Rising salaries threaten Indian outsourcing industry

Soaring salaries and poor quality of manpower are prompting foreign firms to shut their outsourcing operations in India. US-based Apple Computer and software maker Pervasive have been joined by Powergen, a British subsidiary of German energy supplier EON, in announcing the closure of their centres in India's technology hub of Bangalore.

The National Association for Software and Service Companies (Nasscom), India's premier software body, said salaries of freshers had shot up between 11% and 15% in the past few years while wages for senior managerial positions had risen by a whopping 30%. Analysts said labour arbitrage for India existed only at the entry-level where engineers earned about $9,000 a year – about 1/7 of the wages being paid to their counterparts in the United States.

Other than steep salaries the quality of manpower is also proving to be a challenge for technology firms. According to Nasscom more than 3 million graduates pass out of colleges every year and India produces 400,000 engineers annually but "of this only a very small percentage is employable".

Sunil Mehta, vice president of Nasscom, said despite the hurdles India still dominated the outsourcing industry and domestic and multinational companies operating in the country were turning profits. "Those companies which employ fewer people and do not take advantage of economies of scale are the ones that are facing problems," Mehta said.

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