For the first time since Indian software service exporters started focusing on delinking sales growth from headcount growth, a clear pattern is emerging of expanding revenues accompanied by a shrinking employee base. This non-linearity points to the acceleration of the trend where service providers are using templates, reusable code and other measures to increase automation and reduce the need to deploy greater numbers of people on projects. “There is a continuous focus on driving non-linear growth. These are trends that have been going on; it’s just that they are surfacing a lot more significantly now,” said Anant Gupta, chief executive officer of HCL Technologies, India’s fourth-largest software exporter with about 84,000 employees. HCL Technologies employed 800 fewer staff at the end of March compared to three months previous to that.
During the same time, the company’s revenues grew by 3.2%. Even second-ranked Infosys shrank slightly measured by the number of employees- only the business process outsourcing unit and Swiss buy Lodestone added staff. The slowdown in hiring by the technology services industry has major economic and societal implications for India. For the tens of thousands of young people who graduate from India’s universities every year, the lucrative job opportunities provided by IT companies will no longer be available in the same numbers. If other sectors do not pick up the slack in a dull economy, the government will have to contend with large numbers of frustrated and educated youth. The Noida-based HCL Technologies also saw a shift towards an outcome-based model where payment is linked to the outcome rather than to the number of people deployed on a project. More than half the company’s sales are now from fixed-price projects and not those where earns money for every employee it deploys.
In 2012-13, Infosys added less than 7,000 engineers to grow revenues by 19% as against 19,000 employees in 2011-12 to grow sales by 23%. The country’s top IT exporter Tata Consultancy Services said it intends to only hire 45,000 people in the current financial year as compared to 60,000 in the last even as CEO N Chandrasekaran is confident of growing faster in 2013-14 than the year before. Bangalore-based Wipro has said it will do only ‘just-in-time’ hiring, moving away from the practice of having large ‘benches’ of employees not assigned to any project. Chief executive officer T K Kurien emphasised that the software services business model itself is undergoing a structural change. “We are going after businesses where we can drive hyper-automation and non-linearity; only those are worth it,” he told ET. “This calls for tools and we have invested a lot in those over the past year.”
As the business model of IT companies change and supply of engineering graduates continues to rise, analysts expect it to have a depressing effect on wages in the industry. This is already in evidence. TCS, the only IT company to have announced wage increments for the year so far, said offshore employee increments would be at an average of 7%. Such levels of wage-hikes may be here to stay even after IT companies climb out of the slowdown. Senior industry executives like Kurien do not see the return of mass hiring of the sort that the sector was known for until a few years ago before the slowdown of 2008-09. “I’ve been saying this for some time now. You are going to see a decline in employment in this sector. No question about it,” Kurien said.