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Business News/ Opinion / Views/  The 'paisa vasool' model of Indian IT firms must adapt to change
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The 'paisa vasool' model of Indian IT firms must adapt to change

'Blunt the top and trim the tail' as a strategy to cut costs cannot make up for lost ground on new transformative technologies. IT companies risk getting into a model where the snake eats its own tail through attrition, automation and generative AI.

A Reuters report claims that Wipro may skip giving hikes to its “top performers with higher compensation” and at its new “Enterprise Futuring” unit. Premium
A Reuters report claims that Wipro may skip giving hikes to its “top performers with higher compensation” and at its new “Enterprise Futuring” unit.

Varun Sood of Mint wrote a stinging piece last week about how Accenture continues to run circles around Indian information technology (IT) firms (bit.ly/3MF3Tso). If you haven’t already, I urge you to read the piece. It places the lacklustre performance we have recently seen from Indian IT companies in stark relief against the visionary IT behemoth.

According to Sood, Accenture has clearly defined its new strategy with “Reinvention Phase" as its theme for growth, outlining Generative Artificial Intelligence (AI), robotics and the metaverse. The piece says Accenture was early to define its focus on SMAC (Social, Mobile, Analytics and Cloud), which created a bedrock of its work in that space to launch itself into its next phase. In contrast, Indian IT has been asleep at the switch. These firms have mainly been pushing their tried-and-tested model of bringing in cheap labour and assuming that the inexpensive alternative they offer is the panacea to all ills, while paying lip service to new spaces. (More on this later). “Accenture’s clarity in embracing these untested technologies contrasts with the lack of visibility offered by the homegrown technology giants," says Sood.

What has let Indian IT majors stick with their ‘paisa vasool’ (value for money) model is that the growth in salaries for Indian engineers has not kept pace with the growth in our economy. This is most evident in the starting salaries being offered by our IT majors to fresh engineering graduates. These packages have remained more or less constant for almost two decades, with insufficient correction for inflation. In my experience, in the early 2000s, fresh graduate engineers in India could expect modest starting salaries in the range of 2.5-3 lakh per annum (or $4,500-6,500 at then prevailing exchange rates). Apart from some exceptions, it appears as if the hiring of fresh engineering talent at the same low salaries as two decades ago is an exploitative tactic that is still used by the country’s IT majors.

Accounting for inflation, this means that engineers graduating today are only making a fraction of what their seniors did 20 years ago! The only exception was the sudden surge during the pandemic, which pushed global clients to outsource more of their operations in a bid to keep down costs. This surge in offshore demand forced the usually stingy Indian IT majors to pay large premia to poach people from one another.

But now that things are ‘back to normal,’ the ‘paisa vasool’ aspect is at play again. Witness Wipro Ltd’s move earlier this year. On 21 February 2023, India Today reported that the company rolled back its commitment—by almost 50%—on the salaries it was willing to pay fresh engineering graduates (bit.ly/3SHqfgD). The article read as follows: “In an email, the company asked the freshers to settle for almost 50 percent less salary than what Wipro was offering initially. Salaries were slashed to 3.5 lakh from the earlier 6.5 lakh. While the tech firm has blamed bad macro environment for changes in its decision, it has also asserted that freshers are at least getting an opportunity to build their expertise and learn better."

“At least getting an opportunity"? I don’t know if this was the exact statement, but if so, it beggars belief. According to industry sage T.V. Mohandas Pai, who was interviewed by CNN News 18 when news broke on this topic, this is “very wrong" (bit.ly/3MDBvXq). During the interview, he said that “companies need to be seen as credible employers… yes, there is economic difficulty… but you can’t say join with half your salary… since these students would have turned down other offers to go for the brand name…. When you are making 9,000 to 10,000 crore profit per year, incurring an additional cost on 1,000 or 2,000 employees of 100-200 crore a year is not going to hurt you…. It should not be done…. It is an issue of corporate values." He advised freshers to “take up the job with the firm for now, get trained, look around for a new job and leave as early as possible."

Now, Reuters says that Wipro has followed up with similar action last week at the top end of its staff. (reut.rs/47vFopG). Its report claims that Wipro may skip giving hikes to its “top performers with higher compensation" and that too at its new “Enterprise Futuring" unit, formed as a part of an internal reorganization this year as a Spartan wedge to counter the lead that firms like Accenture have established for themselves in emerging technology spaces.

Before you think I am singling out Wipro, it is by no means alone. According to news reports, Infosys is abstaining from hiring fresh graduates this year—after hiring 50,000 of these newly minted (and cheap) engineers last year. Tata Consulting Services and HCL Technologies have also made it clear that while they are still hiring, they intend to fill fewer spots than those being vacated, thereby leading to reductions in headcount. Infosys delayed giving pay hikes by two quarters and HCL skipped giving managers bump-ups.

“Blunt the top and trim the tail." This counter-strategy to cut salaries at both the top and bottom end of the order cannot make up for lost ground on new transformative technologies. It’s time that the Indian IT industry changed course from ‘paisa vasool’ to adding front-edge economic value by staying ahead of the technology curve. Else, it risks getting into a model where the snake eats its own tail through attrition, automation and generative AI.

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Published: 13 Nov 2023, 04:54 PM IST
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