After years of jobless growth, job creation was an obvious thrust area for the Modi government. It unveiled several schemes to ensure that the scores of legionnaires coming off the education assembly line can be accommodated through a proper hiring mechanism. Furthermore, the daily non stop mass migration due to persistent rural distress which is adding pressure on the creaking civic infrastructure of the urban agglomerates needs to be cauterised through a gargantuan skilling exercise. Government's intent in this regard is right, but implementability remains an issue. Hiring and skilling actually go hand in hand due to the size and scope of the employment problem. India's demographic dividend may well become a curse, if we aren't able to deliver on this front. The hieroglyphics need decoding quickly before it becomes a human time bomb. Employment generation across the growing India-Bharat divide is now the most compelling idea that the Modi administration has to deliver on, along with ramping up the consumption theme. At one level, if India has to deliver on its growth imperatives, then these two themes are intertwined to help India emerge from somnolence deep in the arms of mediocrity and Morpheus.
The problems that need fixing with regard to employment and employability is best illustrated by India's decelerating infotech services sector. The $146 billion sector employs nearly three million people. This was undoubtedly the one sunrise sector with massive absorption capability from the engineering grid, but the overall economic slowdown seems to be impacting this industry too. After years of high octane hiring, the top five Indian IT vendors (Indian top four + US centric Cognizant) together added 77,265 employees in CY 2015. Sounds good, but that big number doesn't tell you the whole story. This represents a 24% decline Year on Year. Drop in hiring at Cognizant and HCL Tech contributed a lion’s share to the decline. Centrum Broking has highlighted how Cognizant has focused on improving utilisation rates which led to modest net additions in CY15. Vendors across the pack are focusing on automation and given this paradigm shift, one reckons that FY16 would be an inflection point. As a rapid scope for vendors expanding automation efficiencies across multiple projects and service lines owing to sheer competitive pressure reveals itself, the pressure on hiring will only increase. While vendors believe that automation could enhance revenue productivity, it is obvious that gains from automation would gradually be passed on to clients.
At the moment Infosys and Wipro appear most vocal on ‘freeing up resources’: Infosys and Wipro have been vocal on using automation for ‘freeing up resources’ across IMS/BPO service lines. However, both vendors have shown relatively higher net employee addition in CY15. Revival in growth and moderation in attrition has led to higher net additions at Infosys. Skillset mismatch might also have led to higher incremental net addition at these vendors. Vendors have guided that their focus is on retraining the freed up resources from the traditional service lines. Centrum believes that FY16 could be a year of transition in the sector on the automation front with tangible benefits flowing down from FY17.
Another noteworthy change that automation will usher in is moderate pressure on wage hikes: Indian IT sector has persistently suffered from higher wage inflation and attrition. With automation enabling improved delivery efficiency and productivity, sector could be facing a scenario of lower net additions in FY17/FY18. Hence, an interesting moot point would be on whether Indian IT vendors could wield the bargaining power and moderate wage hikes. The July - September 2015 quarter shows TCS with an attrition rate of 15.5 per cent, Infosys 14.1 per cent against 21.1 per cent two quarters earlier, Wipro 16.4 per cent and HCL Tech 16.5 per cent. During the year ended March 31, 2015, TCS lost 47,931 employees to attrition.Tech companies are using algorithms and analytics in recruitment tracking socio-education-economic data of incoming engineers to deal with attritional issues. A Deloitte study throws the problem into stark relief - in FY15, the highest voluntary attrition across sectors was seen in the IT services sector at 21.9%, whereas the lowest was in the energy and natural resources sector at 10.5%. Slower growth across India's IT services sector is only adding to its woes.
Analysts have one eye on the balance sheets of the top tech companies, for they have been sitting on cash for years. Deploying these idle reserves is paramount and Wipro seems to have taken the lead with this acquisitive strategy in order to add mass. Its latest acquisition being Florida-based health care technology solutions provider, HealthPlan Services, for $460 million (Rs 3,144 crore) last month. Wipro has been following a string of pearls strategy - its biggest acquisition coming in 2007 with the acquisition of Infocrossing, a US-based data centre company, which cost it $600 million. As of March 31, 2015, Infosys was sitting on a cash pile of Rs 32,585 crore, Wipro had $2.55 billion while TCS had Rs 42, 832 crore and Cognisant Tech actually grew its cash and investment balances, net of debt, by $1.5 billion during 2015. Deploying cash, acquiring mass and re-engineering business models to enlarge workforces is the only way out for our It services companies, given that they have not been able to evolve into product developing companies.
The author is a senior journalist and commentator based in New Delhi.
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