The Telegraph
Since 1st March, 1999
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IT workers face squeeze on hikes

Mumbai, Nov. 11: There’s bad news in India’s Silicon Valley: the technology titans in Bangalore are planning to trim wage increases next year.

Leading infotech companies, including TCS, are expected to see average wage hikes head downwards to 9 to 10 per cent from 12 to 15 per cent last year.

The dynamics of the industry are changing: the companies that earn over 90 per cent of their revenues in dollars have seen their profits gouged by the surge in the value of the rupee and steep wage hikes.

They don’t have a handle on the rupee and have been scrambling to hedge their dollar earnings; so they are looking to trim the increase in the wage bills next year.

Until now, it was hard for them to do so because of mounting attrition levels which are typically between 14 to 18 per cent in the industry.

But TCS, which has one of the lowest attrition levels in the industry, reckons that the demand-supply gap in manpower requirements has started to narrow as the industry starts widening the pool from which it sources its employees.

Earlier, companies used to focus on engineering gradates and computer specialists. Now, they are ready to recruit ordinary science graduates and in some cases even those from the humanities stream who have the potential to be groomed into IT professionals.

“The IT sector has already seen the salaries peaking out. So, next year will not see any new highs,” said an industry insider.

“Although employers are reporting pay increases, the hikes are modest in comparison with previous years. This trend looks set to continue in 2007,” said Nischae Suri, author of the 8th annual Asia-Pacific Salary Increase Survey conducted by Hewitt Associates.

“But even at these levels, the wage increases in India are generous when compared with those in the US, Europe and many other markets in Asia,” Suri added.

In a study conducted along with McKinsey, the National Association of Software and Service Companies (Nasscom) had said India would need about 2.3 million IT professionals by 2010.

Based on current estimates, Nasscom said there could be a shortage of 500,000 skilled knowledge workers by 2010 if remedial action was not taken.

The salary hikes in the industry have been driven by this scare of a manpower shortage. But companies have aggressively started training raw recruits to deal with the problem and creating skill sets that didn’t exist earlier.

“While organisations are being driven to increase their spend on compensation as a result of the ongoing attraction and retention challenges, many companies are reassessing their human resources strategies and broader business goals to ensure they are getting the most out of their talent and increasing productivity. Any modest alteration in increases are a result of this performance orientation,” said Suri, who is head of Hewitt’s talent and organisation consulting analytics practice in Asia.

The big worry for the IT industry is the rupee volatility. The rupee has appreciated over 12 per cent this year against the dollar — and this has hurt bottomlines of the IT giants.

“The rupee-dollar parity will definitely have an impact on the IT industry in the coming fiscal,” said Anupam Prakash, Asia-Pacific leader at Hewitt Associates. “The salary hikes may not be as high as it was this year. The IT companies earn their revenues in dollar terms and their costs are in rupee terms. Their margins are already under pressure as a result of the rupee appreciation. The net result is lower salary hikes,” he said.

There are some reports that hiring is slowing down in some sections of the industry. However, top companies are reporting sharp increases in hiring levels.

“Hiring is slowing down in the IT sector,” said Kris Lakshmikanth, CMD at Headhunters India Ltd.

“All IT companies, specifically the Tier II and III companies, are feeling the pinch because of the weakening dollar. At the same time, the supply of manpower has increased as a lot of companies are now looking not just at engineering graduates but also simple science graduates to hire for projects,” he added.

However, not all companies are looking to pare wage increases. “Our salaries will be in the 12 to 15 per cent levels next year as well,” said a Wipro official.

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