Staff costs remain huge for IT cos even as revenues rise

T. E. Raja Simhan | | Updated on: Mar 12, 2018


Top five firms spent Rs 13,190 cr in the second quarter

Spending on salary, bonus and compensation for employees continues to be a huge cost for information-technology companies, which add large number of people every quarter. The September quarter was no exception to the hiring trend.

The top five companies spent a total of Rs 13,190 crore on staff cost for the quarter ended September 30, a 12 per cent increase over the corresponding quarter previous financial year.

30,000 employees

The top five added nearly 30,000 employees in the quarter. However, staff cost as a percentage of revenue remained flat in the comparable quarters.

In the one year between September 2010 and September 2011, Tata Consultancy Services, India's largest software company, recruited 71,880 employees (net addition of 40,353). In addition, starting April 1, 2011, it rewarded employees with an average salary hike of around 13 per cent in India, 7-8 per cent in other emerging markets and 2-4 per cent in the US and Europe. These two factors contributed to the year-on-year increase in employee expenses, said the company's spokesperson.

While the year-on-year increase in absolute employee costs might appear steep for companies, quarterly revenue also grew during that period.

Other companies witnessed a similar trend.

Still attractive

Despite staff costs increasing every quarter, the labour-cost advantage that India-based operations will have will last for several decades more, said Mr Siddharth A. Pai, Managing Director of TPI India, a consultancy firm. One, the country has a more junior (and, therefore, cheaper) workforce than the developed countries. Two, while wage inflation is not unique to India — it is also happening in other parts of the globe, especially for skilled technical resources.

So Indian wage costs (when netted out against onshore wage inflation) will take a long time to catch up with average offshore costs. Three, the rupee has devalued significantly against the dollar, and any long-term weakness in the rupee only helps in keeping dollar costs down. The real wage inflation will come when these firms grow and start hiring globally, especially to support delivery operations onshore in higher-cost countries, he said.

Published on December 05, 2011
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