Mumbai: With automation taking place at a much faster pace across industries especially in the tech space, domestic software firms that employ over 16 million are set to slash headcounts by a massive 3 million by 2022, which will help them save a whopping $100 billion mostly in salaries annually, says a report.
The domestic IT sector employs around 16 million, of them around 9 million are employed in low-skilled services and BPO roles, according to Nasscom. Of these 9 million low-skilled services and BPO roles, 30 percent or around 3 million will be lost by 2022, principally driven by the impact of robot process automation or RPA.
Robot process automation (RPA) is application of software, not physical robots, to perform routine, high-volume tasks, allowing employees to focus on more differentiated work. It differs from ordinary software applications as it mimics how the employee has worked instead of building a workflow into technology from ground up and thus minimising time to market and greatly reducing cost over the more traditional software-led approaches.
Roughly 0.7 million roles are expected to be replaced by RPA alone and the rest due to other technological upgrades and upskilling by the domestic IT players, while RPA will have the worst impact in the US with a loss of almost 1 million jobs, according to a Bank of America report on Wednesday.
Based on average fully-loaded employee costs of $25,000 per annum for India-based resources and $50,000 for US resources, this will release around $100 billion in annual salaries and associated expenses for corporates, the report says.
“TCS, Infosys, Wipro, HCL, Tech Mahindra and Cognizant and others appear to be planning for a 3 million reduction in low-skilled roles by 2022 because of RPA up-skilling. This is a $100 billion in reduced salary and other costs, but on the flipside, it offers a likely a $10 billion boon for IT companies that successfully implement RPA, and another a $5 billion opportunity from a vibrant new software niche by 2022.
Given that robots can function for 24 hrs a day, this represents a significant saving of up to 10:1 versus human labour,” says the report.
Offshoring helped domestic IT sector to grow from around 1 percent of GDP in 1998 to 7 percent today, a highly strategic sector for its economy and has alsoc significantly outgrown their Western peers (mainly Accenture, Capgemini and Atos) with an annual revenue growth of 18 percent between 2005 and 2019.
Another key reason for the RPA-driven job losses is that many countries that had offshored their work are likely to bring the jobs back to their home markets. Developed countries will also look to increasingly bring back offshored IT jobs and either use native IT workers or domestic software robots like RPA to secure their digital supply chain and ensure future resiliency of their national technology infrastructure, the report argued.
Software offshoring began in the 1970s and the 1980s when the personal computer began to gain traction when major world players began shifting focus to trade liberalisation. However, despite such massive automation, major economies such as Germany (26 percent shortage), China (7 percent), India (5 percent) Korea, Brazil, Thailand Malaysia and Russia will likely face a labour shortages, warned the report, adding that South Africa, Greece, Indonesia and the Philippines will have surplus labour for the next 15 years.
According to the report, faster automation is driven by the shrinking talent pool of high-skilled jobs in developing economies, the need for which will only jump, but the global high-skill talent pool is shrinking and exposing outmoded immigration systems.
The report goes on to warn that emerging economies, mostly India and China, face the most risk of technology driven disruptions which can impact up 85 percent of jobs in countries like Kenya and Bangladesh. India and China are at greatest risk of skills disruption, while Asian, the Persian Gulf and Japan are at the least risk.
Perhaps the most worrying trend is that emerging market jobs are most at risk of automation because of the low-/mid-skilled nature of sectors like manufacturing, highlighting the risk of premature de-industrialisation. India saw its manufacturing peak in 2002, while Germany and Mexico witnessed their peak in 1970 and 1990.