Harder times ahead for the IT services sector

The Monster Employment Index, a monthly gauge of online job posting activity run by online employment solution company Monster Worldwide, rose 10 per cent in November from the same month a year ago. However, things are far less rosy for the country's IT industry, one of the largest employers of skilled manpower in India.

In 2012/13, campus recruitments may drop by as much as 40 per cent over the previous year as the fragile economic recovery in the US and Europe is making global corporations wary of spending their IT dollars. In fact, 2013/14 may not be any better, according to IT executives and recruiting consultancies.

Kris Lakshmikanth, Chairman of The Head Hunters, an executive search company, sees campus recruitments dropping from about 300,000 in 2011/12 to 150,000-200,000 this year. He recently polled CEOs of several mid-tier IT companies about the outlook for recruitment and all of them predicted a slowdown in hiring. And, there will be bad news for some people. "Companies are thinking of shedding their middle management - people who earn in the Rs 20-45 lakh range. This is more probable for those in delivery and support roles," says Lakshmikanth.

The logic is easy to understand: for every delivery employee earning Rs 45 lakh, a company can hire 10 freshers.

"The next quarter (Jan-March) looks really bad. Hiring may see a further 10 per cent dip over the current quarter. Overall, industry hiring may be down at least 25 per cent this year and next year may not be better. No company is giving out full-year hiring projections," says Sangeeta Lala, Vice President at TeamLease, an HR services company.

An executive from Infosys, who did not want to be identified, said that all the signals point to a big dip in hiring this year. Attrition has cooled significantly for the industry and this means there will be fewer replacements required.

At TCS, India's largest IT services exporter, which employs 254,076 people, attrition stood at 11.4 per cent at the end of the September quarter, down from 13.7 per cent in the same period a year ago.

The slow ramp-up of projects has also meant that utilisation rates of employees has been very low. There are just too many engineers warming the bench.

A report from Kotak Institutional Equities, released in August this year, is insightful. It said that Infosys's utilisation, including of trainees, was below 65 per cent. The company had more than 45,000 technical resources on the bench at the end of the June quarter. Noting that the company's cost structure is now sub-optimal, the report added: "Infosys either has an option of counseling out employees or accelerate growth to reduce bench cost."

Many other companies will also need to revisit their cost structure. Clearly, it will be a while before things get better for India's IT services sector.