Why Indian IT service companies are losing their allure among students

Nitin Gupta, a 23-year-old engineering graduate from SVCE Nellore in Andhra Pradesh, received a job offer from Mindtree in April 2022 before its merger with L&T Infotech. Cut to August 2023, a year-and-a-half and multiple rounds of pre-onboarding training tests later, his offer has been revoked. Reason: He failed a pre-onboarding test in July 2023. “There is a disparity between the score my trainer gave me and what the management says I have scored. There is no clarity from them as to how the scores are different,” says Gupta.

His plight is similar to that of several thousands of freshers from the 2022 and 2023 batches of engineering colleges who bagged jobs with IT services companies, on- or off campus, but are facing endless onboarding delays. If many have not heard back from their prospective employers about a joining date after being promised a job over a year ago, for others it is little solace when companies keep extending joining dates every two-three months. Still others have been compelled to undergo additional training even as their offer letters are nearing expiry, while some like Gupta have had their offers rescinded. They are essentially adrift in an uncertain tech job market.

After the euphoric days of 2021 up to September-October 2022 where the likes of TCS, Infosys, Wipro, HCL, Tech Mahindra, Cognizant, Accenture and several other IT firms hired freshers in droves in anticipation of growth, they are now planning to cut back on hiring freshers due to a weak deal pipeline amid lingering recessionary fears in the US. Staffing firm TeamLease Digital has projected a 30 per cent year-on-year decline in FY24.

Harpreet Singh Saluja, President of Nascent Information Technology Employees Senate (NITES), estimates the employees’ union has received complaints of onboarding delays from 20,000-25,000 students in the past two batches. “Our contention is that if the business was down, what was the need to issue so many offer letters to these freshers?”

Colleges say some firms have intimated them of a delay in joining dates, while others have kept them hanging. However, firms have a different view. “TCS has always honoured every offer of employment made and will continue to do so. As is the case every year, we onboard trainees in a staggered manner across quarters in line with demand. We have commenced onboarding of trainees starting Q1FY24 and will continue to have batches joining us on a quarterly basis,” says Girish Nandimath, Global Head of Talent Acquisition & Academic Interface of TCS. Harshvendra Soin, Global Chief People Officer and Head of Marketing at Tech Mahindra, without mentioning a timeline, says: “We have already started the onboarding process for last year’s campus selects, and joining will start in multiple batches.” Wipro, Infosys, Cognizant, Capgemini, HCL, LTIMindtree and Mphasis did not respond to BT’s queries.

IT Industry body Nasscom’s Senior VP and Chief Strategy Officer Sangeeta Gupta says, “Everybody thought the acceleration in tech spending post-Covid-19 was the new normal, but the global environment shifted and you recognised there was over-hiring in the past two years.” She adds that the onboarding delays may get resolved over the next two quarters as most companies have said they will honour all the offers.

“These are young people and this [delays and revoking of offers] is totally wrong,” says T.V. Mohandas Pai, Chairman of Aarin Capital and former Infosys CFO. Industry veterans say firms should onboard freshers and train them right away, even if it means taking a hit financially for two-three quarters. “Yes, the business exigency is a real point. But they are still making profits and losing people at a reduced rate. They may have to hold on to surplus people for one-two quarters,” adds Pai. Vineet Nayar, Founder Chairman of Sampark Foundation and former CEO of HCL Technologies, says: “Growth will come back for sure, today or tomorrow. It would be a wise decision to onboard freshers now and win their trust and respect.” Veteran CHRO Prabir Jha, Founder and CEO of boutique HR firm Prabir Jha People Advisory, says companies should have either honoured onboarding timelines or withdrawn offers. “It would have been a difficult but more honest decision.”

The $245-billion it services outsourcing industry, India’s largest white-collar recruiter, is one of the biggest success stories to emerge from India. It typically absorbs 20-25 per cent of the 1.5 million engineering graduates in India every year. However, the halo is fading lately among freshers of second-tier colleges, where the behemoths usually hire en masse.

“We see a decline in the number of students applying for these jobs over the past four years… The charm is fading for IT services companies,” says Vivekanandan M.S., Associate Director and Head of the Directorate of Corporate Relations and Career Services at SRM University (Andhra Pradesh). Hari Om Bansal, Unit Chief of Placements at BITS Pilani, says IT services firms were in vogue 8-10 years ago. “Now, IT product firms have taken over. They pay better, roles are more challenging and offer better exposure through foreign trips and students from premiere institutes prefer them,” he says, referring to firms likes Microsoft, Amazon, Flipkart, Cisco and Oracle.

