New Delhi: The Information Technology sector in the country remains the most promising sector for offering salary and wage hikes even during the pandemic as per a study conducted by a rating agency as employee costs of I-T companies jumped by nearly 18% in the last financial year. India Ratings and Research, a Fitch Group rating agency, analysed the financial results of 2,098 companies for the financial year 2021-22 (April-March period).
These companies were organized into nine broad segments depending on their sector and subsector while banks, non-banks, trading and financial institutions were excluded from the study. Analysis of the employee cost of these companies showed that Information Technology led the pack with 17.9% year-on-year growth in FY 2021-22.
Companies in the luxury sector were second in terms of increase in employee costs during the pandemic with an increase of 16.4% during this period. Luxury sector companies mainly include companies active in the gems and jewellery sector, beverages and distilleries. These two sectors were followed by the hike in employee costs in the companies active in the commodity and consumption sectors with a hike of 13.4% and 13.3% respectively.
But in some other industries and sectors such as infrastructure and utility sectors (which include telecom and related service companies), the increase in employee cost was in the single digits. While for infrastructure companies it was 5.9%, for telecom and other services companies, the increase in employee cost was just 3.7% on a year-on-year basis during this period.
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Impact of the low base of the first pandemic year
According to the study, the increase in the employee cost during the last financial year was a result of the low base of FY 2020-21 when the country witnessed the world’s most stringent lockdown in April-June which was somewhat relaxed in July-September 2020 period, the first Covid year.
The study showed that the combined median growth rate of employee cost during FY 2021-22, the second Covid year, was 13.1%, which is the highest during the last five years (FY-2017-22). However, the research showed that the upswing in growth in employee cost was more of a statistical aberration which was driven by the low base in FY 2020-21 witnessed during the first Covid year.
According to the authors, a more realistic picture emerges when the growth during the second Covid year (FY 2021-22) is compared with the growth in employee cost during the last three pre-pandemic years – FY 2017-18, FY 2018-19 and FY 2019-20.
If the growth in the employee cost in FY 2021-22 is compared with the average growth during the three financial years before the lockdown, even then the Information Technology sector still had the highest growth rate at 9%, followed by the health sector at 7.1% and commodity sector at 6.3%. Moreover, none of the sectors except the IT sector has seen an average growth rate better than the pre-pandemic era despite the favourable low base of FY 2020-21 when the country was under strict lockdown for a significant period and the economic growth had declined by over 6% as a consequence.
Methodology
According to the authors of the report, the analysis does not consider new employee addition or reduction, which would have only strengthened their hypothesis. “Therefore, any increase in employee cost is a function of an improvement in the payment to employees,” said the study.
