The effects on labor demand in India, on the other hand, are magnified by the concentration of technology exports and the sector’s dominant position as creator of formal jobs in the economy. The contribution of the technology industry to India’s economic resilience to the pandemic is considerable. Exports, remittances and foreign investment were all propped up by the sector and it continues to push domestic consumption demand. Wage arbitrage presents a further opportunity to the Indian technology industry as the West descends into recession. But that comes at the cost of smaller pay hikes. Given the white-collar labor absorption capacity of other sectors, India’s demand recovery will have significant linkages with the global technology downcycle.
The longer trend of enterprises turning digital could be reinforced by a mild to severe recession in advanced economies. The Indian industry has positioned itself to ride it. The country has one of the world’s largest pools of digital workers with enormous scope for labor arbitrage. Wage correction after a hiring frenzy should improve the industry’s ability to widen its footprint once companies in the US and the EU, major markets for Indian technology services, climb out of the cyclical downturn. Domestic demand for technology services, too, is speeding up as India pushes its digital economy.
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