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To appropriate an old quote, when America sneezes, the Indian software industry catches a cold. With more than a three-fifths share (62% in 2018-19) in India’s total software export, any negative development in the American market is sure to affect India’s software industry that grows largely on export earnings. Europe, including the United Kingdom, accounts for another 27%. Now that economies of both the US and of Europe are projected to decelerate due to the Covid-19 crisis, the Indian software industry is feared to suffer - following reduced technology spending by offshore American and European clients.  

While the actual impact of the Covid-19 pandemic on Indian software industry cannot be gauged right now, an economic slowdown is feared to affect discretionary IT spending and contract renewals and new deals as enterprises would recalibrate the cost structure in coming months. Ongoing project executions will also take a hit due to travel restrictions. IT vendors will be forced to relook at their growth targets for the rest of the year as the impact will become evident in the next few quarters.

The early estimates by International Data Corporation (IDC), the premier global market intelligence firm suggest that the revenue of global information technology services may decline by 3% to 4% due to slowdown of businesses induced by the Covid-19 pandemic. Going by these projections, and taking into consideration how significant the IT industry is for India, the slowdown in overall IT expenditure across the world may cost India billions of dollars.

Technology research and advisory firm, Information Services Group, too has lowered its forecast for global deals activity this year - following the impact of the coronavirus pandemic on world trade. And this may not go well for India's IT sector. The US-based research group forecasts annual contract value for global managed services — that offer additional support in terms of networking and hardware — to decline by 7% in 2020 as against a 3.2% growth projected earlier.

The stake is enormous for India as the industry is a big foreign exchange earner and the largest white-colour job provider. The IT-BPM sector in India stood at $177 billion in 2019 witnessing a growth of over 6% year-on-year and is estimated to grow to $350 billion by 2025. India’s IT - ITeS industry grew to $181 billion in 2018-19. Exports from the industry increased to $136 billion in FY19 while domestic revenues (including hardware) advanced to $44 billion.

Now not only the industry’s future growth but also its present business is under threat. A decline in global IT spent of close to 4%, as estimated by IDC, will significantly lower businesses of Indian IT companies. At this estimated rate of decline, India may lose over $5 billion in IT services exports leaving aside the fall in its own requirements. The global economic slowdown is now official with many executives undertaking salary cuts and thousands losing jobs across the world. With a large section of non-resident Indians being engaged in IT services with global industry giants, this must be another major cause for concern for India.

India is the leading sourcing destination across the world, accounting for approximately 55% market share of the $185-190 billion global services sourcing business in 2017-18. The sector expanded at an annually compounded rate of 10.7%, from $74 billion in 2009-10 to reach $167 billion in 2017-18, which is many times higher than the global IT-BPM growth. The coronavirus pandemic has affected this sector too, leaving thousands of jobs at stake.

India’s IT industry contributes about 8% to country’s GDP and a downtrend there will affect the economic growth proportionately. The sector employed 4.14 million people as of 2018-19 – an addition of 1.7 lakhs from the previous year. Let alone new employment, the sector will find it difficult to protect existing jobs.