Friday, December 2, 2022

Musk leads global IT mayhem, huge job cuts, slump in India

Shivaji Sarkar

The dismissal of Meta-Twitter workers, now mass resignations and 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 and Ukraine 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 fab 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 visualise the setting in of a looming recession in the US and growth slowdown across the technology, making investors apprehensive. In September, the US unemployment rate dropped 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 job cut 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 Societe Generale, 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 TikTok assault 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. 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 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 materialize.
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 spill overs 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.

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