The global economic recession has taken its toll on the Indian economy that has led to multi-crore loss in business and export orders, tens of thousands of job losses, especially in key sectors like the IT, automobiles, industry and export-oriented firms. It has also shaken up the investment regime, which is being restructured, with the telecom sector likely to be declared off-limits for foreign investors.

There is no reason to be surprised to know that Indian economy is also getting hurt from the global economic recession. For India, it is even a bigger problem because India is the land of IT outsourcing and a lot of large western companies outsource their IT services to Indian companies. So, it is obvious that the supply of works for Indian outsourcing companies will suffer in 2009. If the global economic recession continues then Indian companies may really suffer even in 2010.

Although the next two years or more are expected to usher in a difficult phase for the national economy, there are silver linings still amid the dark clouds looming on the horizon. The stimulus package unveiled by the central government should boost exports, especially to the Gulf states, which are still awash in petro-dollars, even if the oil prices have plummeted from $142 to $42 within six months.

Before the crisis erupted, there were more than 1500 software firms in the country, while the employee base of the sector had grown to 553,000 (from 415,000 in FY 06). More than 1300 IT companies were operating in Bangalore alone.

This sector has been adversely affected by the global crisis-a fact acknowledged by Bangalore-based Infosys Technologies Co-Chairman, Nandan M. Nilekani. He believes that even though the tech sector would see the impact of the economic slowdown in terms of growth rate, the IT industry will continue to grow and recruit manpower.

Interestingly, his observation finds support from the Manpower Employment Outlook Survey which ranks India second after Peru in terms of the recruitment programme. The survey, which covered 33 countries, reveals that although the global slowdown will certainly impact the hiring plans of employers in India over the next three months, it has the second strongest hiring capacity globally, with a Net Employment Outlook of 19 percent.

As for the IT industry, Nasscom had initially projected a 21-24 per cent growth rate for the current financial year, but the software association revised it downward in the wake of the global financial meltdown. Nasscom will complete the ‘review process’ of the FY09 export growth targets, sometime in December.

Similar was the projection of Infosys, when it lowered its dollar revenue guidance for FY09 by six percentage points. It now expects revenue to be between $4.72-4.81billion. “There is a global scenario which is unprecedented and it will have an impact on everyone. But the IT industry has demonstrated time and again that it is resilient enough to deal with these challenges,” said a Nasscom spokesman.

But for now heads continue to roll in the IT sector. In February this year, Tata Consultancy Services (TCS) had asked about 500 employees to leave due to non-performance. Patni Computer Systems (PCS) has already laid off around 400 employees, or nearly 3% of its 14,800 workforce, on the same ground, while IBM Corp. followed suit in the case of 700 freshers. Wipro, the country’s third largest IT exporter, is considering firing 3,000 employees over performance-related issues. However, this is yet to be confirmed by the company.

More trouble seems to be in store for this sector. This time the news is that the relatively liberal visa regime in the US that enabled IT services companies to send employees on client work is under review following the job losses in the US. The United States Citizenship and Immigration Services (USCIS), the visa controlling agency, is tightening the screw on screening and issuing L1 visas and L1 extensions.

L1s are three-year visas meant for intra-company transfers, with some 50,000 Indians estimated to be currently in the US on these visas. About a third of them are coming up for renewal this year for a further two-year extension.

Nasscom has said that the proposed legislation by the US House of Representatives to restrict the use of L1 visas by Indian companies will affect the Indian IT industry in the long term, as about 10 per cent of Indian software professionals in the US avail themselves of L1 visas.

Away from IT firms, the IT-Enabled Services sector may also face the crunch, since a majority of Indian IT firms derive 75% or more of their revenues from the US. Thus, if the Fortune 500 companies slash their IT budgets, Indian firms could feel the heat. The sector should review its priority and focus on product innovation (as opposed to merely providing services). If this is done, India can emerge as a major player in the IT products category as well.