(This article by Akshay Damle was first published on his blog and is reproduced here with permission for the benefit of PuneTech readers.)

Over the past couple few weeks, I have been reading & thinking about the salary hikes that the companies are doling out. This year, it has been challenging to provide “good” pay hikes to most of the employees and most of them are ending up feeling disappointed, cheated even. There were even dharnas staged because companies could not fulfil their promises of hiring them after graduation.

There was a time in the early – 2000s when the IT industry was the sunrise sector in India. 20+ % pay hikes were very common for even above average performers in organizations. This behaviour carried on till 2008-09 when the global financial crisis unleashed itself. The financial crisis affected most mid to senior level employees and things changed for most of them. Even during this time, young graduates (<3-5 years of experience) would still consistently get “good” pay hikes. They were given to prevent them from jumping ship as the key to success was having good quality resources in your organization and also because it didn’t affect the bottom line much.

The last 1 year has been tough on the Indian IT sector Most companies are reporting flat growth, squeezed margins, and record low utilization levels. A few of the companies have reported that they may not hike their employee’s salary. Most of them are providing single digit pay hikes, quite a departure from the past. Most companies are also reporting record low attrition levels (<5 %). So what has changed? What has suddenly gone so wrong ?

In my opinion, quite a few things have gone wrong. Note that I’m no industry expert: :

The failure of the Indian IT industry to move from performing standard grunt work (Services) to innovation.

Initially, performing “outsourcing” work for global companies in India was highly lucrative. What with low labour costs, low infrastructure costs, and therefore high margins. The failure of these companies was to not divert these profits into more R&D work and instead hiring more and more grads to work on such projects. The “good” raises & hiring by the thousands meant that the margins reduced, quality reduced. The effect was that many of these global companies started moving projects out of India to other lucrative countries like China, Philipines, etc.

Proliferation of sub-standard engineering colleges across India.

Most of the folks in India were enamoured with the wealth that the early IT folk acquired. Everyone had a house (or two), a car, flashy lifestyles etc. Therefore, there was a demand across Bharat to become engineers and move to Bangalore, Hyderabad, Pune, Gurgaon and get into big IT organizations. This meant that engineering colleges multiplied overnight and there were millions of new IT graduates. Most of the big IT companies had such huge requirements that most of them could fulfil this supply of hiring these engineering grads. What most didn’t realize is that it takes years & years of experience before a college can be considered good. You require land, infrastructure, good professors, excellent equipment to be able to impart quality education to students. Most colleges ended up producing half-baked graduates ready to take on the IT world. This has been the failing for many companies & colleges. What makes things worse is that most Universities are very slow to adapt their syllabus. In a fast-moving world of technology, this is a death-knell.

Near constant starting salaries

Ever since I graduated in 2001, the starting salary of an IT graduate has remained more or less the same. Most engineering students from the cities do not accept such salaries but then they have a choice of moving out for further education to the US, etc. Unfortunately, this isn’t an option for most of the folks coming in from middle India. Additionally, 2.5 lakhs p.a. is lucrative for most of these graduates. Most big IT companies are also more than happy to keep this salary constant for the past so many years. So what we now have are sub-standard quality graduates along with folks who are paid less. Not a good thing at all.

Rising costs & degrading urban infrastructure

This isn’t a direct reason for the downfall of the Indian IT but most of these jobs & companies contributed extensively to the tax-revenues of states, and the centre. Unfortunately, this did not translate to quality infrastructure in these urban wastelands. The accompanying real-estate boom & high inflationary rates have ensured that the cost of living increases quite a lot each year & house rentals are on an all-time high. Many of the new young graduates stay far away from the city in order to make rent. This all affects the quality of work.

Increasing credit debt

It’s absolutely sad to see many of these young graduates caught up in credit card debts. There was a time around 8 years back when credit cards were doled out to IT workers as if they were visiting cards. I have seen quite a few colleagues who are stuck in credit card debts, personal loans, etc. Leave aside owning a home, they are struggling to make payments. At the same time, everyone wants the flashy phone, the flashy clothes, good food, etc. It’s appalling to note that many workers don’t even know how Income tax is calculated! So when these guys are offered single digit pay hikes especially when they’ve seen some seniors in the past get 20%+ pay hikes, they are disappointed and get unmotivated. To make matters worse, they can’t switch jobs because no one is hiring at that experience level. This all translates to poor quality of work.

It isn’t all a bad thing though. Many companies have started seeing the big picture and involved in improving their bottom lines. They have started investing more & more into innovation. Some colleges at the top-tier are changing their syllabus on a yearly basis. Also if you can innovate in your job, you still have multiple growth opportunities. Most folks are unaware of the emerging technologies, market trends, global financial news, etc. This is extremely vital if you want to grow in your role. If this is followed, many can still reap the financial rewards and grow. If this isn’t followed, sadly the IT industry isn’t the utopia that it was made out to be.

I’ll end this by saying that there is still hope but yes, the Indian IT industry isn’t what it used to be.

About the Author – Akshay Damle

Akshay Damle is a Pune-based technology enthusiast. During the day, he manages teams that are involved in building scalable payment systems infrastructure. He has over 11 years of experience in building enterprise applications. His interests are following emerging technology trends, current affairs, finance & general knowledge. You can follow him on twitter @akkiman.