Indian Wage Increases

Indian wage levels are on the ascendant ... There is no doubt about that. When I graduated from Pilani, most of us would have been happy with a 20,000 Rupee job (This was in May 2002). This situation has definitely changed, with software companies starting at 35,000 and upwards - An interesting consequence of this is that Engineering companies have been forced to pay better as well !

And of course, as one gains experience, there is an exponential growth in wages. I have been trying to recruit a manager with about 6 years of experience and folks that apply are asking for a minimum of 12 lakhs pa !

Often, I have found myself worrying about this, and the seemingly obvious negative effect it would have on India's economy. However, this might not be true ....

Rising wages in India are getting a lot of press in the US, and it has even found it's way into the pages of Playboy ! A blurb article on that magazine declared that India's marketshare in the off-sourcing market would drop to 40% due to an anticipated 50% increase in wage levels by 2008.

Yesterday, during a sales call I was making, an executive at a company asked me how we were going to manage these increases and whether India would still be competitive in 5 years time. A bulb suddenly went off in my head - Productivity !

Cost is only one piece of the picture. If you can increase productivity, increases in cost (to an extent) can be absorbed. And I strongly feel (Though I have no documentary evidence), that Indian productivity has increased in the last few years due to ...

• Better internet connectivity
• Improved telecom
• Better training
• Education system becoming more job-oriented
• Better management techniques
• Software re-use
• Move from "service" to "product"

That is the way for India to retain competitive advantages - By increasing productivity ...

However, let us contrast the situation with China for a second ... China's growth has been predominantly driven by manufacturing. Wage levels have not appreciated by much in that country due to the large worker pool and artificially controlled labor pools/salaries.

However, if these above factors are removed, China would be under significant risk of losing competitive advantage, because in order to increase productivity in manufacturing, one of the most effective methods would be "automation" - Which would negate the reason for off-shoring to China in the first place !

I realize that this is a very superficial analysis, but then, I am not an economist !! However, I certainly feel a lot better about the future of India vs. China ...