Indian IT Firms Brace For High Employee Attrition

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Demand for digital talent is overwhelming in current times. As organisations across the globe turn to tap digital routes to reach out to their end consumers, an intense talent war has begun among global IT services companies, tech-powered startups, and corporations with in-house technology teams. And the whole world is looking towards India, which is home to a vast pool of skilled engineers.

In this context, the recent announcement of Indian IT majors to hire fresh engineering graduates from campuses this year is building up a robust pipeline of talent to prepare for the future.

The Indian IT services industry is to give out more than 150,000 offers in the current financial year. The top four IT services firms such as Tata Consultancy Services (TCS), Infosys, HCL Technologies, and Wipro will hire the bulk of these new engineers, pegged at around 120,000 in FY22.

Market leader TCS, whose employee base crossed 5 lakh in the June quarter, will hire more than 40,000 engineering graduates this year through its campus placement programme. Infosys plans to hire 35,000 fresh graduates from engineering colleges this year, while the number stands at 30,000 for Wipro. For HCL Technologies, this number stands at 22,000 for 2021.

Even mid-tier IT & engineering services companies such as Mindtree, L&T Infotech, L&T Technology Services, Coforge, and others also have robust plans in terms of fresh engineering graduates.

Robust hiring

Experts believe that such a robust hiring plan indicates the supply side constraints in talent. The $150 billion worth of IT industry is planning to overcome by taking in more freshers.

The talent crunch is due to high demand, rising attrition and intense competition from startups and Global Capability Centres (GCCs) of global corporations.

“Most Indian IT firms are preparing for high attrition. Because the Indian startup ecosystem is coming up age with many are going public. These startups are paying higher compensation as compared to IT firms. Similarly, GCCs are also paying higher salaries to engineers as more cutting-edge technology work comes to Indian captives. As overseas opportunities for engineers come down, tech talent is preferring GCCs and startups over IT firms. So, campus hiring in big numbers is in a way preparing for keeping the supply side ready in anticipation of a rise in attrition,” said Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting.

The first quarter of the ongoing fiscal has already seen rising attrition numbers.

Infosys’ attrition rate was 13.9%, which was 300 basis points higher over the preceding quarter. Attrition for the quarter jumped 190 basis points to 11.8% in sequential terms for HCL Technologies.

For Wipro, attrition rose 340 basis points sequentially to 15.5% in Q1 of FY22. TCS had the lowest attrition rate of 8.6%, higher by 140 basis points from the previous quarter.

Not only IT biggies but even mid-tier companies also saw a rise in employee churning. Mindtree reported attrition of 13.7% from 12.1% in the previous quarter.

L&T Infotech saw it rising to 15.2% as compared to 12.3% in Q4 of FY21.

“In a way, this kind of talent war is once in a decade phenomenon. Established startups and captives are willing to pay more than the IT firms for hiring good talent. They are offering ESOPs, joining bonuses, and other perks to attract talent these days. So, India is fast losing its cost advantage in terms of talent availability,” said an HR professional who wished anonymity.

Talent war

Experts opine that this talent war is going to be more intense in the coming months.

India has the third-largest startup ecosystem with 61 unicorns (with more than a $1 billion valuation). Many new-age internet companies such as Paytm, PolicyBazaar, Nykaa, and others have filed draft red herring prospectus to go public. Such a fundraising spree will only make talent costs expensive in the coming days.

Also, around 25% of Fortune 500 companies have their captives in the country. The pandemic is likely to accelerate the transfer of more digital solutions-oriented work to Indian Captives. Also, about 40 new GCCs are likely to be operational this year. As more complex projects migrate to Indian Captives, the hunt for digital talent will be more intense.

Besides these factors, Indian IT firms expect higher employee churn as the Covid-19 pandemic-related disruption comes down with higher vaccination.

While software services providers are creating the talent pipeline ready to absorb such attrition in future, some company officials said such a talent war seen in past instances.

“Of course, the demand for talent is very high, but the industry has seen such cycles before. We had seen such demand during Y2K when the digital demand happened. Then in 2007-08, when the financial sector was going through crazy things, we had seen such demand. After that, in the last decade, there were cycles of high demand for resources starting with digitalisation drive,” MD & CFO of Happiest Minds, Venkatraman Narayanan, has said in an interaction.

Meanwhile, IT firms are going full throttle to retain talent and keep the attrition rate under check, which is vital to win deals and serve new clients. From 100% variable payout to performance incentives to rapid promotion, the human resources (HR) departments pulled out all stops to keep the churn at the minimum. While the outcome of these efforts will be visible in the coming quarters, it is clear that the future winners will be those firms that become successful on the talent management front.

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