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Indian Startups Firing People Across Sectors | Is The Startup Boom Over?

Several young professionals working in promising startups in India are being laid off at a breakneck pace. Experts in the sector say more layoffs are expected in the coming months. Why are startups laying off employees? Are funding taps drying up and investors pressuring founders to stop burning cash and put profitability over growth? Lalit Sharma and Poonam Negi report for The Probe.

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publive-image Layoffs | Representative Image | Photo Courtesy: Special arrangement

“I have been laid off, and this came in as a surprise to me. I was given a very short notice period. In fact, the company’s management decided to lay off one of the managers, and then they decided to include me in another team. I was also told that my performance was good and that I was dedicated, and therefore they were shortlisting me for a better opportunity. So I thought that this would mean that very soon, I would get an appraisal or a promotion, but instead, in the month of November, the company announced that some employees who were going to be laid off had only 48 hours left with them and that anything could happen after that timeframe,” says Mohammed Waseem, a former employee of the ed-tech startup Unacademy.

Suresh Narasimha, startup investor and Managing Partner of idea-stage fund CoCreate Ventures speaks to The Probe’s Poonam Negi on the recent spate of startup layoffs.

Waseem continues, “My name was not on the list, and I thought I survived the layoff. Then I was asked to join a video meeting. I got tense because my mom had expired a few days ago, and my wife and I were expecting our first child. They told me they were totally satisfied with my work but had no other option but to lay me off. I was totally depressed as I was going through a difficult time in my personal life, and over and above that, I had several loans like home loan, vehicle loan and others to pay off”.

Waseem’s mother had passed away just a few days before the layoff was announced in Unacademy. His father was going through mental health issues, and his wife was expecting their first child. Waseem was the sole breadwinner of his family. After being fired from his former company, Waseem says 40 companies rejected him in December 2022. In February this year, he gave 93 interviews, but a job has yet to come through for Waseem. Waseem’s story is not an isolated case. Several young professionals working in promising startups in India are being laid off at a breakneck speed these days. If reports are to be believed, close to 25,370+ employees have been laid off by 92 startups in recent months.

Startups like Meesho, Blinkit, Koo, Ola, Vedantu, Oyo, Swiggy, Zomato, Practo and several others have been cutting down on their human resources. But when it comes to some startups, what is worrying is that many have been laying off people violating employment agreements and labour laws.

Rajesh Rai, an advocate with the Supreme Court, states that many startups have been laying off employees in contravention of laid down rules and procedures largely because labour norms in the sector are not systemised. “There is a definition of “workman” under labour laws. The Industrial Disputes Act of 1947, which is regulated under the Indian labour laws, talks about employees who come under the definition of the workman. But largely, the employment rules in the startup sector are not very organised. Most of the time, the employees are outside the ambit of the Industrial Disputes Act. So, many times, when a startup indulges in wrongful termination, the employee does not have a strong remedy.”

Suresh Narasimha, startup investor and Managing Partner of idea-stage fund CoCreate Ventures, says there are four drivers to the current spate of layoffs we are witnessing in the startup ecosystem. “I have identified these drivers, and this is not about Indian startups alone. The first issue is that a tremendous amount of technology and innovationship is taking away jobs because technology is becoming more efficient, whether because of AI, automation, robotics, or increased efficiency. Secondly, there is a change in preference of people who want to work. There is a tremendous cultural shift related to how people want to work. Thirdly, because of the global recession, the funding has dried up. Generally speaking, there is an economic slowdown across the world. The fourth driver is all about the boom we saw in startups and the stock markets. That boom is settling down. The reality is that the job scenario is further going to shrink for potential employees unless they are highly skilled. That’s going to be the future scenario.”

Narasimha adds that the startup boom is not completely over. “Startup boom has slowed down but is not over. The amount of money that used to get infused into later-stage companies is today getting infused into young startups in their early stages. An increased number of young and promising companies are getting funded. I have a different take on this issue, and this is a great time to startup if you have innovative ideas.”

Dr Suresh Mansharamani, an author, angel investor and Co-Founder of Tajurba, says that the startup ecosystem was developed around the cashburn model, and this model is not a sustainable one. However, he, too, agrees that the startup boom is not over. “It will never be over, but it will keep on evolving. I am sure more startups will emerge with innovative ideas and solid business models and become profitable, if not immediately but soon. They should not take eight or ten years and indulge in complete cashburn and then again go to the stock market, raise money, and erode the investor’s wealth.”

More and more investors are pressuring startup founders to stop burning cash and show results. A recent news report noted that startups fired nearly 9400 employees between January and March alone, and more layoffs are expected in the coming months. Investments into Indian startups had drastically reduced in the first quarter of 2023. In the last six months, India has not had a single unicorn joining the unicorn club, and investors are pressuring companies to put profitability over growth prospects.

Vikas Malpani, Co-Founder of Commonfloor.com and the Co-Founder and CEO of the Leher App, says that the current market scenario and panic are responsible for the recent spate of layoffs. “I agree that there is an economic downturn world over, but there is also panic in the market. So, when the market is suddenly hit, you will have to focus on building up your core business, and then you have to lay off non-essentials from your core business. People in the startup sector today want to conserve their capital for the rainy day. The fact is also that the number of resources you needed last year was much higher than those you need today. Employees’ salaries are reaching astronomical figures but at the same time, there is a constant need for talent, and there is always a dearth of it in the market.”

While the laying off scene in startups is picking pace, the unemployment figures in India recently reached a three-month high. Data from the Centre for Monitoring Indian Economy (CMIE) shows that the unemployment rate in India increased to 7.8 per cent in March, which is a three-month high, further giving rise to concerns about the growing unrest in the labour market.

Development economist Santosh Mehrotra notes that the blame can no longer be pinned on the pandemic. “In 2017-18 itself, the Periodic Labour Force Survey showed that the unemployment rate had reached a 45-year high. This is the highest if you look at the data related to India’s post-independence period. So, we have to look at the deeper, structural, and policy-building factors pre-covid. The economy slowed immediately after 2016 when a profoundly foolish decision called demonetisation was implemented, and that caused a massive dislocation in the unorganised sector. Most of the jobs are there in the unorganised sector. The MSMEs create the vast majority of the nonfarm jobs, and this sector suffered a lot because of demonetisation and a badly planned GST. The result of this was there were nine quarters pre-Covid of slowing growth. So, while the economy had grown at 8 per cent per annum between 2004 and 2014 and had generated seven and a half million new nonfarm jobs every year between 2004 and 2014, that fell instantaneously after 2015 because of demonetisation.”

Mehrotra explains that while the startup boom may or may not be over, the government needs to focus more on creating jobs. “We need to have a manufacturing strategy. We need to focus on the export of goods. Exports actually fell in dollar terms in merchandise exports every year for five years after this government came to power. The government is not promoting labour-intensive sectors. The labour-intensive sectors create jobs, but the government is only promoting capital-intensive sectors because it is their strategy to do so. The capital-intensive sectors are like the big fives like Adani, Ambani, Tata, Birla and Bharti Mittal. They are being supported, and their concentration of ownership of sectors and assets has increased sharply, and the core inflation is caused by the big five. So, the problems are manifold.”

Narasimha notes that while the government has to do plenty of work to promote MSMEs, it must also do more to boost the startup ecosystem. "The government could do a lot more in bringing foreign investors back into India and ensuring that the money stays back in India. There are still many tax regulations that the government can work on to make it easier for the startup ecosystem to function in a hassle-free manner. They could have worked on long-term capital gain taxes for the startup investors."