IT Sector May Take A Heavy Hit As Covid Batters US, Europe

When America sneezes, India catches a cold. When Europe too sneezes, India gets a fever, quipped an official of a large software company.

- TE Raja Simhan

It is feared that COVID-19 will significantly impact the $180billion Indian IT sector, and the impact may be worse than that of the 2008 global financial crisis (GFC). The fear is justified, considering the US and Europe, which together account for more than two-thirds of India’s IT exports, are among the worst affected geographies by the pandemic. Clients could significantly reduce their IT spending this year.

The early indicators confirm the fears. Accenture, which started the March quarter earnings season, has slashed its FY20 guidance by almost half to 3-6 per cent in local currency. The company has a robust pipeline and strong relationship with many of its clients, a trend shared by many of its IT services peers.

COVID vs 2008 crisis

The impact of the pandemic on the IT industry is expected to be worse than the GFC’s, as the total direct GDP impact can be nearly $8 trillion, with all the major sectors hit hard. This was not the case during the GFC, when the economic correction almost exclusively impacted only the rich.

The economic loss due to COVID-19 will, in turn, affect spending on IT by clients, said Arun Jain, Chairman, Intellect Design Arena. It is too early to predict the likely loss to the industry now, he added.