According to ICRA’s report, Indian IT services companies are experiencing a slowdown in hiring, with growth likely to recover only in the second half of FY2026. This decline is driven by factors like 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, primarily due to reduced discretionary spending by customers in the US and Europe. The resulting macroeconomic challenges in these key markets have slowed growth, which in turn has directly impacted hiring. Furthermore, the combination of lower employee attrition rates and a greater focus on maximizing employee utilization has diminished the need for new hires. Many IT firms are also utilizing the surplus workforce added during FY2022 and FY2023, further restricting recruitment efforts.
ICRA anticipates a modest recovery in Q2 FY2025, but hiring is expected to remain subdued in the near term. A more substantial recovery is projected to occur only by the second half of FY2026, which will create a more favourable recruitment environment. Meanwhile, negative net employee additions have been recorded for seven consecutive quarters, including Q1 FY2025, among major IT companies such as HCL Technologies, Infosys, TCS, Tech Mahindra, and Wipro.
Generative AI Reshaping IT Workforce and Reducing Hiring Needs
Generative AI (Gen AI) is rapidly reshaping the IT workforce, with companies focusing on upskilling employees to capitalize on AI-driven business opportunities. This shift towards skill enhancement 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. At the same time, attrition rates, which peaked at 23% in FY2022, have since stabilized at around 13%, reflecting the moderation in both hiring and demand.
Summary:
Indian IT services companies are experiencing a hiring slowdown due to global economic challenges and reduced demand. The focus on upskilling employees, along with lower attrition rates, has decreased the need for new hires. While a recovery is expected by FY2026, Generative AI is reshaping the workforce and boosting productivity.
