In the past six months, 30-year-old Rajesh Prabhu has gone from considering buying a new flat to mulling the idea of moving back in with his retired parents. In that time, the software engineer by training has seen his testing job, which paid him nearly Rs 25 lakh annually, disappear, replaced by a BPO job that pays him Rs 15 lakh a year.

Burdened by loan payments for his car and a weighty credit card bill, Prabhu is looking to cut corners. In the past three months, he has passed up countless offers for parties, a holiday to Southeast Asia with friends and has almost given up eating out.

The global economy is sluggish and the $110-billion Indian IT industry is in the throes of an upheaval. There is little chance that the likes of Prabhu will have it easy anytime soon. A pall of gloom hangs over many of India’s three million IT executives. Better paid than their peers in less glamorous industries, IT workers were once big and easy spenders, contributing to a substantial chunk of India’s multi-billion dollar consumption story. But now, they are ruthlessly cutting back on discretionary spending.Their pain is also felt by a range of consumerfacing industries that had profited from IT-driven consumption. “People in the IT industry had managed to couple desirability with affordability,” says Ankur Bisen, head of consumer and retail for Technopak, a management consulting firm. Now, some of this desirability has come unstuck. Faced with singledigit pay hikes – at best – these employees are cutting back spends.Arindam Chakraborty, 31, project manager with a Gurgaon-based technology services and consulting company, is an avid gamer. He has a collection of about 90 PlayStation 3 (PS3) games, with titles ranging from Madness Returns, Army of Two to Alone in the Dark. Each game sets him back by about Rs 3,000 and, till recently, he bought about three new games a month. Now, it’s one game in three months.“It’s tough to cut corners on what you like, but that’s the reality today,” says Chakraborty. “The mood is sombre. Job portals are running dry and the fear of pink slips hangs like the Damocles Sword.” It’s a far cry from the times he got a 70% increment back in 2004 and an average of 12%-15% in recent years. “Now, it’s down to 6%-8% a year.”The bigger fear is ending up on the ‘bench’ – the term used by IT companies to describe employees on their rolls, but without project work. “You can’t be longer than two months on the bench unless you are an exceptional talent,” says Chakraborty, recalling how a friend of his was asked to go as he was on the bench for two months. “Naturally, I’ve become conservative in spending. I bought a Honda City a couple of years back. Now, whenever I’m behind the wheel, I kick myself for not having bought a cheaper, smaller car,” he says.Like Chakraborty, there are many others feeling the pinch. Ravi R is a 26-year-old IT professional at a mid-tier firm in Bangalore. Ravi, like any other well-paid IT employee, bought a car six months ago, for which he pays an EMI (equated monthly instalment) of Rs 15,000. His wife is earning too, but without annual increments of 25%-30%, their finances are struggling to keep pace with their lifestyle.For the past few months, the couple have wanted to move out of their current locality, Marathahalli, because of a spurt in crime, but hesitated after poor hikes. “I want to move into a gated community... (but) we have to shell out Rs 25,000 (compared with Rs 15,000 now) as rent and another Rs 1 lakh as deposit,” he says. And now, there is also the fear of a job loss.This fear is silently reverberating across IT hubs in Bangalore, Gurgaon and Hyderabad – and trickling down the chain. Hotels and restaurants are reporting thinner attendance, malls lower footfalls and realtors are finding it tougher to get customers. The IT worker was once a prime customer for the local realty broker. No longer.Says Vikas Bhargava of Iris Realty Services, a real estate broker in Gurgaon: “Overall (property) transactions have dropped by 40% in the past one year. Speculators lifted the market beyond sustainable levels. Genuine buyers are there now, but at such high costs (a 3BHK for about Rs 1.5 crore in central locations) and jobs uncertain, there are very few buyers.” Investors who made purchases just two years back also want to exit for two reasons – little appreciation in value and difficulty in paying steep EMIs.As the affluence of real estate buyers from the IT industry has waned, so has their influence on the market. In his office in Ulsoor in central Bangalore, Ashish Purvankara, joint managing director of Purvankara Properties, says that today, barely 37% of his business comes from clients in the IT sector in Bangalore, compared with nearly 70% three or four years ago. While other sectors such as engineering and manufacturing have picked up some of this slack, there is a slowdown in the air – there’s a rush to buy budget housing from its Provident Housing unit and sales are sedate in the crore-plus market.As companies hold back on hikes and incomes are strained, it is the heavy purchases such as real estate that are the worst hit. Amit Bansal, 37, sales head with an IT-telecom services company in Mumbai, put together money to buy a house, but has now deferred it. “I’m not certain about the future. And I do come across lot of distress sales – people who bought property in the past three or four years, who are now willing to sell at original price as they need the cash,” he says. “Besides, I can’t risk a high EMI. I will wait for another two years.”The last 12 to 18 months have been a difficult time for the likes of Bansal, who had become used to big pay hikes and bonuses, and lavish spending, when the industry was