HEADLINES:
December 09 2018
The IT sector is coming back, but not the jobs
16 July 2018

The industry added a net of 1.9 -2.4 lakh employees annually between FY11-FY16, but the hires dwindled to 1 lakh in FY18

A round of cheers went up in the stock markets this week after India’s largest IT services company, Tata Consultancy Services, reported a 16% growth in its revenues and 24% net profit growth for the first quarter of FY19.

It also struck an optimistic note for the year ahead, saying that its growth engines were now ‘firing on all cylinders’.

Rival Infosys reported more muted 12% revenue growth, but remarked on good traction in its markets. The recent growth rates, if sustained, will represent relief from two years of sluggish expansion for these firms.

It is not just top-tier IT firms that are seeing this turn in fortunes. Brokerage houses expect listed IT players to put up their best show in eight quarters for this April-June, with aggregate revenue growth forecast at 12% and profit growth at 14%.

With the BSE IT index gaining 42% in one year, the stock markets have anticipated this well ahead.

No doomsday

True, recent growth numbers are nowhere near the 25-30% that the IT pack effortlessly managed in its heyday. But they do show that the doomsday predictions about the Indian IT sector’s survival, that have been doing the rounds in the last couple of years, were quite overblown. Indian IT players have attracted trenchant criticism for failing to adapt to a rapidly evolving global tech landscape.

But numbers suggest they are proving equal to the challenge. If over-reliance on BFSI and North American markets were concerns, domestic firms have successfully branched out into life sciences, utilities, manufacturing, as also into Europe and APAC, to diversify revenues. To the criticism that they were over-reliant on cheap labour, they have embraced automation, and ruthlessly cut costs by pruning wage hikes and upping utilisation rates. Seen to miss the bus on emerging digital areas with outmoded services, they have pivoted on this front too, by embarking on a massive reskilling drive for their workforce. Today, digital offerings make up as much as 25-28% of the pie for leading domestic players.

But if investors have reason to celebrate this comeback in IT stocks, the hordes of new engineering graduates in India may need to tone down their expectations from the sector.

Slow hiring

With the old labour-cost arbitrage model, Indian IT players’ fortunes were closely correlated to the number of new hires that they put to work in offshored deals. But with the shift in revenue models, it is the quality, and not the quantity of manpower that matters for them to stay in the race.

Industry body Nasscom has been warning for some time now that the days of linear ‘headcount-driven’ growth for the industry are at an end. Between 2008 and 2013, the total employee base of the IT industry expanded at a 9% annual rate, but has been down to 5% in the last five years. In both periods, the growth in new hires has substantially lagged topline expansion.

Government’s headache

Statistics on new hires by the Indian IT sector tell this story even more eloquently. Between FY11 and FY16, the industry added between 1.9 lakh and 2.4 lakh employees on a net basis every year. In FY17, net hires fell to 1.7 lakh and dwindled further to 1 lakh in FY18. Despite improving financial metrics, the sector’s net hires are forecast to remain at 1 lakh in FY19 too.

In its special report on jobs and skills last year, Nasscom predicted that the IT industry would add another 25 to 30 lakh jobs to its workforce by 2025. That number looks quite small when you consider the fact that India churns out 10-15 lakh new engineers every year. But then, that’s a problem for the government, and not the IT industry, to solve.

 

 

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