Global layoffs to reset the economy

A wave of layoffs is going on with the US companies. In the first few months of 2022, a wave of layoffs swept across American business. The reason, broadly, is twofold: Business growth is slowing, while labour costs are increasing. The combination is causing American companies across a variety of industries to slash headcount. The fact is the management looks at headcount numbers critically when they want to cut costs and protect profit margins as they are accountable to investors.

The ongoing Russia-Ukraine War has contributed to the layoffs in the job market as it has made the market more volatile. This is clearly visible from stock market volatility. A potential economic recession is a big red flag. With inflation soaring in most parts of the world, leading to a crisis in the job market as well. The International Monetary Fund has cited forecasts for global GDP growth in both 2022 and 2023 as gloomy. These measures involved increasing the interest rates.

We have seen how the U.S. multinational companies including tech giants Amazon, Meta, Intel, Twitter, Citi, Morgan Stanley and Adobe, announced massive layoffs. These developments are bound to have an impact on India’s export prospects, especially in the information technology sector. The Indian IT services firms are among the largest employers in the organized sector and any global economic trend is bound to have an impact on their growth projections.

The attrition rates or the number of employees per 100 quitting on their own, of the top two firms, TCS and Infosys, show that these rates are still high, which means that there is enough business for the sector for competitors to draw away employees with promise of higher salaries. For instance, all top companies except Wipro saw a rise in revenue and net profit.

The news of layoffs in the Indian start-up front is predominantly in Edtech, or the educational technology front. During the pandemic, there was a surge in demand as people were in lockdown, and were spending a lot of time on the internet. The overall consumption saw an upsurge following which the companies went to increase their output to meet the market requirements.

As the demand is coming back to pre-Covid levels and seeing the debt bubble almost about to burst and fearing recession, Managements during a recession look critically at headcount numbers to cut costs and protect profit margins as they are accountable to investors.

Experts say this is the best time to invest in India as it is fast becoming the investment destination of the world. This is the first time India has achieved its ambitious target of crossing the $400 billion mark in merchandise exports and this also shows that India has started to emerge as a trusted partner as global firms are looking to diversify their supply chains and reduce their dependence on China.

There is a tremendous focus in the country on sunrise sectors such as 5G, artificial intelligence, drones, semiconductors, blockchain, green energy and space economy.

S Mohini Ratna, Editor, VARINDIA