Nearshore Americas

Rising Salaries and Spiking Attrition Create Trouble for India

For decades, India has shouldered the bulk of global IT services, relying on the world’s largest and most equipped talent pool in a single nation. The country, home to over 6,000 engineering and technology institutions that can enroll close to a million computer science students a year, has been able to fully exploit an enviable combination of skills, scale and savvy.

But even India is not immune from the result of the global tech talent shortage.  Salaries are rising, dramatically.

MP Kumar, the founder and former CEO of Bengaluru-based Global Edge Software, says he has not seen salary rises like this in his almost 50 years’ of tech experience in India. 

Mr MP Kumar, former CEO, Global Edge Software

“This is unprecedented. Salaries are rising on a continuous basis,” Kumar told Nearshore Americas.

Shobha Hegde, a bachelor of engineering graduate with 16 years’ IT experience who currently works as a project manager for a major IT company in Bengaluru said that she is regularly approached with job offers through career platforms like LinkedIn and Naukri, an Indian employment website. The industry has gone into recruitment overdrive and attrition is rising. 

According to BusinessToday.In, there were over 1 million resignations in the country’s IT industry in 2021, and the attrition rate was between 22 percent and 23 percent.

“I’m seeing hikes of 30 percent to 40 percent when people make a job move,” said Hegde. “This will depend on the previous salary of the employee, the demand for their skillset and the criticality of that skill set for the execution of the company’s projects,” she explained.

Shobha Hegde, IT Project Manager

The shortage of global tech talent is so acute that salary hikes are taking place regardless of the level of experience of workers, Kumar explained. While salaries for those with “skillsets related to wireless and cloud technologies, as well as networking skills, particularly for workers with three to six years experience, because they’re the most productive group,” fresh graduates are also benefiting, he said.

“To be very frank, entry level salaries were almost stagnant for the last 20 years. Now, the demand has gone up for many skill set, so the base salary is moving higher.”

All of this means that outsourcing to India is becoming more expensive.

“Ultimately, the end customer has to pay more as a result of wage changes. There is no way that service providers can take the additional cost themselves. Some may be compromised by contracts they’ve signed earlier, but for all new contracts prices will increase,” said Kumar.

Clearly, it isn’t only India that is witnessing the change in wage expectations. As Nearshore Americas has previously written about, key regional markets including Mexico, Costa Rica, Chile, Argentina and Colombia are seeing the same salary jumps. However, the sheer scale of the South Asian country’s IT industry means wage restructuring could have consequences. According to a report by Naukri, the country’s IT software/software services sector grew by 5% in June 2021, and by 52% since one 2019, an all-time high.

“It will be felt more in India because the country provides significant manpower for IT activities,” Kumar added.

Attrition in India: An Open Opportunity for Nearshore?

Salaries have been on the rise for a couple of years, but the unavoidable impact of the Covid-19 pandemic forced companies to focus greater efforts and investment on their digital transformation aims. 

In a recent survey, Gartner found that more CFOs “intend to increase digital investment than any other area in FY21”, while business and government digital transformation spending should increase the market value to over US$6.8 trillion, according to International Data Corporation.

Hansa Iyengar, Principal Analyst for IT Strategy Omdia

“The pandemic made a lot of American corporations sit up and take notice of the fact that they’re moving too slowly, and a lot of digital transformation programs have been accelerated three to five years. Things that were expected to be completed in five years time are now fast-tracked for the end of 2022,” explained Hansa Iyengar, Principal Analyst for IT Strategy at technology advisor company, Omdia. 

“The acceleration of plans means that there is little option for the enterprise but to go with vendors that it trusts. This is where many Indian companies have an advantage; they’ve been deeply embedded within large corporations for decades, 30 years, starting from the first SAP implementations to multiple software rollouts. You cannot build 30 years’ of expertise overnight,” she said. 

Organizations are scouring the globe to find the service providers able to enact these quickened digital strategies, opening the door for the most reactive and agile companies to capture new business. In response, India’s IT industry has gone into recruitment overdrive and its attrition rate – often pointed out as the weak link in the country’s fierce value proposition – is rising steadily. 

Sign up for our Nearshore Americas newsletter:

According to BusinessToday.In, there were over 1 million resignations in the country’s IT industry in 2021, and the attrition rate was between 22 percent and 23 percent. 

This is higher than IT industries in other parts of the globe. In the US, the tech sector’s 13 percent turnover rate makes it the business sector with the highest turnover in the country.

In an interview with The Hindu Business Line, Cognizant’s India Chairman Rajesh Nambiar said that attrition is “an industry-wide concern” and that “investing more into the growth of our people” was the company’s tactic to reduce the impact of the problem. 

But the problem, for Cognizant India, is huge. According to the interview, the company had an attrition rate of 33 percent in Q3 2021. The company has announced plans to onboard 30,000 new associates in 2021 and an additional 45,000 for 2022 in India alone.

The problem, for Cognizant India, is huge. According to the interview, the company had an attrition rate of 33 percent in Q3 2021.

Program managers of Hegde’s profile and experience in India can now demand between 30 – 35 lakhs per year (around US$40,200 to US$46,900). In comparison to San Francisco, where average Program Manager salaries are US$173,582 per annum according to Salary.com, savings for companies using IT outsourcing in India remain huge. 

While wage parity is not what the Nearshore should seek against India, the rise in salaries there does complicate the picture for decision-makers when investigating their outsourcing options. For example, CodersLink found that even with the rise of tech salaries in Mexico, labor costs remain 67 percent lowe than in the US.

Sustainability

It is unlikely that the rise of tech salaries will slow down in India any time soon, Iyengar believes.

“There really isn’t a way out,” she said. “The digital talent pool is very small right now and digital talent is needed.”

For Hedge, job opportunities will continue to arrive for those tech professionals willing to keep abreast of industry developments. 

“As long as you’re upskilling based on industry requirements, I don’t see any obstacles to more job opportunities in the long run,” she said.

But, as in Latin America where US companies are now hiring foreign workers directly and sidestepping recruiters to land the best talent, India’s job market could face greater attrition challenges. 

“Many more global opportunities are now arriving for those professionals with the right skill set. Managers need to ensure company employees are paid to the market standard to ensure they stay,” Hedge concluded.

Peter Appleby

Peter is the Managing Editor of Nearshore Americas. Hailing from Liverpool, UK, he is now based in Mexico City. He has several years’ experience covering the business and energy markets in Mexico and the greater Latin American region. If you’d like to share any tips or story ideas, please reach out to him here.

Add comment