Indian IT services companies are facing a slowdown in hiring, with growth likely to improve only in the second half of FY2026, according to an ICRA report. This decline has been driven by factors such as global economic uncertainties and changes within the industry.
Slowdown in IT hiring amid economic challenges and modest recovery forecast
Over the past six to eight quarters, demand for IT services has declined, mainly due to reduced discretionary spending by customers in the US and Europe. The macroeconomic challenges arising in these key markets have slowed growth, which has had a direct impact on hiring. Additionally, the combination of low attrition rates and a greater focus on maximizing employee utilization has reduced the need for new hires. Many IT companies are also utilizing the surplus workforce added during FY2022 and FY2023. Ahead Restricting recruitment efforts.
ICRA expects a modest recovery in Q2FY25, but hiring is expected to remain low in the near term. More significant reforms are expected only by the second half of FY2026, which will create a more favorable recruitment environment. Meanwhile, major IT companies such as HCL Technologies, Infosys, TCS, Tech Mahindra and Wipro have recorded negative net employee growth for seven consecutive quarters, including the first quarter of FY2025.
Generative AI is reshaping the IT workforce and reducing hiring needs
Generative AI (Gen AI) is rapidly reshaping the IT workforce, with companies focusing on training employees to capitalize on AI-powered business opportunities. This shift towards upskilling is not only boosting productivity but also reducing the need for new hires compared to pre-Covid levels. ICRA expects the full impact of Gen AI on productivity to become more apparent in the coming years. Also, the attrition rate, which peaked at 23% in FY22, has since stabilized at around 13%, reflecting a slowdown in both hiring and demand.
Summary:
Indian IT services companies are facing a slowdown in hiring due to global economic challenges and low demand. The focus on skill upgradation of employees as well as low attrition rates has reduced the need for new appointments. While improvements are expected by FY2026, generative AI is reshaping the workforce and increasing productivity.
