An unexpectedly severe job crisis is affecting India’s once-thriving startup ecosystem. The number of layoffs at new-age businesses is thought to be no fewer than three times higher than what is publicly reported, according to staffing companies and headhunters.
More than 1,400 businesses have given out pink slips to about 91,000 workers in the previous 24 months alone. According to information obtained from tech-focused employing firm TopHire, if concealed layoffs—an indirect method of reducing headcount—are taken into account, the number may have reached 120,000.
How Funding Shortages Force Cost-Cutting Measures and Realignment
Well-known companies like Byju’s, Unacademy, Blinkit, Meesho, Vedantu, Udaan, Oyo, Ola and Cars24 which are unicorns or startups valued at USD 1 billion or more, reduced their staff sizes.
25,000–28,000 layoffs have been reported based on publicly available data, but this only provides a partial picture because the reported numbers don’t fully reflect the situation. This is due to the funding shortages brought on by the liquidity crisis, which forced many new businesses in India to implement cost-cutting strategies. Startups were forced to reduce employee costs, realign cost structures, and cut marketing expenses as new funding became increasingly difficult to come by. According to a PwC India report, Indian startups raised USD 3.8 billion in funding in the initial half of 2023, which is 36% less than a year earlier and represents the lowest total of fundraising over the span of six months in the previous four years.
The most well-funded startups in the first half of 2023 were still in the financial technology, software-as-a-service (SaaS), direct-to-consumer and app industries. According to the PwC data, 298 deals totalling USD 3.8 billion in startup fundraising were completed among January and June 2023, a significant decrease from the USD 5.9 billion raised during the same period the previous year.
“Over the last 24 months, we estimate that 1,400 companies have made layoffs. According to Siddharth Gopi, co-founder of the tech-focused staffing firm TopHire, which screens thousands of applicants each week, the number would be around 91,000 if we assumed a median of 65 reductions in employment per organization across all layoff rounds.
According to Shiv Agrawal, managing director of ABC Consultants, startups have fired at least twice as many people as had been estimated, including contract workers.
The broader implications of this crisis extend beyond immediate job losses. The downturn has generated a ripple effect throughout the Indian economy, impacting not just the startups themselves but also their ancillary sectors. Many of these startups were pivotal in creating ancillary jobs in sectors such as marketing, legal services, and tech development. The subsequent layoffs have led to a contraction in these related sectors, compounding the economic strain.
The funding shortages that triggered these layoffs are also causing a strategic shift among investors and venture capitalists. There is now a greater emphasis on profitability over growth, which is forcing startups to pivot from their initial expansion-focused strategies to more conservative, sustainability-oriented approaches. Investors are increasingly scrutinizing financial health and operational efficiency, which is influencing how startups plan their growth and expenditure. This shift has led to a more cautious investment climate, where only the most resilient and adaptable startups are likely to secure funding.
Moreover, the reduction in marketing budgets and scaling back on product innovation are expected to slow down the pace of technological advancement and consumer choice. Startups, which were once the hotbed of innovation and competition, may now find themselves grappling with limited resources and constrained operational capacities.
The broader socioeconomic implications are also significant. The layoff crisis has led to increased uncertainty and anxiety among the workforce, affecting not only the individuals who have lost their jobs but also their families and communities. This job insecurity can dampen consumer spending and economic confidence, further impacting economic growth.
As the startup ecosystem navigates this challenging period, it is critical for both policymakers and industry leaders to collaborate on strategies that support both businesses and displaced workers. This could involve measures such as enhancing support for reskilling and upskilling initiatives, creating safety nets for laid-off employees, and fostering an environment that encourages investment in sustainable and long-term business models. The future of India’s startup ecosystem will depend on its ability to adapt and innovate in the face of these unprecedented challenges.