Impact of COVID-19 on the Indian IT sector

Impact of COVID-19 on the Indian IT sector

Information Technology sector in India is an industry which is a key part of the country's economy. This sector includes two major components which are IT services and BPO (Business Process Outsourcing), IT services are mostly responsible for software development, software management, online services, cloud services, etc.

The IT Industry contributes as much as 8% of GDP for India, the industry has generated US$ 178 billion in revenue, the majority of revenue was generated in exports. The IT industry in India employs 4.1 million people as of FY19.

Not just well-established IT companies, but there is a huge spike in software startups as young entrepreneurs are focusing on building platforms and products for global markets. This has led to the creation of more than 7000 tech startups in India, from which 18 are the unicorns (startups valued more than USD 1 billion).

The outbreak of COVID-19 in China during December has reached its peak by infecting more than 2.5 million people, spreading through more than 200 countries.

India's IT sector is expected to post either flat or negative growth in 2020 due to the impact of COVID-19 globally, the most affected countries are the major IT service importer, including European countries & the USA which imports more than 50% of its IT services from India.

The Former CFO of IT giant, Infosys Ltd, V Balakrishnan said, "Look at the economic activity (globally). Worse than what we have seen in 2008 (global financial crisis).

IT companies have a task in front of them, to decide how they can add value for both parties. Clients from every industry such as banking, financial institution, transportation, aviation are going through a tough period, & budget will be the biggest issue they might face this year. IT companies may have to trim their workforce to cut the cost of service which can be done based on skills & competencies, productivity, cost & compliance, etc.

According to ISF (India Staffing Federation), the apex body of the domestic Flexi (contractual) staffing industry, the IT sector tops Flexi staff adoption with around 12 out of 100 employees being contractual. The hiring of Flexi staff is based on requirements for the projects, and clients may hire more Flexi staff as the requirements are uncertain, and payment can be in the form of performance-based, instead of fixed pay.

The tourism industry is completely down due to lockdown, most IT companies have clients from the tourism industry for whom they make they make the software solutions, IT companies like this will have the most impact.

Traveling restrictions will also impact the movement of IT professionals from India, this will affect the ongoing technological projects of Indian IT companies at offshore locations.

All the above mention problems may last for approximately 3 to 6 months, which will affect the timelines of project completion. Even though the IT companies are allowing work from home, the output remains questionable.

Meanwhile, some technology startups are stepping up to fight against the COVID-19. For example, Mumbai based startup Haptik Technologies, in collaboration with India's Ministry of Health, has launched a WhatsApp chatbot to create awareness about the COVID-19 and stop the false information spread across the platform.

Another example is an Artificial Intelligence startup is working with MNCs to provide a better employee experience, with automated shift planning and workforce management.

As of now, IT companies are finding their way to provide service to their clients, and we are still not sure when this pandemic will be under control. Once everything is under control, IT companies will come up with solutions on how they can be more flexible if there is a crisis so that they can benefit all the parties involved.


Key Pointers:

  • The Indian IT industry is the US $178 Billion and the growth of which is slated at 6.1% year on year. But due to the Covid-19 impact, it is expected that there will be a growth of 3-5% in the current financial year according to rating agency IRCA. It contributes to 8% of India’s GDP.
  • The market size of the IT industry across the country in:
  • Exports: $130 billion as of 2018
  • Domestic industry: $42 billion.
  • The export industry is expected to grow at 7-9 percent year-on-year to US $135-137 billion in FY19. The overall industry is expected to grow to USD $350-360 billion by 2025.
  • The issues faced by the Indian IT service industry include travel restrictions to developed countries, work from home, and closure of offices which impacts the moving of labor.
  • New projects to be delayed by a period of 3 to 6 months while existing projects already in the pipeline might also get delayed.
  • The credit profile of the Indian IT industry is expected to remain stable.
  • The quarter from January to March is expected to be a weak owing to lockdown measures being taken.
  • The companies have restrained to quantify the potential impact of the COVID-19 breakout on the financials.
  • The key verticals like oil and gas, BFSI, Retail are going to suffer as the capacity of clients comes down and so is the use of the software with BFSI contributing 30-35% of the total revenues of the country.
  • The recovery is forecasted during the second half of the year by ICRA, however, the extent of the virus and its attack remain uncertain. So estimating the losses at this particular stage is not possible.