Rising Wages, Skills Shortage Threaten India's IT Industry

April 2, 2007
IT firms will need an additional 1.6 million software programmers and other engineers to raise combined revenue to $72 billion in the next five years.

India's $48 billion information technology industry is facing rising wages and a shortage of skilled workers, experts said. Rivals such as China and the Philippines are set to challenge India's dominance, which is also being eroded by IT employees jumping jobs for higher pay, a rising rupee and deficient infrastructure such as telecom connectivity, roads and ports.

"These are issues the industry has to deal with in a globalized world," Kaushal Sampat, chief operating officer of the Indian unit of Dun and Bradstreet, said. "You can't look just at the positives, thump your chest and say you are the champion."

Dun and Bradstreet released over the weekend its first report on India's information technology industry, which has risen in the past decade on the coattails of software firms such as Infosys Technologies, Wipro, Tata Consultancy and Satyam.

The appreciation of the rupee, which rose last week to an 11-year-high against the dollar, employee turnover rates as high as 25% and a shortage of skilled workers estimated at half a million by 2009 as wages rise 15% a year are the key risks, said the report.

"Limitations in domestic infrastructure and competition from other global players offering manpower at low cost like China, Philippines and Vietnam can (also) have a negative impact on the performance of IT companies," it added.

These factors are countering positives such as worldwide growth in IT spending, which is forecast to rise at 7% annually to 2010 to exceed two trillion dollars, and the opening of new markets in Europe.

V.K. Magapu, chief executive of L and T Infotech, an arm of Indian engineering firm Larsen and Toubro, said half-a-million people were employed by IT companies when the industry's annual revenue was $14 billion, less than a third of the current level. IT firms will need an additional 1.6 million software programmers and other engineers to raise combined revenue to $72 billion the next five years, Magapu said.

India's IT talent pool and wage costs that at one point were a fifth of those in the US and Europe have attracted global companies. IBM has announced it will invest $6 billion in India in the next three years; Intel wants to spend more than $ 1 billion, Cisco $1.1 billion and Microsoft $1.7 billion.

Typically, 50% of the spending by IT companies, including those in software and related services, business outsourcing and computer hardware, is on wages.

In the 1990s, Infosys, Wipro and other Indian IT companies leveraged on their then low labor costs and plentiful supply of skilled workers to win business from overseas customers who contribute more than three-quarters of the industry's total revenue. But now with a shortage of such graduates, the country needs to make a more difficult transition of training arts and commerce graduates in technology skills, said Magapu.

Copyright Agence France-Presse, 2007

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