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India’s catastrophic second wave of Covid-19 has become the ultimate real-life stress test for the global services industry as companies work to keep back office operations going amid widespread infections and an overwhelmed healthcare system.

India is the world’s leading back office hub. Almost 4.5 million people do everything from answering customer calls to software development and mortgage processing. This puts India far ahead of competitors like the Philippines with more than 1.2 million employees.

Global banks and tech companies, from Goldman Sachs to Google, also operate their own in-house businesses there, and outsource far more jobs like Infosys and Tata Consultancy Services.

However, the country was hit by the second wave of the pandemic, which saw an average of 270,000 infections within seven days and a daily average of 4,100 deaths – both of which are considered significant undercounts. The humanitarian crisis was exacerbated by severe shortages of hospital beds, oxygen and vaccines.

India has become essential to global businesses, but executives say this crisis poses risks to this model. Companies have been forced to move their work overseas, delay projects, and even set up their own treatment facilities for employees.

“I think there will be a big industry impact with the second wave in India,” said Vishal Sikka, former director of Infosys and board member at Oracle, the US technology company with 45,000 employees in India.

The pandemic had already rocked the industry when India’s abrupt national lockdown last year forced the sector to switch to remote working practically overnight. “But now, with the disorder, this seems more serious. That feels worse, ”said Sikka. “It’s just the sheer number of people who get sick.”

Executives and analysts say many companies have reported that up to 10 percent of their employees with Covid-19 are absent. However, this figure does not include workers who care for sick family members.

Vinod AJ, general secretary of the IT Workers Forum, an industry group, said the burden has become unmanageable for many workers. “The problem is that it affects not only them, but their families as well,” he said. “Many companies are looking for 24-hour support for [clients in] the US and other parts of the world. You can’t give that much support. “

Sid Pai, a consultant, says no company was immune. “All companies, regardless of size or national origin, are affected, whether they are Goldman Sachs, Accenture, TCS or Infosys,” he said.

Bangalore hit by the pandemic

Bangalore, the main technology and IT hub, was one of the hardest hit cities, although the situation showed some signs of improvement. The national case number has been falling in recent days, although experts fear the virus is spreading in parts of the country with fewer testing facilities.

Arvind Krishna, managing director of IBM, the US technology company with more than 100,000 employees in India, said the burden would be manageable provided the second wave nears its peak.

“It’s a problem, but not something that is a five-alert fire,” he said. “I’m more concerned about the long-term effects on some families. We get so many anecdotes back from people in their twenties and thirties who don’t recover. That’s a shock compared to last year. “

A Kolkata call center from Avise Techno Solutions

4.5 m

Back office staff based in India covering everything from customer service call centers to software development

4,100

Average daily deaths in the second wave of Covid-19

3%

Percentage of the Indian population vaccinated

Pravin Rao, chief operating officer at Infosys, which employs more than 250,000 people, said India’s IT sector has weathered many storms and is well equipped to survive them.

“This industry has demonstrated its resilience from the days of the dot-com outbreak to the global financial crisis,” he said. “There has always been talk of whether this industry will survive, even more so last year during the first wave of Covid.”

A highly qualified and cost-effective business model

India started in the 1990s as a hub for western companies to outsource call centers and IT work.

The country’s large base of highly skilled and inexpensive workforce encouraged banks and software companies to delegate an ever-growing list of critical functions to India. According to Nasscom, the Indian IT industry group, the sector generates annual sales of around 180 billion US dollars.

Last year’s travel bans and bans have rocked a business model that was based on sending workers overseas and expanding campuses. According to Nasscom, spending on IT services fell 4 percent in 2020.

However, the cash-rich industry recovered as business increased in Europe and North America. According to CARE Rating, a rating agency, revenue growth accelerated from 2.7 percent year-on-year in the quarter up to June 2020 to 6.4 percent in the first quarter of 2021.

India’s second wave poses a more profound threat if the government’s botched management of the crisis – by failing to prepare health systems and not procure enough vaccines – damages the country’s reputation as a reliable outsourcing destination.

In the UK, for example, regulators have consulted with lenders about the potential impact on business operations.

“It compromised that confidence in resilience [companies] thought India delivers, ”said DD Mishra, senior analyst at Gartner, the research and consultancy firm. “The response hasn’t given everyone a good level of comfort.”

The health crisis put pressure on employers

A particular challenge is the enormous burden on the Indian health system from the second wave, which made it impossible for even wealthy Indians to secure treatment. This has forced companies to take matters into their own hands. UK bank NatWest is among the many companies that have bought oxygen concentrators for their employees to respond to serious medical bottlenecks.

With hospitals full, companies like Infosys and TCS have also set up their own Covid treatment facilities.

To keep operations going, some have also relocated their work outside of India. Shanmugam Nagarajan, co-founder of [24]7.ai, a customer service outsourcer, routes calls from India to other centers.

“The wave hits different parts of the world at different times,” said Nagarajan. “If India cannot take the calls, Colombia and the Philippines will take the calls.”

Rao said Infosys has also hired subcontractors and negotiated with clients to postpone projects “that are not very critical”.

TCS said the ability to keep its workforce productive and deliver for customers has proven “how robust and effective this model is”.

Pai added that the recent disruption would add to costs and affect productivity. “Customers have understood this so far, but at some point the economy will boost and customers will ask questions,” he said.

One challenge that companies find difficult to solve is vaccines. India changed its rules this month to allow the private sector to procure shock directly, but an acute shortage – which is expected to materialize in the past few months – has made its ability to do so difficult.

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Apparao VV, head of human resources at HCL, a Delhi-based outsourcer, said the company could secure a limited number of vaccines by partnering with a private hospital but was struggling to obtain more.

“Nobody can give you the schedules and volumes you need,” he said. “We turned to all manufacturers. They were very non-binding. . . Without a source, we can make commitments. “

About 3 percent of the Indian population is fully vaccinated compared to more than 30 percent in the United States.

One advantage could outweigh all others: people

Despite the upheaval, executives believe India’s greatest long-term asset is likely to survive any pandemic: its workforce.

Given the tough global competition for programmers and software developers, they argue that nowhere else can companies find so many employees at the right price.

Both JPMorgan and Credit Suisse, which already have significant activity in the country, announced plans this month to hire 4,000 and 1,000 more Indian employees, respectively, in 2021 to improve their technology.

“Businesses will go where the talent is,” said Sangeeta Gupta, senior vice president, Nasscom.

Additional coverage from Nicholas Megaw in London

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