Brewing trouble: IT sector slams the brakes on hiring amid economic uncertainties

IT sector, jobs, incubators, Indian IT industry
India's IT industry needs to look beyond traditional services, and focus on cutting-edge technologies such as AI, and sustainable solutions.

The information technology (IT) sector appears to be grappling with uncertainties, and companies are showing reluctance to engage in new hiring. Campus recruitment has been lacklustre with the number of hires in FY24 touching an all-time low. Major IT companies are not active in campus recruitment for financial year 2024-25. Many of them are skipping the ongoing placement season at technical universities, while some others are expected to revisit campuses after the January-March quarter.

The industry is facing a dire situation with HR experts and placement heads noting that the 2023 batch is still available for placements. IT giants such as Infosys and Wipro are not expected to hire this year. Nevertheless, Wipro has announced that it will honour existing campus offers, while Infosys has stated that the company has hired extensively in FY23 and plans to abstain from campus hiring this year. The only firm with a clear hiring mandate is Accenture, which looks to increase its workforce by 18,000 employees.

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Reasons behind IT sector slowdown 

The difficulties in the Indian IT services sector have been brewing for some time now. The first-quarter earnings of India’s top IT companies indicated a slowdown in the sector due to macroeconomic factors hindering growth momentum. Staffing firms have predicted that this will significantly impact hiring.

The domestic ratings company ICRA previously projected a slowdown in revenue growth in the industry’s service segment for the current fiscal year. In contrast, the industry reported a growth rate of 9.2% in the previous year. According to an ICRA report, revenue growth is expected to slow down to 3% in the current fiscal year, and the industry’s profitability has suffered. The operating profit margin is anticipated to fall by up to 1%, reaching 20-21%, says the report.

The slowdown can be attributed to reduced demand and ongoing uncertainty in key markets such as the United States and Europe. This has resulted in delays and deferrals of non-critical projects in discretionary IT spending sectors like banking and retail. The impact of the slowdown is visible on multiple fronts, including the onshore-offshore mix and employee utilisation levels. Unfortunately, there are no signs of recovery in the sector.

At the beginning of this fiscal year, data from staffing firms indicated that top IT services firms were expected to hire between 50,000 and 100,000 employees, a significant decline from the net hiring of over 250,000 in the previous year. In the first quarter of FY24, India’s top five IT exporters including Tata Consultancy Services (TCS), Infosys, HCL Tech, Wipro, and Tech Mahindra reported a cumulative decrease in net headcount by 21,838. Industry leader TCS is the only major IT firm to report a headcount addition.

Prominent companies are expected to hire in the range of 5,000-10,000 in the current fiscal year, representing a substantial decrease of 15-20% compared with 2018 and 2019. Companies like TCS have also acknowledged potential delays in onboarding freshers who have been offered positions. Hiring industry insiders do not foresee a turnaround in the next three quarters, primarily due to challenging macroeconomic conditions in the Western world.

During the pandemic, there was a surge in online activity, resulting in overstaffing and rapid expansion of teams in tech companies. However, with offline activities resuming, the demand for tech services has decreased, leading to fewer job openings.

Impact of artificial intelligence 

There is a silent threat to employment generation for college graduates in the form of artificial intelligence (AI). IT firms are increasingly relying on AI to enhance employee productivity, and experts believe that the scarcity of opportunities in the tech sector could become permanent as AI continues to proliferate.

The number of AI-skilled professionals in India has increased 14-fold from January 2016, reveals a LinkedIn survey. The future prospects lie in AI, and India now ranks among the top five countries with a growing AI talent pool, alongside Singapore, Finland, Ireland, and Canada.

The tech industry experienced unprecedented growth during the global push for digitisation amid the COVID-19 pandemic, as companies worldwide transitioned to remote work. However, this growth could not be sustained, as factors like inflation, recessionary trends, and the Russia-Ukraine crisis began to take a toll. Those already employed are now experiencing meagre salary hikes and delayed appraisals, reflecting the deep slowdown in the broader IT sector in India.

The slowdown in the IT sector is impacting different types of jobs in different ways. Some job roles such as software engineers and data scientists are still in demand, but other roles such as customer support representatives and quality assurance engineers are at greater risk. Entry level jobs are also being hit harder than more experienced roles.

The government has taken some steps to help the IT sector and its workers during this slowdown. It had announced a tax break for IT companies that hire fresh graduates. The government is also providing training programs to help IT workers develop new skills.

The slowdown in the IT sector is likely to be temporary. However, the sector is likely to evolve in the coming years with a greater focus on emerging technologies such as artificial intelligence and machine learning.