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Indian IT: People problem? - Views on News from Equitymaster
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  • Apr 5, 2007

    Indian IT: People problem?

    The recruitment bandwagon in the IT industry continues. With the top five (TCS, Infosys, Wipro, Satyam, HCL Tech) estimating an average topline growth of 40% in FY07 and average manpower growth of 28% in the same period, their ambitions on the hiring front have shown no signs of abating. In this article we take a look into the possible concerns, which the IT industry faces in terms of managing its human resource.

    Human Resources The present situation IT and ITES sector have hired 380,000 people during FY07 as demand for technology talent gained further momentum. The IT sector took on board 180,000 people and ITES 200,000 on a gross basis in 2006-07. The country's top four software exporters TCS (35,000), Infosys (30,000), Wipro (28,000) and Satyam (20,000) accounted for 1,13,000 new hires during the 12-month period (Source: NASSCOM). Average salary growth seen during the year was in the range of 12% to 15%.

    A positive aspect in this rampant hiring drive by the billion dollar giants has been that the attrition rate has either stabilised or decreased for these companies. Both TCS and Wipro have reported lower attrition levels in 3QFY07 at 10.8% and 16.1%, respectively while Infosys' attrition rate increased from 12.9% to 13.5% during the same period. Although the company has maintained that most resignations were due to involuntary reasons (not being able to pass the company's training programme).

    However, the key concern for the industry is that it is finding it tougher to hire quality talent because of inadequate supply (of quality graduates) and there is an increasing need for training. As a matter of fact, the industry will be hiring about 40,000 50,000 science graduates during FY08 and train them in software engineering. This is primarily because the education is not based on what was needed by the industry coupled with poor software and communications skills. The industry is also encountering problems and has put in place systems to catch corrupt elements that seek to gain entry into the IT sector using fake certificates. Although we believe that there will not be a great shortage of people in the future, there will definitely be a greater need for training. Raw and inexperienced talent is available in plenty but they need to be trained. We could definitely see wage inflation in the range of 18% - 20% in the coming year.

    Indian IT firms spend around 40% to 45% of their revenue on employees, which is one of the most important factors affecting their operating margin. Adding further to the demand and supply gap, high attrition rate and increasing presence of global firms like IBM, Accenture, Hewlett Packard in the domestic market are some of the factors that impact a company's 'human' cost



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