economy will grow.
Poor results in the fourth quarter and low expectations for what will happen in the near future show how bad things are looking for the sector.
The big IT companies are now expecting slow growth in the current fiscal year (2023-24). Accenture is based in the US, but some of its advanced technology centres are in India.
It accurately reflects both how business is going around the world and how that affects IT in India. It has cut its forecast for how much its sales will grow for the second time.
The outlook is based on what is going on in the world right now. Businesses are stopping projects, putting off starting new ones, and even cancelling orders.
Large deals have been hit especially hard by the uncertain economy and the fast pace of technological change. Also, artificial intelligence (AI) could turn everything on its head.
All of this is making clients look more closely at their plans for the future. One effect is what just happened to TCS, which is the biggest software company in India.
A $2 billion deal with Transamerica Life Insurance that was supposed to last for 10 years has been cancelled before it was supposed to end. This is not just a passing fad. This year, the UK’s National Employment Savings Trust (NEST) and a French company ended an 18-year deal worth $1.8 billion in just two years.
This shows that the headwinds that Indian IT companies have been facing are not unique to India, but are affecting the IT scene all over the world.
It’s rare for a big deal to fall through. Most of the time, the opposite is true. When a well-known vendor finishes a deal successfully, they usually go on to get an extension.
Aside from the global economy and technology, Indian IT companies are also being hurt by the fact that overseas buyers are becoming more interested in having their own centres in the country.
These centres, which used to be called “captives,” are now called “global capability centres” (GCC). Multinational companies are coming around to the idea that it will be cheaper in the long run to have their work done in their own centres than to send it to Indian IT services companies.
Standard products used to be bought off the shelf, but now multinational companies want to keep their core technological goals in-house. This makes it easier for the people who use the products and the people who make them to talk to each other.
Right now, AI and cloud computing are the most important parts of how companies see themselves in the future. More and more people think that giving digital ideas their first shape is best done in-house.
Also, Indian software companies usually did low-level tasks like writing code and taking care of maintenance. Today, they have to change what they offer to include things like helping their clients improve their IT skills so they can grow their businesses in the future.
But the news doesn’t just go in one direction. The same TCS that had a deal fall through at the last minute has now signed a new, big one. It has signed a 10-year deal worth $1.1 billion with NEST of the UK to digitally transform the organization’s delivery processes.
This will make the members’ experience better by making it more personal. Knowing that the customer has switched suppliers, so to speak, from a French company to an Indian leader should do a lot for national pride.
Business will pick up for IT companies, but the bad news for India’s middle class is that IT probably won’t be able to save them in the end. In the last few decades, young people who knew a little bit about engineering could look forward to an IT job and didn’t have to take the civil services exams.
As automation grows, especially with the rise of artificial intelligence, low-paying jobs like coding are going away. New jobs are being made, but not a lot of them, and they require much more complex skills.
This is because the IT that has to go along with the clients’ new business processes has to be built from scratch.
Hiring is down, which makes sense. There are fewer jobs available now than there were last year. This isn’t just a response to the loss of low-skill jobs, though.
It’s also a response to the hiring and firing that happened during the Covid era, when work-from-home and online shopping greatly increased the demand for IT services and, as a result, the firms needed more people to do the work.
This led to a time when pay packages went up sharply, as companies tried to hire people away from each other. Since the Covid effect is gone and demand is also slowing, companies are cutting jobs to save money.
Even though Indian software companies are slowing down on hiring, the GCCs are stepping up their actions because they are growing steadily in numbers and in what they do.
This makes the mood in Indian software companies bad as well. Also, the GCCs hire people with some experience who have always been weaned away from Indian IT firms.
But as jobs become more specialised, these people need a higher level of skill than they did before.
As if all of this wasn’t bad enough for the Indian IT industry, its reputation has taken a big hit after a huge Rs 100-crore scandal of bribes for jobs was found in TCS.
It seems that the people in charge of hiring were favouring certain staffing agencies, which made the officials happy. News reports say that a number of high-level officials are about to lose their jobs, and that some staffing firms will be put on a blacklist.
The story has made headlines not only because TCS is the leader in its field, but also because it is part of the Tata group, which is known for its strong business ethics.
Where do the leaders of Indian software go from here? The most important thing they need to do is find the right size for their “bench.” This term is used to describe people who have finished their work on one project and are waiting to be given another one.
Companies save money when they can reduce the amount of time employees spend between jobs doing nothing.
IT leaders are now trying to cut down on the number of people on their bench by delaying when new people can join, making evaluations harder so that people who don’t do well have no choice but to leave, and retraining people on the bench so they can work on newer types of projects.
So, Indian IT is a little bit down right now, but it is by no means dead, and it can still hope to get back to top speed in the next few years.