Headcount at IT firms sees first fall in 25 years

With the six months to March typically softer for IT companies than the first half because of fewer working days, the year ending 31 March may mark the first instance of Indian IT companies ending the year with fewer employees than at the beginning of the fiscal year, according to industry executives and staffing firms.

A Mint analysis showed that the 10 largest companies, including giants such as Tata Consultancy Services Ltd and Infosys Ltd, along with smaller firms such as LTI Mindtree Ltd and Persistent Systems Ltd, saw their workforce fall to 2.06 million people at the end of September from 2.11 million at the beginning of the fiscal year, resulting in a loss of 50,129 jobs.

The IT services industry has been grappling with slowing growth as clients cut back on discretionary spending amid high interest rates and military conflicts in Ukraine and West Asia. Simultaneously, the rise of disruptive technologies such as generative artificial intelligence (AI) has raised fears that much of the work done by engineers now will be automated, posing an existential threat to the country’s $245 billion outsourcing industry.

To be sure, the slowdown has been in the making for at least a year. A Mint analysis shows that headcount peaked for Mphasis in the June quarter of last year. By the end of September last year, headcount peaked for TCS, Wipro, Tech Mahindra Ltd and LTI Mindtree. The companies, together, have seen a 3.6% decline in their workforce since peak headcount, implying a net reduction of 77,578 jobs in the past 15 months.

“This is not correct that we are not hiring," said an executive at Infosys on the condition of anonymity. “But we are not hiring in numbers that can offset the number of people who move out of the company as part of natural attrition. So one can say the workforce could be less (at the end of the year) than what we started with."

However, L&T Technology Services Ltd, the smallest among the 10 companies, bucked the trend by expanding its workforce by 1,647 people in the last six months for a total of 23,880.

“These are testing times for the IT behemoths," said Sunil Chemmankotil, chief executive of staffing firm TeamLease Digital. “Changing deal types, pressure on margins, and looming uncertainty leave very few options for them when it comes to the talent strategy. It’s going to be definitely a lower headcount (at the end of the year) than where we started this year. Maybe, it’s time to consider newer talent options like staffing and gigs along with the latest productivity-increasing technologies."

In the past, some of the firms have seen a reduction in their workforce for a quarter, or a few have seen their headcount decline in a year. For example, TCS, Infosys and Tech Mahindra saw their workforce decline sequentially in the June quarter of 2017. Wipro also ended March 2018 with fewer people than at the start of April 2017.

But this is the first time all the companies face the risk of seeing a reduction in the headcount. The biggest hit of rising economic uncertainty has been on growth. For instance, Wipro expects its revenue to slip as much as 3.5% in the December quarter, following three straight quarters of revenue decline. This means that Wipro’s revenue in the December quarter could be on par with the same period two years ago.

“While the IT firms reckon that they have a substantial deal pipeline, their clients have adopted a cost-conscious approach and hence a pause in the hiring efforts," said Ritu Sethi, a partner at the Technology practice at ABC Consultants. “The earlier estimation was that there would be a revival in the industry by September, but that did not happen, and now one expects the mandates to open up from April-May next year."