India IT sector hit by Europe, US project slowdown

Industry may suffer higher operating costs with workers under utilized with fewer projects from Europe and U.S., partly due to drop in IT spending and trade finance, report says.
Written by Ryan Huang, Contributor

The top players of India's IT industry have been seeing an increasing excess in their staffing levels, and this could grow even more in the next quarter, acording to a report.

In an article Tuesday, Times of India said that a shortage of projects from Europe and United States has left engineers with little work for more than six months, according to industry watchers. They added that utilization rates of the top four IT firms will dip further this year.

"Projects have slowed down in the last few years barring few quarters. While earlier clients would have been ready to pay for the number of employees required plus for 20 percent more, now they are not, leading to an inflated bench," said Amitabh Das, CEO of recruitment firm Vati Consulting, in the report. He added that further uncertainty could lead to retrenchments.

According the the news daily, a bench is defined as a "mass of employees kept aside for emergency use in future projects". It noted that an IT company typically keeps about 15 percent or higher workforce on bench, who are ready to be activated for projects.
Times of India said most large companies have a bench strength exceeding 20 percent of their workforce, but utilization rates have shown a steep decline in the last six months. It says this could hit a new low, when new recruits from campuses join this month onwards.

"The economic environment, pricing pressure and decreased employee utilization rate could negatively impact our revenue and operating results," stated Infosys in its annual report for the financial year 2012. 

Editorial standards