India’s Top IT Firms Grapple with Rising Wage Bills Amid Slowing Revenue Growth
TCS, with the largest workforce of over 600,000 employees, saw the highest wage bill increase of 9.5% year-on-year. Infosys and Wipro reported lower increases of 5% and 2.4%, respectively.
In a surprising turn of events, India’s leading IT companies, including Tata Consultancy Services (TCS), Infosys, and Wipro, have reported a significant increase in their wage bills for the financial year 2024 (FY24), even as their revenue growth has taken a hit.
These companies, which are the backbone of India’s booming IT sector, have seen their average wage costs surge by over 5.5% in FY24 compared to the previous year. This increase starkly contrasts with their year-on-year revenue growth, which averaged a slower 3.6%.
The cumulative rise in wage costs for these companies amounted to a staggering Rs 18,036 crore in FY24, painting a clear picture of the challenges they face.
Factors Driving the Wage Bill Increase
Several factors have contributed to this surge in wage costs. One of the primary reasons is the active lateral hiring by these companies. They are on a hiring spree for experienced professionals in high-demand areas like AI, machine learning, cloud computing, and engineering services. These lateral hires often command salary hikes of 20–30%, pushing up the wage bills.
Annual salary increments, despite being in the lower single digits, continue to contribute to the rise in wage bills. Additionally, the high base salaries offered during the peak of the COVID-19 pandemic, coupled with high attrition rates, continue to impact IT companies’ wage structures.
A Closer Look at Company-Wide Wage Bill Increases
TCS, with the largest workforce of over 600,000 employees, saw the highest wage bill increase of 9.5% year-on-year. Infosys and Wipro reported lower increases of 5% and 2.4%, respectively.
Interestingly, these wage bill increases occurred even as the companies experienced a record drop in headcount of around 64,000 for FY24. While lower attrition rates are positive, they also contribute to the slower normalization of wage bills. Experts predict this normalization to occur by the end of the current fiscal year.
Despite rising wage costs, companies like TCS and Wipro managed to improve their operating margins in FY24. This can be attributed to factors such as reduced onsite expenses due to deploying fewer employees overseas, hiring slowdowns, and reduced subcontracting costs.
TCS witnessed a headcount decline of 2.1% (13,249 employees) in FY24, but their employee benefit expenses still rose by 9.2%. Infosys saw a 7.5% decrease in headcount (25,994 employees), but employee benefit expenses increased by 5.4%. Wipro’s headcount dropped by 24,516 employees, yet their employee benefit expenses grew by 2.1%.
Conclusion
Overall, the Indian IT sector faces the challenge of balancing rising wage costs with slower revenue growth. While cost-saving measures are being implemented, the high demand for specific skillsets continues to exert upward pressure on wages. The coming months will reveal how effectively IT companies can navigate this complex situation. As the industry grapples with these challenges, the resilience and adaptability of these IT giants will be put to the test. The outcomes will not only shape their future, but also have far-reaching implications for the entire IT sector in India.
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