A perfect storm of events had helped the IT-ITeS sector employees have a golden run over the last couple of years. First, the pandemic forced even parts of the global economy which were reluctant to move online, to do so, as physical movements of goods and people were restricted. This meant growing digitalisation and a shift to the cloud, creating unprecedented demand.
In FY 22, the Indian IT industry recorded a 15.5 per cent growth — the fastest in more than a decade — to touch $227 billion, including $178 billion in exports, according to data from industry body Nasscom. This humongous growth also meant an additional 4.5 lakh jobs were created in the sector in FY22 alone. The enormous demand meant war for talent, leading to double-digit hikes across the board.
How did the employees benefit from this golden period?
While salary hikes were a given, companies started incentivising prospective employees with joining bonuses, and doled out retention bonuses, stock options and other benefits to prevent existing employees from quitting. More importantly, the biggest advantage that the employees enjoyed was the flexibility to work remotely, hence not having to turn up at a centralised location, often an IT park, navigating the traffic of our urban centres.
It is no secret that the Indian IT sector is concentrated in a few key urban cities like Bengaluru, Chennai, Hyderabad, Mumbai and the Delh-NCR, which account for nearly 90 per cent of the sector’s revenues. So, earlier, talent had to migrate to where the jobs were.
The pandemic for the first time democratised the delivery mechanism. The old mode of daily bringing together thousands of employees was shown to be redundant. Most employees went back to tier-2, and tier-3 cities from where they continued to deliver, saving on rental, transport and other livelihood costs.
What has caused this trend to reverse?
Just like the pandemic disrupted the established IT delivery modes, a few other things are upending the industry again. Global macroeconomic concerns including slowing US and European economies (key markets for Indian IT services), the Russia-Ukraine conflict, China-Taiwan tensions and other disputes have meant greater uncertainty for trade and commerce.
Due to soaring attrition, companies doled out generous benefits, impacting their margins. As long there was a tearaway growth in demand they could justify that. However, with demand moderating, they are taking a closer look at operational expenses and cutting down on frills which were offered earlier. Several leading players like Wipro and Infosys have either cut or stopped a large chunk of their variable pay. Others, like industry leader TCS , want all employees to work from their respective campuses and put a full stop to the Work-from-Home option provided earlier.
Will this mean that attrition levels will fall to more manageable levels going forward?
IT services companies are witnessing collateral damage in terms of slower demand. As the physical movement of goods, services and people resume to normal levels, the earlier urgency to move everything online will slow down. While most enterprises — big and small — recognise that a digital shift is required, they are focussing now on Phygital (physical + digital) revolution and emphasising an omnichannel strategy for their customers, partners, vendors and employees.
All this means that the 25 per cent plus attrition which was being witnessed by almost every organisation is already slowing down. With the number of new, or job switch, offers coming down, attrition levels are likely to moderate substantially albeit with a lag over the next 1-2 quarters.
Also, with a huge number of freshers who were recruited during the pandemic now becoming billable after being trained in-house, attrition levels are likley to reduce further.
Wage bills and operational costs which had soared in the last two years are likely to go down as companies utilise all levers of cost optimisation, including reducing the bench and greater utilisation of existing resources.