Soon, job creation will no more be a parameter for assessing the health of the information technology (IT) sector in the country, as companies struggle to increase profit and clients optimise spending.
According to a report published by the research and rating firm, Crisil, incremental recruitment by the IT services industry will half by the financial year 2017-18, despite a 13 to 15 per cent estimated growth during this period. By the latest estimates, the $118-billion IT services sector employs 3.1 million professionals, which is nearly a quarter of the total organised private sector employment in India.
“We believe (that) despite a healthy revenue growth of 13-15 per cent for IT services foreseen in the medium term — aided by recovery in discretionary spending by clients — job additions will gradually shrink by about 50 per cent to 55,000 by the financial year 2018 from 1,05,000 in the financial year 2014, as companies opt for more-focused, higher-value initiatives,” said Anuj Sethi, director, ratings, Crisil. “This process has already been set in motion, as evidenced in the reduction in employee costs from 69 per cent of total costs in fiscal 2013 to 64 per cent in the last fiscal.”
Despite growing revenues, Crisil expects IT services companies to “run very tight ships” and increasingly adopt just-in-time hiring. Also, IT services companies will look at a higher proportion of fixed-price contracts, in order to do away with the flab of maintaining a huge employee-bench.
Additionally, as IT services players look to move towards higher-value businesses such as consulting, intellectual property (IP)-based products and emerging technologies such as social media, mobiles, analytics and cloud, it will result in an increase in the revenue per employee at a compounded annual growth rate of seven per cent between financial year 2014-15 and financial year 2017-18, said Ramraj Pai, president and business head for ratings, large corporates, Crisil.
“This, along with improvement in employee utilisation, will, over time, delink hiring from revenue growth,” he added.
Crisil also said it foresees a transformation in the recruitment pattern where IT services companies will become more “focused and picky” and would seek specific skills for hiring, which would lead to greater lateral hiring.
Over the past few years, hiring by Indian IT services companies slowed amid weak business momentum for some and adoption of automation by others.
India’s second largest IT services firm Infosys had hired only 6,000 graduates in the financial year 2012-13, as against 19,000 a year ago. The company had earlier said it would recruit 15,000-16,000 freshers in the financial year 2014-15. The third largest player in the segment, Wipro, which does not share its hiring numbers, has said that it would go slower on bulk hiring in the future as it looks at automation of processes.
Phases of growth in recruitment across the IT services sector
Revenues grew exponentially; recruitments grew even faster
Stunted revenue growth amid global slowdown; Recruitment rates mirrored the trend
Revenue growth was 10%+; recruitment growth trailed moderately
Revenue growth seen around 13%; recruitments to fall 50%