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Indian tech sector downsizes heavily as Trump’s H-1B policy creates uncertainty

CNBC logo CNBC 24-05-2017 Spriha Srivastava

Technology companies in India are in the midst of a massive restructuring drive that has both employees and industry analysts worried over the future of the sector.

Information Technology companies like Infosys, Cognizant and Tech Mahindra have announced redundancies this year and some analysts have said that this string of layoffs are expected to continue for the next two years.

A recent report from McKinsey India says that at least 200,000 software engineers in India will lose their jobs each year over the next three years.

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Complete coverage on India's IT crisis

According to local media reports, tech giant Infosys had earlier announced its plans to lay off about 1,000 employees at senior levels based on performance-based processes, the company also then announced its plans to hire 10,000 Americans over the next two years – a move many analysts have said will please U.S. President Donald Trump. Following this move, other companies such as Cognizant announced their plans to cut 6,000 jobs.

"With the majority of their business coming from US-based clients, it seems like a natural step for Indian IT companies to expand and strengthen their client offering in a market that promises sustained growth. This will undoubtedly benefit U.S. workers and sing to the tune of Trump's America First strategy," Af Malhotra, co-founder of Bangalore-based IT firm GrowthEnabler, told CNBC via email.

U.S. President Donald Trump's "America First" agenda and focus on curbing immigration especially around the much-sought-after H-1B visa policy may hurt India's massive information technology sector that forms a strong base for the country's economy.

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Indians top beneficiary of H-1B

Data from Goldman Sachs estimates that Indians accounted for nearly 195,257, or 70.1 percent, of all beneficiaries of the H-1B visa program in 2015. And hence, President Trump's decision to steer his policies towards "America First" is clearly going to hurt these professionals as well as Indian software companies. But there are divergent views on whether the redundancies in India by major IT companies have anything to do with Trump's policies.

"It does not seem like Indian companies are laying off in India so they can hire in the US," an IT-professional based in the U.S. told CNBC on the condition of anonymity due to the sensitive nature of the topic. "The IT sector has been struggling, these companies have been having poor disappointing earnings/lower guidance for a few quarters now and that is probably the primary driver."

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The source further explained that there appears to be greater automation and a shift from more mundane programming jobs to jobs requiring higher levels of engineering skills in artificial intelligence, machine learning, and newer fields.

"When this happens, the benefit from cost savings by hiring in a cheaper country is likely eclipsed by the skill requirements. I am not going to pretend to fully understand it, but there is a reason that product-based companies like Microsoft, Google, Facebook etc. do not outsource most of their jobs to India, but have the majority of their workers in the US. There is apparently a skills shortage in India for these types of more complex jobs. India produces lots of engineering graduates, but not enough highly qualified ones. They may not be able to handle the step up in work/skills required."

Employee morale hurt

But while this maybe the ground reality according to many, the massive downsizing has a hurtful impact on the morale of employees. One Infosys employee based out of Bangalore told CNBC that the morale in the company is generally low but the restructuring is mostly seen at senior management levels.

"It feels bad to see people leave like this. I have been speaking to my friends in other tech companies and everyone feels a bit concerned about their jobs. Performance-based assessments happen every year but this year feels different. "

A number of employees within the Indian IT sector that CNBC spoke to said there was general unrest among employees who had started approaching labor unions to complain against this massive performance-based restructuring drive.

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Nasscom, the apex Indian information technology body, earlier dismissed reports about mass layoffs by software companies. In an official statement, Nasscom called recent media reports of mass layoffs as incorrect and said the industry continues to be a top hirer with over 150,000 people being employed on a net basis each year.

"Talent and skills are the key building blocks for the industry, which is intensifying investment in skilling or re-skilling its workforce to strengthen its foundation on a continuous basis," said Nasscom.

Nasscom further noted that the workforce realignment linked to performance appraisal process was a regular feature each year and is essential to remain competitive in international markets.
However, Madhavan Narayanan, an independent technology consultant, told CNBC via email that realignment has generally been through training and not downsizing.

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"Realignment of the workforce has usually been through retraining and reskilling. For the first time we are seeing downsizing that actually leads people to leaving without wanting to and that is where there is an attempt to save jobs by forming or approaching labor unions. This is certainly new in an industry in which fat pay raises were common," Narayanan said.

He further explained that the word 'layoff' as often reported in media is a controversial one. In his opinion, what is happening is halfway between a regular layoff and a normal appraisal. "The trick seems to be to turn the heat on those who the companies want to sack instead of simply telling them they are redundant."

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Tough times ahead for India's IT sector?

But while Indian software companies continue to battle this slowdown in the technology sector, concerns over H-1B visa still remains for thousands of aspiring professionals as well as those already working in the U.S.

Analysts have said that Trump's order to review visa processes is aimed at companies like Tata Consultancy Services, Infosys and Wipro that are the top beneficiaries of the program, using it to send computer engineers to service clients in the U.S., their largest overseas market.
The executive order signed by Trump last month doesn't change H-1B policy on its own, and it doesn't set a timeline for when the review will be completed. But the uncertainty over what the review will mean for the Indian information technology sector has companies worried.

The executive order signed by Trump last month doesn't change H-1B policy on its own, and it doesn't set a timeline for when the review will be completed. But the uncertainty over what the review will mean for the Indian information technology sector has companies worried.

The current program requires H-1B visa holders to be given a minimum salary of $60,000, according to a Goldman Sachs report, though there are exceptions. It also requires beneficiaries of H-1B visas to hold a specialized bachelor's degree for the position offered.

"The H-1B talks have led to speculation and that is causing a stir in India. The proposed changes to H1B visas will also impact American tech companies, such as Google, and Microsoft, increasing their costs, and potentially leaving them with a skills deficit," GrowthEnabler's Malhotra told CNBC.

He, however, noted that H-1B visa workers can continue servicing their U.S. clients from India using advanced tech collaboration solutions and virtual working practices.

"The net impact being that cross functional and multi-regional teams will collaborate seamlessly with minimal disruption. "

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