As IT industry ambles along, jobs and wages will be under pressure
The relatively low exposure in fast-growing segments and large exposure to segments such as application maintenance, which are in decline, mean growth will remain under pressure
For the first time since the global financial crisis, the Indian IT (information technology) services industry’s growth in fiscal year 2017 (FY17) fell below the target set by industry body Nasscom. This is not to say that Nasscom’s forecasts are incredibly precise on most occasions; but that things haven’t been as bad for the industry since the crisis.
In reported terms, growth had fallen short in FY13, FY15 and FY16 as well, although adjusted for currency fluctuations, growth fell within the range Nasscom had forecast for those years.
The shortfall last year was particularly large. Nasscom had guided for growth of between 10% and 12% in February 2016, but the industry’s reported growth of only 7.6%, which, adjusted for currency fluctuations, translated into a constant currency growth of 8.6%.
This year, Nasscom discontinued the practice of providing a forecast as early as February, and gave one last week instead. This column has argued that it should permanently retire its forecasts largely because it follows a somewhat unscientific process.
Having said that, it’s interesting to note that the growth forecast for the year is the lowest in the past 13 years, barring FY10, when the industry bore the brunt of the financial crisis. And worse still, while revenues are forecast to grow between 7% and 8%, the industry body’s comments on employee addition suggest the industry’s employee base might grow by only around 4%, according to data collated by Kotak Institutional Equities.
“Muted headcount addition against the backdrop of a supply of over 1.5 million engineers annually will continue to keep entry level wages under pressure,” analysts at the brokerage firm point out in a note to clients. There have already been numerous news reports of high involuntary attrition at the mid-level; by the looks of it, the trend will continue in FY18.
There are no signs of relief yet. Accenture Plc’s results for the quarter ended May don’t provide any cheer. Overall growth is slowing, while the relative strength in the company’s outsourcing business suggests it is capturing market share from India-based companies. Kotak’s analysts say, “India operations of global vendors have been growing faster and Accenture had power packed growth in its India operations.”
Accenture also announced that new services such as digital, cloud and security reached a milestone of 50% of revenues last quarter. For India’s large IT companies, this number ranges between 15% and 23%, according to Nomura Research. The relatively low exposure in fast-growing segments and large exposure to segments such as application maintenance, which are in decline, mean that growth will remain under pressure.
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