Business

Indian IT Is Not Down – But Its Massive Job Creating Machine Is

The new order of the day will be to increase revenue per employee, truly achieve non-linear growth and capture new forms of digital work. But even this may be a formidable task.

What's the future for Indian IT? Credit: Reuters

What’s the future for Indian IT? Credit: Reuters

Are we seeing the beginning of the end of the Indian software and services industry as we know it? The answer is yes and no.

‘Yes’, in the sense that the industry is rapidly changing and so, in a few years it will be far removed from the kind of animal that it is now. What will also change – and in fact, is already changing – is the ability of the industry to offer large numbers of jobs to young middle class people with almost any kind of engineering degree. Instead, it will offer positions only to those with higher engineering and analytical skills, and especially to those who can think up innovative solutions for business.

‘No’, in the sense that a few years down the line the industry will likely remain a winner, a standing refutation of the notion in economics that a developing country must get its manufacturing act together first like China before it can base a part of its growth on a globally competitive, skill-based tertiary sector offering.

Shorn of jargon, what this means is that after a few years there will still be a software and services industry worth talking about, led by stellar players such as today’s TCS and Infosys. If anything, the Indian industry leaders will go up the global league table for software services vendors. Put in another way, software will continue to swing, but will add to the phenomenon of jobless growth, instead of mitigating it as it has in the past.

The contradiction between ‘yes’ and ‘no’ is highlighted by the fact that the industry players, its representative body Nasscom, and also the union minister concerned, have strongly denied that any kind of job cuts (words like layoff and retrenchment sound much worse) are afoot. On the other hand, the view from the trenches remains absolutely gloomy.

The contradiction is exemplified by Infosys which featured prominently among reports of downsizing but has announced that in the coming hiring season it plans to look at the same figure of 20,000 as it did last year. The head of a prominent Bengaluru engineering college has also affirmed that from his perch, no clouds are visible on the horizon.

The picture begins to clear when we note that yes, firms will be hiring but will also raise the bar to identify those who have not been measuring up and they will be asked to go. So at the end of the day, both hiring and firing will continue and there will be a net accretion to the workforce but several steps behind the rise in business.

Inter-firm variations

In the nine months to December (financial year 2017), net hiring by the top four – TCS, Infosys, Wipro and HCL – declined by 21%.

During the financial year 2017, for Infosys, there was an 18% fall in hiring but a 9% in attrition (firing). Hence it ended the year with a net addition to headcount of 6,320, which was almost a third of the net addition of 17,856 in the previous financial 2017. In the case of TCS, however, the picture is a bit different. Its attrition rate had fallen over 2015 and 2016 from 16.7% to 12.1%.

It is therefore not surprising that TCS does not figure in current media reports highlighting thousands of job losses. There is a  role reversal of sorts, as traditionally it was Infosys which enjoyed a lower attrition rate than TCS. So while there is no dispute over the way in which the overall trend is headed, within this there are significant inter-firm variations.

A related development is firms trying to reduce their “bench”, staff waiting to be attached to a project after the one they were attached to was completed. Fewer staff in between assignments means better utilisation of staff. For Infosys, the utilisation reached 84% in the quarter ending on March 2017, which was the highest in four years. The upshot of all this (from smaller net hiring to higher utilisation) will eventually see revenue per employee or productivity going up. This will underline the non-linear growth that will henceforth be the order of the day (again, already happening), bringing the curtain down on the time and material contracts of the past under which you handled more work by simply hiring more hands.

The driving force behind all this, is of course, the technological changes that are taking place. Routine tasks are being automated, artificial intelligence is handling standard cognitive processes and proprietary IT systems and applications which sat at customer locations and had to be maintained are now residing on the web, often utilised on a pay per use basis.

New kinds of work

While this has meant decline of one kind of work, new kinds of work have emerged. Digital capture of entire business processes has resulted in huge stores of data which have to be analysed to yield business insights. This newer kind of IT – analytics or analysing the data by structuring algorithms – needs not just engineers with different skills but also those conversant with statistical tools. Simultaneously, those already within IT firms still doing the old kinds of work have to be retrained. Hence the massive retraining programme that the industry has laid out before itself. According to a Nasscom study, by 2025, it will retrain more than its entire current staff strength.

But how can we be certain that Indian IT firms will remain on top after undergoing the change outlined above? For one, industry players have not suddenly woken up to the present situation. Nasscom’s study, Perspective 2025, in which McKinsey has been involved, shows clear awareness of the changes needed and has a well defined roadmap for the next several years. In fact, McKinsey has joined hands with Nasscom for nearly two decades now in chalking out a path for the industry, in the process helping undertake multiple studies. But can the industry re-orient itself and set it down this new path?

One example of how mindsets have changed is found in the fracas between the founders of Infosys and its current management. The founders belong to an earlier era (people then mostly wrote code) when Infosys did not pay top salary but enjoyed low attrition. The present management, on the other hand, is totally technology driven and seeks to follow compensation policies for the senior management in keeping with global benchmarks. Without this top global talent will not be available.

At a time when the ranks are traumatised by high attrition and modest rise in compensation, it is morally right for the top management to also pay itself modest rises in compensation. But the current global pattern is the returns from a business going mostly to a few at the top and Infosys is no exception. It is well within the global mainstream.

Firms are shaped and positioned among investors, by those who lead them. By now, people of Indian origin are a visible presence from the top downwards in the global information technology world. The CEOs of Google (Sundar Pichai), Microsoft (Satya Nadella), Adobe (Shantanu Narayen) and several other leading global information technology firms bear obvious Indian-sounding names. And Vishal Sikka came to Infosys from a leading position in the German enterprise solutions provider SAP.

Leading Indian information technology firms earn most of their revenue globally and are totally attuned to the way the global business space in which they exist is taking shape. The leaders of these firms and those invested in them are intensively focused on retaining the firms’ premier positions. If I were an investor with a long-term perspective I would stay invested in Indian IT companies, but as a career counselor, I would advise youngsters againsts thinking careers in IT will be as easy as it was in the the past.

Subir Roy is a senior journalist and supervised Business Standard’s reporting in South India for a decade.

  • K SHESHU BABU

    This may be inevitable with more and more mechanisation and computerisation of work. The bulk of work including calculations can be easily entrusted to desktops or laptops which do not demand salaries , let alone hike and their ‘ slavery’ can be exploited to the maximum. The owners can earn huge profits by reducing staff and stopping recruitment. Thus, the ‘ sector’ may show immense profits but ‘ labour ‘ may show steep decline