Economic Highlights
New Delhi, 21 November 2022
Musk Leads Global IT Mayhem
HUGE JOB CUTS, SLUMP IN INDIA
By Shivaji Sarkar
The dismissal of Meta-Twitter
workers, now mass resignationsand closure of its offices for a week signify deeper
economic malaise as the IT majors are facing difficult situation due to income
loss, rising inflation andUkraine war-led global tensions and recession fear.Elon
Musk, who took over Twitter for $ 44 billion on October 28, says the company is
losing $4 billion a day.
Even the Indian sector is feeling
the heat and with a view to reducing flab, getting rid of workers under the
ruse of moonlighting, a common phenomenon so far that benefitted the industry
in cost-cutting as well as prospecting others expertise.
Cautious economists are visualisingthe
setting in of a looming recession in the US and growth slowdown across the
technology, making investors apprehensive. In September, the unemployment rate
dropped back down to 3.5 percent, matching the lowest level since 1969 but
there are fears of it being a short-term affair.If the primary sector is in
crisis can a secondary IT sector thrive?
It singes even the Indian IT sector,
whose margins have thinned. All majors are on to a job cut move in the name of
moonlighting putting the blame on the workers. Even Paytm stocks tanked as
Japanese SoftBank sold 2.9 crore shares. The purchasers are French
SocieteGenerale, Morgan Stanley Asia Singapore and European BoFA Securities.
Almost all majors like Microsoft to
Amazon have gone on to cut strength and freeze on hiring. Microsoft has given
pink slips to about 1000 employees, Netflix sacked about 500, Snapchat 1000.
Amazon has reduced workforce to 27000 but denies any firing saying it happened
through normal attrition.
These are in addition to announced
Meta reduction of 11000 workers, 13 percent of workforce amid TikTokassault and
Twitter’s 7500. The two companies are having sharp cut in advertising and other
incomes of late. It has also lost $31 billion in privacy update payment with
another software major.
A global funding slowdown is leading
an evolving crisis for companies cutting back on costs and apparent stiff
competition leading to layoffs.The entire IT sector, is facing a problem
post-pandemic, and being a secondary sector finds the heat more as it gets less
outsourced work forcing it to restructure for sustaining itself. In this
scenario the IMF has cut India’s economic growth estimate for FY23 to 6.8
percent but still it is better than most other countries.
The sector is in a wait and watch
mode believing that the US recession may have least impact on them. But actual
experiences may vary.Most Indian companies, Infosys, Wipro, TCS and even the
educational platform Byju are reducing their staff numbers.
Infosys confirms employees losing
their jobs due to moonlighting or dual employment a month after Wipro sacked
nearly 300 employees. However, Infosys is now introducing a policy that would
allow employees to take up external work. The firm has also set up Accelerate,
which would offer additional work opportunities with prior approval.
Infosys says that it hired 40,000
freshers in first half of current financial year. Part of it is to match
regular attrition. It says that it is financially sound, and its profits soared
to Rs 6021 crore from Rs 5360 crore. It is banking on the US and European
banking, manufacturing, retail, healthcare and utility firms. But its
profitability is stated to be coming down. Its overall earnings have come down
by 3.6 percent in a year.
The Tata Consultancy Services has
23.1 per cent margin, but it is lower by 2.4 percent. Its annual growth is
almost at the level of the previous year. TCS’
total brand value is at $8.2 billion, ranking it among the industry's top four
brands for the second consecutive year.HCL Technologies rescued hirings
to about 2,000, also had lower margins at 17 percent.
The profitability may remain under
pressure. They will have to manage with the fall in dollar value. This may put
pressure on them not to upvalue costs in dollar terms. The rupee equivalent may
show a surge in rupee terms. Though international operations may have to be
managed as customers may be lukewarm to higher dollar costs. With inflation at
7percent they may not be able to reduce wage bill.
The IMF says that many of its downside
risks of US recession flagged in its April World Economic Outlook have
apparently begun to materialise.
Higher-than-expected inflation, especially in the US
and major European economies, is triggering a tightening of global financial
conditions. China’s slowdown has been worse than anticipated amid covid19 outbreaks
and lockdowns, and negative spillovers from the Ukraine war. As a result,
global output contracted in the second quarter this year.
The IMF baseline survey says growth slows from last
year’s 6.1 percent to 3.2 percent this year and 2.9 percent next year,
downgrades of 0.4 and 0.7 percentage points from April. This reflects stalling
growth in the world’s three largest economies—the US, China and the Euro
area—with important consequences for the global outlook.
In the United States, reduced household purchasing
power and tighter monetary policy will drive growth down to 2.3 percent this
year and 1 percent next year. China is having slowest growth at 3.3 percent in over
four decades. And in the Euro area, growth is revised down to 2.6 percent this
year and 1.2 percent in 2023, reflecting spillovers from the war in Ukraine and
tighter monetary policy. It further warns of aggravating European energy
situation and further downslide.
Inflation this year is anticipated to reach 6.6
percent in advanced economies and 9.5 percent in emerging market and developing
economies. It has impacted cost pressures from disrupted supply chains and
historically tight labour markets. Some US companies are facing almost
Enron-type accounting failures, says Bloomberg.
The IMF is candid that the global situation,
including in the Asia-Pacific regions, looks murkier, business growth dim facing
tougher situation. A
plausible alternative scenario in which risks materialize, inflation rises
further, and global growth declines to about 2.6 percent and 2.0 percent in
2022 and 2023, respectively, would put growth in the bottom 10 percent of
outcomes since 1970.
If the IMF is correct the coming
days may see more difficult times, more layoffs and an overall murky situation
across the world in which India would have to chart out a different course
through boosting of consumption and industrial production.---INFA
(Copyright, India News & Feature
Alliance)
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