Incremental IT services jobs will halve in four years, warns Crisil
10 Nov 2014
Incremental recruitment by the information technology (IT) services industry, which accounted for nearly a quarter of the organised private sector employment in India in fiscal 2014, will reduce to half by fiscal 2018 despite a 13-15 per cent growth forecast in the industry's revenues during this period.
In a new study ratings and market analysis firm Crisil said this contrasted with the hiring pattern of the last decade, which had mirrored revenue growth in the industry.
"The paradigm shift will come as IT services vendors struggle to crank up profitability in a milieu where global weakness is forcing their clients to optimise costs to hold on to margins."
On their part, vendors responded by rationalising their bench strength, improving utilisation rate and trimming operational costs.
Equally importantly, this has ramifications for future engineering graduates because it will narrow the opportunities available in future.
Crisil said it believes despite revenue growth, companies will run very tight ships because of which incremental employment will be curbed.
It noted vendors are gradually adopting just-in-time hiring and increasing the proportion of fixed-price contracts in their portfolio, which reduces the need to maintain flab on the bench.
Additionally, they are migrating towards higher-value service offerings such as consulting, investing in intellectual property (IP)-based products and leveraging on the emergence of
social media, mobile, analytics and cloud (SMAC).
''These initiatives will increase revenue per employee (RPE) at a compounded annual growth rate of 7 per cent between fiscals 2015 and 2018," say Ramraj Pai, who heads ratings of large corporates,at Crisil.
According to Pai, this increase in RPA along with improvement in employee utilisation, will over time delink hiring from revenue growth.
"We also foresee a transformation in the recruitment pattern where employers become more focused and picky, increasingly seeking specific skill sets. This will lead to greater lateral hiring"
India's IT sector, with revenues of $118 billion in the last fiscal, employs 3.1 million people, or around 24 per cent of organised private-sector employment in India, with the sector having practically driven growth in organised private jobs in the country over the past decade.
Its initial phase of high revenue growth between fiscals 2003 and 2007 also saw a substantial growth in recruitments.
This was followed by the global financial crisis between 2008 and 2010 and moderate recovery during fiscals 2011 and 2013. Yet hiring rates mirrored revenue growth.
Crisil believes the sector is now entering a new phase where this will gradually delink.
Says Anuj Sethi, director, Rrtings, Crisil, ''We believe despite healthy revenue growth of 13-15 per cent for IT services foreseen in the medium term -- aided by recovery in discretionary spending by clients -- job additions will gradually shrink by about 50 per cent to 55,000 by fiscal 2018 from 105,000 in fiscal 2014, as companies opt for more-focused, higher-value initiatives.''
This process has already been set in motion, as evidenced in the reduction in employee costs from 69 per cent of total costs in fiscal 2013 to 64 per cent in the last fiscal.
