Why Indian IT Firms Are Reducing Employee Headcounts

Over the last year, the four biggest IT firms in India saw their headcounts collectively reduce by 62,222 employees. The biggest cut was seen at Infosys, where employee headcount reduced by 25,994; it was followed by TCS, where employee headcount reduced by 24,516 and Wipro, which saw its employee headcount fall by 13,249 employees. HCL bucked the trend by adding employees, but only by a relatively small 1,537 number. This translated into an overall loss in employee headcount for the industry of 62,222 employees.

It’s hard to overstate how unusual this is. CNBC looked at data going back to 2012, and FY24 was the first year where these four firms had collectively cut employee count — in all other years, they’d added more employees. So a drop in headcount in FY24 is certainly an anomaly. Here are some reasons why Indian IT firms have cut their headcount:

1.Slowdown in Growth

All Indian IT companies have seen a significant slowdown in their revenue growth in FY24. In FY23, Infosys’ revenue had grown by 15.4 percent, which fell to 1.4 percent in FY24; TCS had grown at 13.7 percent in FY23 which fell to 3.4 percent in FY24, and Wipro, which had seen its revenue rise 11.5 percent in FY23 saw it contract by 4.4 percent in FY24. Even HCL, which has seen its headcount grow has seen its revenue growth fall from 13.7 percent to 5 percent in FY24. As such, with their toplines stagnating, Indian IT firms have been circumspect about adding new employees.

2. Overhiring in FY22

Another reason why Indian IT firms are now cutting their headcounts is the overhiring the companies had done in FY22. After the liquidity fuelled boom post Covid, Indian IT firms had gone overboard, and added a staggering 2.43 lakh employees in FY22. In comparison, the average addition for the last 10 years had been around 50,000 employees. In fact, the employees added in FY22 had been equal to the sum of employees added FY18, FY19, FY20 and FY21 combined. The growth from FY22 hasn’t quite sustained, which means that these companies don’t require as many employees as they’d originally anticipated.

3. Falling attrition levels

As the growth in the IT sector has slowed, so have attrition levels — attrition levels have fallen by nearly 50 percent at the 4 major IT firms. Employees are no longer leaving their jobs lured by better pay packages elsewhere. As such, with fewer employees leaving, IT firms have had to hire fewer newer employees.

4. Low growth outlook

And while growth at IT firms has slowed down in FY24, the outlook for the coming quarters is even bleaker. Infosys has given a guidance of 1-3 percent growth in constant currency terms for next year, while HCL is only slightly better at 3-5 percent. With growth in the topline expected to be lower than what it has been historically for the sector, companies have understandably looked to trim their headcounts to account for the harder times ahead.