India's outsourcing giants are slashing hiring and getting projects done with existing workers, a rare pullback that could weigh on the economy and affect engineering students who have seen information technology as the sector of choice for decades.

The slowdown, triggered by global uncertainty in demand, is unprecedented in an industry that is one of the biggest hirers in India's services sector since the 1990s and provides an assured career path and prosperity to hundreds of thousands of students each year.

"Weak IT hiring could be for two different reasons: short-term negative demand shock or a long-term displacement resulting from labour-saving technologies," said Rohit Azad, an economics professor at New Delhi's Jawaharlal Nehru University.

"The impact of weak hiring would depend on which is the primary cause driving it. A negative multiplier effect in the immediate would be there nevertheless," Azad added.

The IT sector accounts for about 8% of India's GDP versus less than 1% about 30 years back, according to Rishad Premji, the chairman of Wipro, one of the country's IT giants.

Overall, the Indian tech sector employs over 5.4 million people, according to trade group Nasscom, although the number is dominated by the IT sector. About 290,000 new jobs in the tech sector were created in the financial year that ended in March, but Nasscom warned of "global headwinds" in the current year.

With IT employees seen as big spenders on everything from cars, durables and second homes to travel and entertainment, they are likely to have had some effect on the sluggish 0.5% sequential growth in private consumption in January-March.

"Some slowdown in IT hiring intentions could contribute to the flat-lining in consumption that is already underway," said HDFC Bank Principal Economist Sakshi Gupta.

There are pockets of optimism elsewhere in the services sector - especially in accounting, where there is a surge in hiring. But the numbers are still dwarfed by the IT industry.

Recession fears

IT firms, which count global heavyweights such as Apple , Citigroup and American Express among its clients, went on a hiring binge during the pandemic that fuelled a digital services boom.

However, things changed this year as recession fears gripped the world and the collapse of three U.S. regional banks and the forced sale of Europe's Credit Suisse to UBS left the global financial industry shaken, making IT clients across sectors cut spending.

"The post-pandemic phase saw companies ramping up production to meet new demands in the market, leading to a growth in hiring across IT companies. This boom, however, soon fizzled out in the face of the global economic crisis and a looming recession," said Sachin Alug, the CEO of staffing firm NLB Services.

NLB sees a 20-25% drop in IT employee additions in the first half of the current financial year, while TeamLease Digital expects a 40% decrease for the entire year.

Jobs portal Naukri.com's parent Info Edge flagged in May that its recruitment business was seeing "cautious" spending by IT customers.

IT bellwether Tata Consultancy Services said this month it had "recalibrated" its hiring after a drop in attrition. It added 22,600 people in the last financial year, taking its overall headcount to 614,795.

Infosys, another IT giant, warned in April its annual revenue growth would hit a six-year low and refrained from its usual practice of setting a target of fresh hires at the start of the financial year.

"We have a lot of bench with us. They are ready to move into production projects," Infosys CFO Nilanjan Roy said at the time.

Nasscom declined comment on the hiring slowdown.

Doom and gloom

The dismal outlook is worrying many students as the IT sector typically absorbs 20-25% of the 1.5 million engineers who graduate every year in India and was a rare bright spot during the pandemic, when most other industries put hiring on ice.

"Normally, on-campus hiring is easier than off-campus. This year, that kind of flipped," said Gautam, an engineering student in Punjab state, who declined to be identified further. "Some people had their internship revoked or full-time (job offers) revoked too due to cost-cutting."

He said some of his classmates have decided to study further as they have lost hope of finding a job.

IT firms such as LTIMindtree and Wipro have been accused by an employee's union of trying to cut costs by deferring joining dates and slashing starting salaries.

That has "surely left applicants concerned about future prospects", said staffing firm Xpheno's co-founder Kamal Karanth, who highlighted how current hiring activity was "under a third of what was recorded in the buoyant peak".

LTIMindtree did not respond to a request for comment.

Wipro did not directly address the accusations but said the environment was different from a year ago.

"The race to hire ahead of demand has been replaced by a more measured approach in light of the declining attrition rates and the ongoing economic uncertainty," it said.

No plan B

India's engineers might find it hard to find jobs even beyond the IT sector as startups too have been laying off employees in recent months due to a funding squeeze.

"Even if a few startups do absorb freshers, they would skim the cream off the top, and not match the high volume intakes that the IT services and product enterprises do," Karanth said.

Some industry veterans said Indian students may be better off looking at other industries.

"We have significantly different opportunities that are better sustainable as career paths" than two decades back, venture capital firm Siana Capital's founder Siddharth Pai said.

Pai highlighted sectors such as financial services, consumer goods, specialised manufacturing, medicine, law, chartered accounting and other services as more viable options.