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Friday, Oct 18, 2019

AK-OMICS: Playing the cost arbitrage card

Even if Indian salaries escalate at 12 pc, while that in the West, increase at 3 per cent annually, it will take three decades for the salaries to converge, writes Ashok Kumar.

india Updated: Nov 16, 2007 22:37 IST
AK-OMICS | Ashok Kumar
AK-OMICS | Ashok Kumar

Today, the cost-to-company of a fresh engineering graduate in India approximates Rs 3 lakh per annum ($7,500), while in the US and Europe it is around $55,000-60,000. Now even if Indian salaries escalate at 12 per cent, while that in the West increase at 3 per cent annually, it will take three decades for the salaries to converge. So, how much further can salaries be raised?

Factors like talent acquisition, retention, motivation and specialised skills in an increasingly competitive environment are the prime reasons for the upward mobility of the salary bill. In fact, it has pushed up salary commitments of large firms to the tune of 65 to 70 per cent of their topline. For IT companies, compensation correction and salary increase along with innovatively designed flexi-benefit packages partly mirror a global package. So here too, the question remains - how much further can salaries be raised?

My hunch here would be, as much as it can be raised, while maintaining acceptable profitability. The position I come from here is that wages will adjust themselves each time they become too high.

A programmer with less than five years experience draws about Rs 5 lakh annually in Bangalore in a Tier I company. This translates to about $12,500 per year. Now, this is still 50 per cent of the salary levels in Singapore and thus a huge advantage.

The salaries in Ireland would be marginally higher than those in Singapore. The only country that has a similar cost structure to India is China. However, it cannot boast of an English language infrastructure, at least not as yet.

However, every entrepreneur would be only too aware that cost-advantage alone cannot drive business growth. The ability to anticipate future customer needs could well become the key differentiator. The ability of the newer generation to climb up the value chain faster and learn smarter is what will keep India's IT globally competitive.

Thus, irrespective of a rise in IT manpower costs over the long-term , indirect cost benefits like commitment, delivery, quality and value addition remain for companies hiring Indian professionals or outsourcing to India.

To maintain this edge however, it is important to appreciate the Indian education system that places a premium on science and mathematics. Most of the recent offshore centres started by large US technology firms are driven by the need to access the top quality pool in India as the US education system is clearly under strain.

Thus, dollar woes notwithstanding, it will not be cost benefit, but skill and the ability to conceive and execute very complex solutions in the global village that will be help Indian IT companies retain their existing first-mover advantage in the long run.

The author heads LOTUS KNOWLWEALTH and can be contacted at

First Published: Nov 16, 2007 22:33 IST

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