Colleges attribute the trend to low entry-level salaries that have stagnated at Rs 3.5-4 lakh per annum (LPA) for over a decade, while the IT services industry’s exports have grown multi-fold.

To attract youngsters with aspirations, several top IT companies have implemented differential hiring. For example, K.V. Sriram, Associate Director of Industry Liaison, Placement & Practice School at Manipal Institute of Technology, says that after receiving the initial offer, students can qualify for better pay and specialised roles within the same company. “This shows that IT services companies are trying to address students’ aspirations.”

“Apart from regular roles that pay Rs 3.5-4 LPA, the same companies offer a digital profile with a higher compensation of, say, Rs 7 LPA,” says SRM’s Vivekanandan, adding that there is some interest from students for niche roles focussed on machine learning and cybersecurity. “The maximum pay services firms offer is Rs 5-6 LPA, whereas product companies offer a minimum of Rs 14-15 LPA. The difference is stark even compared to the niche roles that offer, say, Rs 10 LPA,” says BITS Pilani’s Bansal, adding that the college is hosting just a few IT services firms and only for their niche roles for which two to three students get picked. Besides, SRM’s Vivekanandan says, product firms also hire in good numbers, referring to a financial product company that recruited 150 students last year from his college for a compensation of Rs 15 LPA.

“We have designed salaries tailored to each employee’s skill set and job relevance. The remuneration for freshers is determined by the skills they have demonstrated during the selection process,” says TechM’s Soin.

M eanwhile, technology careers are no longer limited to IT services. Sectors such as financial services and automobiles continue to hire in good numbers for their tech functions, while consulting firms like the Big 4 auditors also recruit from engineering colleges, say hiring experts. Besides, the estimated 1,500 Global Capacity Centres (GCCs) in India added a net 150,000 jobs in FY23, closing the year with a headcount of 1.6 million, according to tech talent provider NLB Services.

“We train all our computer science and non-computer science students in programming languages and competitive coding, which enables them to get into top consulting, analytics and product companies that recruit them for tech skills. We also attract the top core engineering companies,” says V. Samuel Rajkumar, Director of the Career Development Centre at Vellore Institute of Technology. He adds that VIT was able to attract 300 GCCs last year for campus recruitments. “Our focus is on attracting more GCCs on campus. They offer a minimum of Rs 6 LPA as CTC.”

Students’ changing preferences have led many Tier II colleges to minimise their reliance on IT services companies. SRM’s Vivekanandan claims 150 high-paying product companies visit the campus in July-August with Rs 10-20 LPA compensation packages and finish hiring before services firms.

According to Pai, more freshers from Tier III and IV colleges are joining IT services companies today because there is hardly any interest from Tier I colleges, while interest from Tier II colleges is waning.

TechM, for instance, has broadened its pool by hiring candidates from STEAM (science, technology, engineering, arts and mathematics) backgrounds, leveraging gig workforce, nearshore hiring in global locations and Tier II and Tier III cities in India. “We have increased hiring across all levels, especially at the bottom of the pyramid,” says Soin.

“We have not discerned declining interest from freshers choosing IT jobs… Given the abundance of pool availability, we are not seeing any major impact on the supply side, but our focus is more on quality talent intake,” says Nandimath of TCS.

Nasscom’s Gupta disagrees that firms are having to reach lower for entry-level talent. “We were never IITs’ top pick. It is mostly at the next rung of colleges that the services industry was hiring. The volumes the IT services industry hires will continue to make it a preferred employer in a country where so many engineers graduate every year.”

To be sure, students still accept IT services job offers in large numbers. These firms hired 800,000 freshers over the past two financial years, per TeamLease Digital and industry estimates. But many accept them only as a backup until they bag higher-paying product jobs. Others join only to leave in a year or two once their market value rises following training. “The training given by software services companies is world-class. It pays to spend 1-1.5 years with them,” says Pai.

Today’s freshers are tomorrow’s leaders and it is imperative for the industry to make itself attractive to the top talent from the Tier II colleges at least, the experts say.

Trim the industry’s bloated belly to regain interest from top-notch students, veterans suggest. A lot of people stop writing code after four-five years to become managers and pen pushers, says Pai. “Cut the mid-level flab and pay freshers more. Let go of those at the top who are paid exorbitantly but are not productive or billable,” he adds. Jha points out that artificial promotions and title changes as retention strategies have inflated costs. “Companies must be ruthless in ensuring promotions to middle- and senior-management are truly role-based.” Nayar suggests going back to campuses with five-year salary projections. “These investments will pay back very quickly as IT services is a people’s business. Organisations that believe in employees first will always win, both in down and up cycles.”

@SaysVidya