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Neither attrition nor wage hike in IT sector: Report

November 25, 2013 19:53 IST

The improved demand environment for the Indian IT sector has neither resulted in higher attrition level nor led to a hike on wages, says a report.

The usual acceleration in wage pressure that accompanies improving demand seems absent this time around as attrition has remained low and wage inflation remains in single digit, Credit Suisse said in a research note.

"Unlike earlier years, an improving demand environment has not caused any accelerated pressure on the supply-side as yet," it added.

Attrition has remained low. Offshore wage inflation also remains relatively low - both for experienced employees and entry-level engineers.

"The bargaining power of companies with respect to the latter is at its peak with real wages at their lowest point in more than 15 years," it added.

Credit Suisse noted that "while some of the reasons for this may be cyclical and could reverse, we believe that part of the reason is structural, too".

Mid-sized companies such as Tech Mahindra and Hexaware have been able to postpone wage hikes without any significant increase in attrition, the report said, adding that TCS's guidance of entry-level hiring is the same as FY 2009 despite twice the overall employee base and a vastly different outlook (more positive) on the demand environment.

Moreover, Indian companies have also stepped up overseas hiring.

The companies have entered new areas of IT services where local talent and expertise become important. Also, given potential immigration issues and the difficulty in getting visas, companies have ramped up hiring onsite at the cost of local hires.

"While this may create margin issues, it does ease the pressure on wages domestically," Credit Suisse added.

Moreover, there is a significant improvement in supply of engineering talent.

Engineering college capacity has seen an over 20 per cent compound annual growth rate over the past several years. While the quality of some of this increased capacity may be varied, the bargaining power of companies has increased, the report said.

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