Wage Inflation...not to Worry

Widely acknowledged by the outsourcers themselves and until now kept at bay by strong growth, the continual increase in salaries at top Indian companies (tech specially) is changing from annoyance to a present danger. Indian companies are no longer merely competing with one another for the best and the brightest, they must also compete with other MNC opened shops in india.

Why its not to worry? because:

• The rising costs will turn away the benefits of India. Even if the wage inflation rate continues to grow at the present rate, then only in 2032 will there be an overlap with the rates of U.S.
• wages paid to workers in India represent such a small percentage of total costs for companies that operate there, a 15% increase in salaries results in no more than a 2% rise in prices charged for IT services, says Narayanan. That's well below the current U.S. inflation rate.
• IT suppliers in India, for example, are lowering their costs by moving to 'tier two' cities--away from traditional high-tech centres- and opening delivery centres in other countries.

RBI is keeping eye on it - the wage disparity between the U.S. and India remains vast, and it's going to take many years of double-digit inflation in India for that to change. till then relax.

but our worries are : Remaining in position of low-cost workfoce is NOT something great and to be proud of. heap low-cost IT work which only means the nation will remain a poor developing country for another decade or so.

• The cost of outsourcing to India is the cost of maintaining a sufficient stable quality of product from India.
• Wage inflation isn't the issue here - staff stability is. As wages go up, and the supply of qualified labor goes down in India, the job hopping that will occur will be as bad there as it was here in the early 90's. This will have a further deleterious effect on product quality and quantity out of India.
• This will put almost instant pressure on margins for companies. They will have to work incentives and bonuses just to get key staff that are trained and up to speed on key client projects to stay on board.
  

The timeframe will be compressed. It's not going to take India as much time. Witness the evolution of the middle classes in the Asian Tigers in the 90's. It didn't take long for China to start robbing Malaysia, Taiwan, and Thailand of manufacturing business that made its way originally from Mexico.

In other words, India's future as the tech industry's top outsourcing hub rests not so much on whether it can continue to offer the lowest costs--that seems probable--but whether it will produce enough skilled graduates to ensure that the work is done at acceptable quality levels.