The wave of global layoffs, stirred by an anticipated economic recession, is sending ripples across the world. Recent numbers show that around 60,000 employees were displaced from their jobs in the United States alone in September and October 2022. With India being a hub for multinational corporations, the impact of these layoffs on the Indian economy and its workers could be significant.
Understanding the Layoff Phenomenon
A layoff refers to the temporary or permanent termination of employment by an employer for reasons unconnected with an employee’s performance. The present surge in layoffs is primarily driven by two key factors: Cost cutting measures and fear of an impending economic recession.
Cost cutting has emerged as a major strategy for companies grappling with dwindling profits and mounting debt. Indian startups, mainly from the edtech and ecommerce sectors, have also been compelled to reduce headcount, with over ten thousand layoffs reported during 2022.
As for the growing apprehension about an economic recession, it is fuelled by the rising inflation rates globally, gloomy forecasts for global GDP growth due to the ongoing pandemic and Russia-Ukraine conflict, and companies’ decreasing dependence on online platforms.
Impact of Online Consumption Patterns
During the pandemic induced lockdowns, there was a remarkable surge in demand due to people spending more time on the internet. In response, tech companies expanded their workforce to meet rising market requirements. However, this situation reversed as pandemic restrictions eased and internet usage dropped significantly, causing substantial losses to these companies.
Outlook for Indian Companies
Indian IT services firms, which form a large part of the organised sector, are especially sensitive to global economic trends. Amid the current layoff trend, revenue and net profit for most top companies, except Wipro, have risen. However, the high attrition rates, particularly among TCS and Infosys, suggest that the sector still holds promise for workers through competitive salary offers.
On the other hand, Indian startups in the EDtech sector have been hit hard by the layoffs.
The Consequences of Layoffs
Layoffs can have far-reaching impacts. For affected workers, it can be both a psychological and financial strain, and similarly distressing for their families, communities, colleagues, and other businesses.
For Indian workers laid-off from U.S. companies, the risk is even greater. Without finding a new employer within 60 days, they are required to leave the U.S., facing uncertain job prospects back home as Indian IT companies slow down hiring amid economic uncertainties.
In addition, layoffs can harm a company’s image, suggesting instability or crisis to its customers. Moreover, the remaining employees also suffer emotionally, leading to decreased productivity levels.
India’s Response to Past Global Recessions
Looking back at previous global recessions, Indian companies would quietly let go of staff who were lower on the performance ladder. If an employee spent too long (more than three months) without being assigned a project, they would gradually be phased out. Post the notorious 2008 recession, hiring was slowed significantly, with campus recruitments decreasing and job offers often taking 9-12 months to materialize.
Way Forward
Despite the current challenges, Indian startups have witnessed faster growth compared to their peers in neighboring regions. However, high valuations do not guarantee job security for employees. Thus, voluntary retirement programs can serve as a transition pathway to ease the impact of layoffs.