ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Post-COVID-19 Challenges in the Indian IT Industry

The information technology industry has been the hallmark of the Indian growth story since the 1980s. The Indian IT sector has relied heavily on non-home markets for demand and resources and built deep global ties using co-location with clients, enabled by international travel and temporary on-site migration, acting as a key mechanism in developing “cognitive proximity.” However, the COVID-19 pandemic is expected to make international travel and migration more restrictive and costlier, maybe for a long time. The paradigm shift creates significant barriers for IT firms to be able to maintain cognitive proximity with its clients and could adversely impact their global competitiveness.

The COVID-19 pandemic has seve­rely disrupted economic activity, with the global gross domestic product (GDP) expected to shrink by over 3% in 2020, according to the International Monetary Fund (IMF 2020). If the estimate is realised, it will be the steepest slowdown since the Great Dep­ression of the 1930s and much worse than the 2008–09 global financial crisis. Restrictions on international travel, strict social distancing norms and ceasing of industrial activity can have a fatal impact on sectors like travel, tourism, oil, metals and restaurants, among others. Firms in several other sectors will have to rejig their business processes and practices to survive and thrive in the post-COVID-19 world.

Today, most of the discussion seems to be focused on the severe demand problems which firms will face in the short to medium term and what governments can do to ease the pain. However, it is inevitable that significant structural changes and new business models will emerge over the long term as the economy and society adjust to the paradigm shift. It is critical for countries and firms to understand these structural changes in order to compete effectively once the current crisis eases. For sectors contributing to the digital economy, the accepted narrative seems to be that there will be distress in the short term but firms will flourish over the long term with the acceleration of digital initiatives and adoption of cloud and automation services. While this is true, firms in the digital economy will also face several challenges as they adjust to a structurally altered “new normal.” This article presents one such challenge in the context of the Indian information technology (IT) industry which could have an impact on the long-term health of the sector and the Indian economy.

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Updated On : 24th Dec, 2020

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