A spiralling wage bill has ruined the software sector's profit party. The sector posted its first decline in net profit in 2002-03, with the figures of major firms going down 8 per cent on a 26.8 per cent rise in their wage bills.

The unbridled growth in wages also affected the growth in sales, which, at 10.73 per cent was lower than last year, largely due to lower realisation in business process outsourcing and the appreciation in the rupee.

The wage bill of 34 software firms accounted for 35.03 per cent of sales in 2002-03, against 30.58 per cent in 2001-02.

Assuming last year's 30.58 per cent as a constant salaries-to-sales ratio, the increase in salaries has imposed an additional burden of Rs 800 crore (Rs 8 billion) on these firms.

The rise in the wage bill was mainly on account of a major hiring spree of software engineers by the leading firms.

Infosys Technologies, which saw a 50 per cent rise in its wage bill, increased its staff strength by 4,618 in 2002-03 from 10,738 in 2002 to 15,356 in 2003.

As a result, the share of salaries in sales revenue increased from 42.94 per cent in 2001-02 to 46.29 per cent in 2002-03. Infosys' net profit moved up by 18.56 per cent on a sales growth of 39.14 per cent.

Wipro's profits declined by over 3 per cent despite a 16.29 per cent rise in sales  in 2003. This was largely because of the 40.98 per cent rise in salaries and travelling allowances. Wipro' staff strength increased from 16,000 in 2001-02 to 18,000 in 2002-03.

Satyam Computer also showed a 6.17 per cent decline in net profit despite a 16.84 per cent rise in revenue. The company has added 1,125 employees in 2003, which led to a 24.26 per cent rise in salaries.

GTL's net profit was down 17.65 per cent on account of a 7 per cent rise in its wage bill. HCL Technologies suffered a 5.82 per cent decline in net profit largely due to a 28.82 per cent rise in its wage bill.