growing at 30% annually. That story may be unravelling. Last year, the IT industry grew barely 10% (compared with 19% two years ago) and hired 200,000 people, 20% less than two years ago.Anecdotal evidence suggests that employees are taking longer than companies to adjust to the ‘new normal’. “People used to think that it is easy to become wealthy in the IT industry and over-commit based on this assumption,” says Srinivas Kandula, HR chief for the 28,000-strong iGate. “They have now seen friends and colleagues struggle and today everyone wants to be cautious.” Employees too need to adjust to this changed landscape.The industry has been caught in the midst of a two-phase transformation. One, it is pursuing non-linear opportunities, which require fewer employees and is causing companies to go slow on hiring. Second, as it struggles in a global slowdown with reduced spends, it is paying employees smaller hikes. For example, industry leader TCS will pay offshore increments of 7%, a long way from the days of robust double-digit hikes. Others such as HCL Technologies, the fifth-largest player, have actually decreased their overall headcount over the past year as the business model has taken hold.“Earlier, employees looked at IT jobs as an entitlement – you do an engineering course and are assured of a job,” says Som Mittal, president of Nasscom, the industry grouping. “That’s no longer the case. Technology changes are rapid. There are newer opportunities in data analytics, cloud services, mobility and plenty of new jobs that require new skills. Employees need to re-skill and evolve.”As they struggle with this re-invention, they are putting consumption on the backburner. Manish Advani, 36, a project manager, used to eat out eight times a month, spending Rs 18,000-20,000. Now, it’s down to four times a month, spending about Rs 12,000. While he is keen to upgrade his five-year-old Chevrolet Aveo, Advani says, he won’t rush the decision, given the tough business environment.For Sabrina Sharma and her husband Arjun Sharma (she with a leading IT services company and he with a travel portal), this summer holiday might be at a drivable destination from Gurgaon, not an overseas one. “In 2008 it was Johannesburg, 2010 was in Mauritius, 2012 was in London. Now, at most to Goa or more likely something that is drivable from Gurgaon,” says Arjun.“International airfares have gone up (almost 30% in the past one year), increments are down and there’s no talk of performance bonuses. We are already eating out less, and with an EMI of Rs 60,000 to pay for a property bought two years back, if either of us gets the pink slip, we’ll be at sea.”In Bangalore, consumer-facing brands are struggling to shore up sales as consumers desert stores and defer purchases. There’s been a glut in supply too, with around 1.8-2 million square feet of new retail space. With fewer people visiting malls, rentals have fallen 13%-43% in some areas in Bangalore, according to Cushman and Wakefield, a real estate consultancy.According to Asipac, another real estate consultancy, Bangalore will have 27.6 million square feet of operating space, an oversupply of 141% over the next two years. Hyderabad, too, is facing a supply glut, with 18.9 million sq ft of mall space, leading to a potential 114% oversupply by 2014. As a result, in the next year or so, rentals are expected to climb as little as 4% in Bangalore, Hyderabad and Chennai.In Bangalore, Whitefield, one of the oldest hubs for the IT industry, for example, had just one mall until recently. Today, there are around four and the strain is beginning to tell. Even on the traditional high streets of Bangalore, brands have moved out, faced with lower sales.Over the past two decades, the outsourcing sector has been a sponge for engineers, hiring about half of the 400,000-odd engineers who graduate annually. As the industry has grown from over $6 billion in 2002 to over $110 billion in 2012, the industry has hired thousands of engineers, paying them generously (and training them for weeks) to keep the wheels running smoothly.Entry-level software engineers were paid as much as 50%-100% more than their peers in other industries. “The IT industry expanded the consumption basket from six basic goods (with a chunk of it in real estate) to some 20 items,” says Bisen of Technopak. “In the past two years, with slowing growth and a squeeze on margins, people in the IT industry have begun to reduce and downgrade their consumption.”J Suresh, managing director of Arvind Retail, clearly sees this trend within his portfolio. For one, the business of Megamart, Arvind’s budget apparel chain, has flourished as other brands have declined by at least 2%-3% in key IT hubs. “We opened 150 in the past year and will open only 100 this year,” he says. “Bangalore has been clearly hit by this consumption crunch.” Despite this, Megamart’s sales have grown, as consumers alter their buying preferences in lean times.In Bangalore, Manu Chandra, the founder of restaurants such as Monkey Bar and LikeThatOnly, has had a ringside view of this decline. As techies cut back on consumption, he says there has been a 15%-20% drop in sales across restaurants in Bangalore. Coupled with other factors such as high rents and soaring costs of staple food items, this has been bad news for restaurateurs: a dozen or more joints, including Sunny’s in Indiranagar, Manchester United Bar and one of the outlets of Tangerine, an upscale continental restaurant, shutting shop in the last year. “There has been a clear decline in bookings from the IT crowd… and without strong volumes, it’s hard to build a profitable business,” Chandra says.(Some names in the story have been changed to preserve confidentiality)