NEW DELHI: The global crisis in the banking, financial services and insurance sector, which accounts for more than 40 percent of India's international backshop operations and supplies more than 3 percent of Philippines gross domestic product, is cutting seriously into sector jobs.

Indian IT sector analysts say firms should be prepared for "flat to negative growth for some of the top software players," as businesses dry out. It could also result a minimum loss of up to 50,000 jobs in the near future, they say although, they add, for other segments of the outsourcing industry downturn will merely slow the rate of what so far has been torrid growth.

Recruitment consultants say that one in eight people employed in India’s banking and financial services and the IT sector risk losing their jobs due to the global financial meltdown. At least three top recruitment firms operating in India have said that many of their IT clients have asked them to stop hiring altogether. The IT industry employs about 350,000 people in the finance and insurance sector alone, with the top six players accounting for almost three quarters of the jobs.

The Philippines, the world's second-biggest offshoring center after India, now directly employs 340,000 workers in an industry whose annual revenues have soared to US$5 billion in 2007 from US$1.5 billion three years earlier and which has become one of the few recognizable bright spots in the Philippines economy. The Business Processing Association of the Philippines says it hopes to increase the country's share of the global market to 10 percent, with revenues of US$13 billion, by the end of 2010 although the cutback in IT processing from the European Union and the United States threatens that goal. Nor are India and the Philippines alone. China, Hungary, Poland, Brazil and Mexico are also seeking to become participants in the outshoring market.

It is India, however, which so far has felt the brunt of the downturn. The medium to long term effects of the desperation sale of Merrill Lynch to Bank of America, the Lehman Brothers bankruptcy and huge losses on the part of American Insurance Group are undeniably being felt although the recent depreciation of the rupee against the dollar due to Foreign Institutional Investors (FII) withdrawing their stock portfolios has come as a relief and has been reflected in better second-quarter results

Indian IT companies have been feeling the pinch of the American sub-prime crisis for some time. The United States and the United Kingdom account for more than 85 percent of India’s software and outsourcing business, with the bulk of revenues coming from America. TCS, Infosys, Wipro, Satyam, Cognizant, HCL, Satyam, Patni, MindTree are among the top IT companies of India.

The top four IT exporters, Satyam, Wipro, TCS and Infosys have thus imposed a freeze on hiring of experienced professionals and deferred joining dates for many newcomers. Industry sources say TCS, which earns nearly 45 percent of its revenue from financial services solutions and is India’s number one software exporter, has sent out letters to prospective employees to postpone joining dates for up to a year.

In a step that sent shock waves and first highlighted that all was not well due to a faltering US economy, TCS announced an unprecedented employee salary cut by 1.5 percent in the fourth quarter (January-March) this year. TCS has pruned the number of hires projected for the year from 35,000 to 30,000.

Earlier this year, Infosys Technologies, another big industry enterprise, announced that it planned to hire about 25,000 people in the current fiscal, which is nearly 30 percent less than total recruitments in the last financial year, when 35,000 were recruited.

IBM-India has reportedly asked 1,000 employees to leave. Satyam and Wipro have said that they will not fire employees but have identified 4-5 percent of staff for performance improvement. This could translate into lower increments, bonuses etc.

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There may be more bad news as US technology giant Hewlett-Packard has announced that it would cut 24,600 jobs globally over the next three years as part of its integration with computer services firm Electronic Data Systems. The streamlining could impact the 30,000-plus HP work force in India.

There has also been an impact on entry-level hiring A survey conducted by brokerage CLSA in 45 colleges found that the class of 2009 has received nearly 17.5 percent fewer job offers compared to the previous year's figures of IT hires. Last year, top software firms collectively recruited nearly 7,500 employees from campuses in eight Indian cities. This year, the figure is close to 5,500.

Accenture emerged as the only large firm to have shown an increase in hiring numbers. Offers from Satyam and Wipro are 30-50 percent lower, while those of TCS and Infosys are lower by 15-20 percent.

A Satyam spokesman said, "We haven’t changed our 12,000-15,000 guidance for new hires — we will honor our commitments. We are in our silent period, and as of now, not commenting on specifics like joining dates."

Infosys campus visits dropped nearly half from over a thousand last year, while Wipro scaled down a third from 300.

Another indicator of uncertain times is declining attrition rates, as employees continue to be unsure about job prospects and stick with the companies they are with, and firms hire less, which is also reflected in lower overall salary payouts.

According to the Associated Chambers of Commerce and Industry of India (Assocham), overall salary payouts of top IT firms thus only grew by a still-healthy 25 percent in 2007, but a big drop from the 65 percent rise in 2006. The study closely looked at Wipro, TCS, Satyam and Infosys, which account for more than 70 percent of the sector's revenue.

However, Assocham added: "the Indian IT industry may be passing through a rough patch because of a slowdown in the US economy and high inflation rates, but this stage will pass."

IT Industry observers say that attrition rates in the sector are down to 20-25 percent from the highs of over 50 percent a couple of years back. According to SV Krishnan, Satyam global head, HR, "for the last nine quarters, we have declining attrition rates."

However, he added: "The slowdown is not as bad as it is made out to be. We are still talking about double-digit growth. We will be hiring around 15,000 people this year against 16,000 last year."

Pratik Kumar, vice-president (HR), Wipro, has said attrition rates had dropped from nearly 20 percent to 16 percent.

Accenture outsourcing lead executive, PG Raghuraman, has said that the company has had a 25-30 percent lower attrition rate than usual. "We have been able to successfully tide over the attrition wave because of greater engagement with employees and expansion of our supply chain."

Though the Wall Street crisis has had its trickle-down effects, analysts see a silver lining. Companies are looking at a period of lower attrition rates and stable salaries to keep costs under check. And, the long-term prospects of India’s IT sector continue to be bullish, even as many IT firms try to tap new geographical locations, moving to higher end of the business or even mull about entirely new areas of business such as retail or hospitality that has shown brisk growth in India.

A recent estimate by software industry body Nasscom has predicted that India’s outsourcing industry will face a shortage of over 200,000 professionals by 2012. According to Nasscom ``by 2015-2016, the number of professionals working in the IT industry will grow tenfold (from 2001-2002) and the total revenue will grow 22 times.’’ That means the IT industry is likely to employ nearly 4 million professionals and record almost US$200 billion in revenue by 2015-16.

"India will create the second largest IT services labor pool after the US within the next seven to eight years. That's not all, domestic IT industry's contribution to our GDP is likely to rise from 0.8 percent in 2006-07 to 2.65 percent by 2015-16," Nasscom added.

The bargaining power, however, will rest with the employers, at least for some time to come.

Siddharth Srivastava is a New Delhi-based journalist. He can be reached at sidsri@yahoo.com