IT companies may overcome attrition challenge in next few quarters

Yes, attrition or the pace at which a company loses people, has been the biggest bane of Indian IT in the last few quarters. How did this attrition problem become pronounced? The reason was the sudden mismatch in demand and supply. The Indian IT sector saw a surge in demand for IT services post the COVID pandemic as companies globally started increasingly leveraging IT for their cost cutting and business enhancement needs. With a big shift to digital, the demand for skilled persons was far in excess of the supply. This led to a surge in demand and higher packages offered; leading to massive attrition in IT companies.

One has to only look at the numbers, which almost appear offensive. The worst hit has been Infosys where the attrition rate has been in the range of 27% to 28%. The likes of Wipro and HCL Tech have also faced average attrition in the range of 23% to 24%. Even the normally staid TCS has seen its average attrition rate rise to as high as 21% to 22% range. This is a clear outcome of demand far in excess of supply. In addition, the start-ups have also created a demand for tech talent and many of the person also sought to venture into the riskier yet more rewarding area of start-ups. However, things could be changing in coming quarters.

What is changing for attrition to reduce?

In fact, a number of things are changing which could result in a fall in attrition levels. Normally, the Indian tech sector had attrition in the range of 10% to 12%, which was largely manageable. The spike in attrition started only in the last few quarters. Here is why the spike in attrition could stall and reduce in the coming quarters.

a)    Start-ups are not as attractive as they appeared just a year back. It is not like joining an edtech start-up with promises of the moon actually delivered the magic. In the last 2 quarters, most of the larger start-ups with unicorn status have also struggled to get funding. With the cheques drying up, these start-ups have resorted to firing staff aggressively to keep costs in check and to reduce cash burn. IT professionals who jumped to start-ups are suddenly seeing the downside of start-ups. The lure and lustre is likely to reduce in the coming quarters.

b)    The bigger reason why attrition could reduce in the coming months is the fear of global recession. Now, the primary intent of every person is to just hold on to a job. That type of confidence cannot be possible in start-ups or even in smaller IT firms. It is only possible by sticking to the larger names with sound business models and a roster of premium clients. The fear of recession and downsizing will also reduce attrition.

c)    To cut a long story short, the technology job market had overheated considerably in the last few quarters. That has started to cool off with the compensation expectations of new hires getting to be a lot more realistic. In short, the supply side pressures are likely to ease so the problem of demand supply mismatch will also reduce. That would also reduce the need to aggressively poach talent from other companies. 

d)    In the last few quarters, the big IT companies have onboarded more than one lakh freshers. These people would grow in an ecosystem and would be more inclined to stay on in the system rather than jump ship at the first opportunity. This has also led to a sequential fall in attrition in the latest quarter for all the large IT companies.

e)    Also, IT companies are already quite wary of fresh additions. With the US, EU and UK likely to see a recession in the coming quarters, the tech spending is likely to slow so anyways most of the IT companies are going slow on fresh recruitment. That is also likely to temper the demand supply gap.

f)    Many of the IT service employees also fear that Indian IT could see loss of business to other consultants like Accenture and Deloitte as the IT outsourcing story undergoes a change. That would mean less demand for traditional roles and more demand for high end consulting roles. That is also making employees wary and reducing attrition. 

The moral of the story is that going ahead, the IT professionals are unlikely to be spoilt for choice. People are realizing that times will get touch and that the larger companies will do better than the smaller firms. For those with a job on hand; a bird in the hand is worth two in the bush.