Why Indian tech giants fail to resolve the attrition bug

Analysts say non-IT sectors are still looking for tech talent as they continue migrating or updating to a technology platform. (Representative image)

Despite speculations about a looming recession, all major IT firms, including TCS, Infosys, Wipro and HCL, reported voluntary attrition of around or over 20 percent.

Voluntary attrition in the IT sector, especially in bellwether companies, was largely driven by exit spillovers from Q1, the constant demand for tech talent in Global Capability Centres (GCCs), and the after-effects of the talent war, analysts say.

However, experts believe the industry might course-correct attrition level, once the macro-economic condition of Europe impacts the Indian subcontinent in full force.

Why attrition isn’t going down

While hiring funnels in IT have shrunk over Q2, multiple firms reiterated that they have honoured offers made in Q1.

Nevertheless, with lateral talents’ notice periods running anywhere from 30-90 days, Kamal Karanth, Co-Founder of talent solution specialist Xpheno, believes Q2's voluntary attrition was largely driven by exit spillovers from Q1.

“Employees who accepted offers from mid-Q1 to early Q2 were seen exiting over Q2, adding to the attrition count,” he told Moneycontrol.

Though not prominent among bellwethers, he says involuntary attrition is an added factor due to a corrective resizing of teams and delivery units. “With inflation-related margin pressures coming in, enterprises in stress are looking at opportunities to lose flab where necessary.”

ALSO READ | IT vs Non-IT sector: How entry-level salaries have evolved over 5 years

Analysts say non-IT sectors are still looking for tech talent as they continue migrating or updating to a technology platform. “This has led to a talent crunch as smaller companies are hiring in-house IT specialists with lucrative salary packages along with flexibility, perks and job security,” says Bhavna Udernani, MD of staffing firm Adhaan Solutions.

Moneycontrol had earlier reported that the gap in entry-level salaries between the IT and non-IT sector are closing, especially in IITs and Tier III colleges. Further, startups still record a much higher jump in packages – 53 percent, compared to MNCs (44 percent).

What do the hiring numbers indicate?

India's major IT companies registered a massive drop of 45 percent in hiring in Q2. TCS, Infosys, Wipro, and HCL Tech together added 28,836 employees in Q2FY23. This number stood at 52,842 in the previous quarter.

“The major reason is the recession in Europe and America, along with the impact of the Ukraine War, which is leading to multiple projects going on hold,” says R P Yadav, CMD, Genius Consultants, a talent solution firm.

He says the number of new projects has also slowed down for which many organisations are putting a hold on the on-boarding of fresh candidates.

Last month, hundreds of desperate job aspirants took to social media voicing their concerns about the delay in onboarding. Some says there is a 4-5 month delay.

IT services recorded 70,000 active jobs as of September, the lowest in 17 months, as the sector suffered the sharpest year-on-year drop in active job volume of 36 percent, Xpheno’s data shows. The sector saw a 13 percent drop in volume in September compared to August.

ALSO READ | WFH versus high career trajectory: Are people working from home slacking?

“The current dynamics of hiring action are clear indicators of a correction in a previously overheated job market. Certain key talent sectors that saw hyper-action during the buoyant quarters of the previous fiscal are dealing with a saturation effect,” Karanth says, adding, “The macroeconomic slowdown has given a breather for enterprises to take stock and calibrate their hiring plans.”

When can we expect attrition to cool down?

The IT industry contributed 57 percent to overall job openings so far this year, compared to 82 percent in the last year, as per TeamLease Digital

“As the hiring demand has seen a slowdown in the IT sector, high attrition rates continue to impact the information technology services sector,” says Siva Prasad Nanduri, Chief Business Officer, TeamLease Digital.

However, he offers a silver lining, saying both attrition and net job additions should stabilise, going forward.

“IT companies are headed towards lower attrition in the upcoming quarter as fears of global recession and waves of layoffs are expected to have a subdued effect on the attrition levels,” said Nanduri. “In the current macroeconomic situation, compensation expectations of new hires will be becoming more realistic.”

Seconding the same, Genius Consultants’ Yadav expects attrition to come down by at least 3-5 percent in Q3 and Q4 in light of the demand slowdown.

ALSO READ | India Inc headhunters warm up to hiring candidates with right certifications but no college degrees

However, as enterprises look at rebalancing the workforce and losing some flab, Karanth believes the market could witness a switch back from voluntary to involuntary attrition.

“The reduction in voluntary attrition could well be countered by movements in involuntary attrition. Whether this will result in sustained high attrition rates is to be seen,” he says.

“A return to pre-COVID attrition rates would be on the cards by or before the end of the current fiscal,” Karanth adds.