The Impact of Economics and Geopolitics on Hiring Practices in India

The world’s fifth-largest economy, India is a vibrant country of myriad opportunities and growth, sculpted by its diverse culture and dynamic workforce. With a population of over 1.4 billion, the nation throbs with an energy fuelling innovation and growth.

However, India’s labor market is not only impacted by local trends but also by the ever-evolving tides of the global economy and the complexities of geopolitics. These overpowering forces are redefining the nature of work and how businesses hunt for new talent.

The global waves are constantly shaping the country’s workforce from setting salary benchmarks to the in-demand skill sets. This creates a landscape of ever-evolving challenges and opportunities.

The Indian economy in the past decade experienced massive fluctuations. From periods of rapid growth to slowdowns directly influencing the hiring trends.

1. Growth Phases

The hiring activities in India tend to spike during phases of economic expansion. Fleeting growth in sectors like IT, manufacturing, pharmaceuticals, and retail leads to a rise in demand for skilled workers.

For example, if we go back to the mid-2000s, there was a spike in India’s economy and we grew at an average rate of 9% per year, leading to a surge in recruitment, specifically in IT and tech sectors. This saw an increase in investments in new infrastructure and a demand for both high-end technical skills and managerial expertise.

This economic boost led to an enhanced appetite for skilled professionals in the areas of technology, finance, and operations.  Another interesting trend was the rise of start-ups that further contributed to job creation along with an increased demand for young and innovative talent.

2. Downturns and Cost-Cuttings

India also witnessed a reduction in the hiring process and layoffs during periods of economic slowdown or downturn.  During the global financial crisis in 2008 which led to the subsequent slowdown in 2016-17, there were sectors like IT outsourcing, manufacturing, and even services that bore the brunt.

During this period hiring practices became extremely rigid and organizations began prioritizing cost-cutting measures, automation, and workforce optimization. At such times, employers might retain top talent and adopt more strict hiring criteria.  The strategies in recruitment during this period will automatically shift from permanent hiring to temporary contracts, freelancing and outsourcing to diminish the chances of long-term commitments.

Certain common trends during economic slowdowns are temporary layoffs, salary freezes, and limited recruitment campaigns.

3. Impact of Inflation and Salary Expectations

Another significant factor that can impact hiring is Inflation and rising costs of living. In recent years, inflation has compelled employers to offer higher salaries to retain their top talent, especially in metros like Bengaluru, Mumbai and Delhi.

However, with an uncertain economy and volatility in inflation rates companies find it difficult to commit to long-term salary hikes or an increase in recruitment due to rising operational costs.

4. Geopolitics and Recruitment Trends

The hiring practices in India are largely shaped by geopolitics which entails global trade relations, conflicts and international policies.  With our government’s initiative in improving relations with foreign countries and given our country’s strategic location, a growing influence being created in the international space making changes in the hiring process.

The growing international influence, the country is constantly exposed country to global shifts that might directly impact employment trends.

5. Trade Wars and Outsourcing

The recent years saw the trade war between the United States and China escalate, prompting several companies to rethink their outsourcing strategies. India became a preferred destination for outsourcing and is often considered a cost-effective alternative to China, especially in the IT, customer service and manufacturing sectors.

To add to that the government of India’s focus on “Atmanirbhar Bharat” (Self-Reliant India) and “Make in India” initiatives that aim to encourage domestic production, attract foreign investments and create new jobs.

Other impactful global geopolitical events like Brexit and changing US immigration policies have also transformed hiring patterns. Brexit, for example unlocked opportunities for Indian professionals to go for roles that were previously designated for European citizens in the UK.

This led to a surging demand for talent in sectors like financial services and technology. The tightening of US H1B visa regulations has also led to a rise in the number of Indian tech workers who are looking for job opportunities abroad. Some companies were also encouraged to look for necessary skills within India.

6. Global Conflicts and the Pandemic

Geopolitical turmoil like tensions in the Middle East, could impact recruitment practices in sectors like defense and security. Furthermore, the challenges posed by global health crises like COVID-19 have led to a rapid increase in remote work and virtual hiring.

During the pandemic, organizations across the globe were forced to adapt to online and remote operations quickly, leading to an instant rise in demand for digital skills, cybersecurity expertise and IT support.

Geopolitical strain can also aggressively impact foreign investments affecting the ease of doing business. Alterations in trade policies, tariff structures, and bilateral relations between India and other countries can either attract or hinder foreign investments, that will directly impact job creation in specific sectors.

7. Digital Transformation and Shifting Skills

India is on the cusp of becoming a significant player in digital transformation. Hiring practices are being influenced highly by technological innovations and industry shifts. Automation, artificial intelligence (AI), and machine learning are drastically changing trends in the hiring landscape.

Companies are embracing these technologies and the demand for workers with expertise in data analytics, AI, cloud computing, and cybersecurity has escalated like never before. This trend has spread across sectors from manufacturing to retail as organizations are focusing on upgrading their operations.

The global economic and geopolitical arena influenced by digital transformation has facilitated a shift in the skills and roles required by employers in India.

8. Gig and Freelance Economy

The gig economy is a recent trend that seems to be on the rise and there is a surge in non-permanent or freelance positions. Companies are getting inclined towards adopting more flexible work structures and hence heavily relying on freelancers, contractors and remote workers.

This shift has been noticed in creative industries, technology, and consulting services. The transformation essentially occurred due to geopolitical factors like international remote work policies during the COVID-19 pandemic and businesses began recruiting from diverse global talent pools.

As the economic landscape and global dynamics of India evolve, the hiring practices will follow.  The future of recruitment will be scripted by shifting trade relations digital revolution, economic and powerful geopolitical forces.

Employers will need to keep a look out for unpredictable global markets and accordingly balance the demand for new skills. Meanwhile, job seekers must stay upbeat continuously upskilling and adapting to stay ahead of the curve.

The future of hiring in India will be a magnetic blend of local talent, global collaboration and flexibility, driven by a constantly evolving landscape. The workforce will have to deal with both opportunities and challenges head-on.