Exit rush cloud hovers over IT: Top companies see 15-30% attrition rates | Business Standard News

lipped from: https://www.business-standard.com/article/companies/exit-rush-cloud-hovers-over-it-top-companies-see-15-30-attrition-rates-121101500082_1.html

This could disrupt demand uptick, say experts

IT firms, information technologyThe demand for digital skills in India is eight times what is available and will rise 20 times by 2024

India’s information technology (IT) services industry is facing one of its toughest challenges in many years, with high attrition levels threatening to impact demand, which has been particularly robust since the onset of Covid-19.

The industry, with usual attrition rates in the range of 10 to 20 per cent, has witnessed new highs in the recent past, with some of the top companies touching the 20-30 per cent levels.

For the quarter ended September 30, 2021, the top four IT companies saw their attrition rates rising sharply. The attrition rate at TCS, which had managed to keep it in single digit so far, jumped to 11.9 per cent in Q2 – though still the lowest among the four.

Infosys and Wipro saw their numbers touching new highs of 20.1 per cent and 20.5 per cent, respectively. HCL Technologies, which said it had added the highest number of employees in the second quarter of FY22, saw its attrition rate go up to 15.7 per cent from 11.8 per cent in the previous quarter.

Nasdaq-listed Cognizant, which has the majority of its employees in India, touched the attrition rate of 31 per cent. The company has stated that it will be hiring 100,000 lateral associates this calendar year.

Pravin Rao, chief operating officer, Infosys, said in the post-earnings analyst call that he had not seen such a scale of war for talent in his over three-decade experience in the IT industry. The company’s attrition rate spiked to 20.1 per cent in Q2 from 13.9 per cent in the previous quarter.

Analysts and industry experts pointed out that though the industry was used to seeing high attrition rates in the past as well, especially when it was coming out of a slow demand phase (for example, the global financial meltdown), the current surge had the ability to disrupt the demand uptick.

“We have had clients coming to us and asking what is happening in the service provider ecosystem. The 20-30 per cent range of attrition is a bit of surprise. So far, things are being managed well, but we are hearing from clients that the quality of services is suffering,” said D D Mishra, senior director analyst at Gartner Inc. Mishra also said that though companies were rushing to campuses to hire more, that would not solve the problem.

“You can get operational people and train them, but demand is coming from digital and cloud projects, and that talent is something which is not easy to find. Companies will have to train these freshers for a long time for them to cater to such projects,” he added.

The demand for digital skills in India is eight times what is available and will rise 20 times by 2024. In an earlier interaction with Business Standard, Debjani Ghosh, president, Nasscom, had said the only aspect that could make or break India achieving this target was right skills.

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Concerns over rising attrition rates are real because of the way technology is being adopted across businesses. The pandemic has fuelled the need for companies to upgrade their digital road map, and in that pursuit, every business is ramping up its tech skills.

“If you look at the mid to senior-mid tier, attrition is as high as 30-40 per cent. While there is demand within the industry, other industries like large corporations are beefing up their tech footprint. Besides, there is the growing start-up ecosystem,” said Anshul Lodha, head of Page Executive, India.

Rituparna Chakraborty, co-founder & executive VP, TeamLease Services, said whenever there has been a crossover as technology takes a leap, attrition rates have gone up. “This is accentuated when experienced demand outnumbers the total headcount. Earlier, IT services competed with the product companies and GICs, but now they are competing with start-ups and the industry in general,” she added.

The start-up ecosystem is also disrupting this demand-supply chain. In the nine months till September 2021, $49 billion has been invested in India across private equity and venture capital deals (barring real estate), 59 per cent higher than all of 2020. A chunk of this has gone into start-ups, which are flush with funds and want to hire more.

Moreover, these start-ups are also giving out ESoPs to attract and retain talent. ESoPs as a tool to attract talent is no longer used by the IT industry.

Mohandas Pai, chairman of Aarin Capital Partners and former CFO of Infosys, believes that the current attrition scenario is self-made. With entry-level salaries remaining almost unchanged for more than a decade, talent from tier 1 and 2 colleges does not prefer to join the IT services industry.

“Your salary hike is linked to the salary you enter the company at. Hence, after a few years it makes sense to move to another company where the salary jump will be 40-50 per cent or even higher. That is why people in the 3-5 year band are moving in large numbers,” he added.

He further added, “Cost over the last decade has gone up by 100 per cent. If you agree to that, then should not the fresher salary at least be recalculated, taking inflation into account?”

Though the industry is hoping that the highs of attrition will come down in a few quarters, analysts say if demand continues to be strong, then attrition will continue to be in double digits for the next 12 to 24 months.

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