Bangalore: Starting salaries for engineering graduates in India’s $108 billion information technology sector may remain stagnant over the next 3-5 years, and even drop for freshers from less well-known colleges, with many IT firms curbing costs amid tighter spending from their top clients.
The gulf between salaries of graduates from premier engineering institutes such as the Indian Institutes of Technology (IITs) and lower-rung engineering colleges may keep widening in the near term, according to the human resource heads at some top IT firms.
India’s IT sector is going through its biggest transformation since the dotcom boom in the early 2000s, with companies increasingly relying on non-linear growth models that require fewer people on projects and reducing costs by automating many tasks that previously required the presence of engineers.
“Very clearly the growth rates have slowed down and the focus has increased on non-linear growth, IP-led (intellectual property-led) productivity, use of tools, automation—these will be clear drivers and the hiring levels won’t be as robust as the past,” said Saurabh Govil, senior vice- president of human resources at Wipro Ltd, the country’s third largest software exporter.
At least two generations of engineering students—those graduating this year and the ones who graduated last year—will not have a job in hand, Mint reported on 20 June. Industry lobby Nasscom has estimated IT hiring will drop 17% to 150,000 this fiscal year. In 2008, IT firms hired 341,000 freshers.
For engineering students who have taken study loans to complete courses at some of the second-rung colleges, the problem becomes even more complex. “When a neighbour found out about my starting salary, her reaction was like, ‘you’re going to get the same salary that was being given five years ago?’” said a 22-year-old engineer who graduated from Delhi’s Guru Gobind Singh Indraprastha University last year and requested anonymity. She currently works at the IT department of a US-based firm. “How can you survive with these kind of salaries in a city like Delhi or Bangalore?”
“There’s a social issue here because... it used to be their dream—pass out from an engineering college, a company like ours would hire them and 2-3 years down the line you get a chance to travel abroad and work in swank campuses. So, the entire paradigm is very clearly changing. And we have to come to terms with it. Much more muted growth rates mean much more muted salary increases for people—things will be much more grounded,” said Govil of Wipro.
“The larger issue is because there was so much demand over a period of time, capacity was also built up—so there are more people passing out now, while capacity has reduced. One manifestation of that is that over the last 6-7 years, the range of salaries on campus hasn’t changed,” he said.
Average starting salaries of engineering graduates in the sector currently stands at Rs.3.25 lakh, according to headhunters and human resources experts. But while graduates from premier institutes such as the IITs command starting salaries upward of Rs.9-10 lakh, those from second-rung engineering institutes get Rs.1.80-2 lakh, according to these experts.
To be sure, the gap between salaries of graduates from top engineering colleges and second-rung institutes has always existed. But with engineering colleges mushrooming all over the country in the last 5 years, the gulf in quality between the top and second-rung colleges is becoming even more stark.
According to All India Council for Technical Education estimates, the number of engineering colleges doubled from 1,668 in 2008 to 3,393 in 2012. But fewer than one-fifth of India’s engineers have the necessary skills needed at a top IT firm, according to a 2012 report by Aspiring Minds, a research firm that studies the employability of Indian graduates. “I believe so,” said Prithvi Shergill, chief human resources officer at HCL Technologies Ltd, when asked whether fresher-level salaries in the industry could decline or remain stagnant in the near term.
“Like any product or service, the more you have it and if it’s not of the quality you’re looking for, the price is going to drop... If there’s a certain university where you find a better pool of employable talent, you will have different price points for talent there versus elsewhere,” Shergill added.
“There are engineers who will command a premium— that difference might become more pronounced as we go forward,” said Ravi Shankar, executive vice-president and chief people officer at Bangalore-based Mindtree Ltd. “In the past, a lot of engineers were hired in a commoditized manner by companies. If you take the IT industry, there are 2-3 distinct levels of jobs—you don’t need the same skill-set for all of them. Somewhere the distinction needs to be made where a developer goes to a developer job.”
With India’s IT industry growing at 10.2% in 2012-13, compared to about 30% in 2008, according to Nasscom, these firms are pushing for ways to increase revenue productivity—revenue generated per employee—by lowering people costs.
“The salary premium is only going to increase,” said Manish Sabharwal, chairman of staffing company TeamLease Services Pvt. Ltd. “The (IT) industry is at its middle age and at such a time, you think about your future differently—the IT industry reaching middle age is reflected in the mid-life crisis of engineering colleges.”
“Surplus of engineers could pressure compensation across the entire value chain,” said analysts Akhilesh Tilotia and Kawaljeet Saluja of Kotak Institutional Equities in an April research report. “We also believe that fresher salaries of Rs.275-325K will be either lowered or may remain unchanged for the next few years.”