India’s IT Sector and the Looming Staffing Crunch

     India’s IT sector has been the most dynamic contributor to the country’s growth, fueled in large part by the country’s talented, well-trained, English-speaking workforce.  Having developed a small but efficient domestic IT industry in the 1980s and early 1990s, India was well-positioned to take advantage of the rapid expansion of international telecommunications capacity that created a global market for BPO. Over the past decade, India has attracted a disproportionate share of this business.  Initially the country’s success was built on providing lower-level functions such as call centers and large but routine programming projects; over time, Indian companies have been taken on increasingly sophisticated projects.

     India’s IT revenues (including ITES and BPO revenues) have nearly doubled in the past two years.  Revenues are projected to increase 26 percent in fiscal year (FY) 2007, reaching a total of US$39.7 billion, up from just US$16.7 billion in 2004 (see table below).

 Source: National Association of Software and Service Companies (NASSCOM)

     As India’s IT sector expands, the workforce it employs will also need to grow.  The companies in this sector currently employ more than 1.2 million workers, according to S. Gopalakrishnan, President and Chief Operating Officer of Infosys Technologies Ltd. To sustain the growth they expect, IT companies will have to add 390,000 workers in FY 2007, more than 500,000 in FY 2008, and 660,000 workers in FY 2009 (see table below)—more than doubling the total workforce in just three years. In other words, the industry will grow as much in the next three to four years as it did in the past 25 years. 

Source:  (NASSCOM)

     According to Gopalakrishnan, IT industry leaders realized in the 1980s that Indian IT companies would not be able to continue to grow by recruiting only workers with formal training in computer science, electronics, and telecommunications.  Initially, they began to recruit engineers from other fields – civil engineering, mechanical engineering, and aeronautical engineering – and then converting them into software engineers by providing them with additional training on the job.

     Because many graduates lack the strong IT-specific skills that employers need, the amount of training that is being done by IT companies is substantial and growing.  India’s colleges and universities currently produce fewer than 100,000 graduates in computer science each year.  The number of engineering graduates from four-year programs is about 270,000 people annually.  Adding graduates of two- and three-year diploma programs, the total number of graduates is about 500,000.  According to India’s National Association of Software and Service Companies (NASSCOM), however, only about 150,000 to 200,000 of these graduates are fully qualified to work in the kinds of challenging jobs that exist in the IT sector—well below the number of new hires the industry needs to continue growing as fast as it believes it can. 

     In the past five years, Indian IT companies have begun to recruit even more broadly for new hires, looking beyond engineering and technical graduates to students with degrees in management and other nonengineering fields.  In addition to 500,000 “technical” graduates, India’s higher education system produces 2.3 million graduates in the humanities and other nonscientific fields  To secure enough staff with the right skills, however, India’s IT companies have had to make substantial investments in training and retraining workers.  In the past four years, for example, Wipro, one of India’s largest IT companies, has increased the size of the faculty in its internal training division from four people to 116 people.  K. S. Vishvanathan, Senior Vice President and Chief Executive of India Operations for Wipro, noted that this massive expansion was directly related to the company’s inability to recruit enough new workers who come to the company prepared with the right set of skills.  Infosys is reported to have 4,000 workers in training at any one time to meet the company’s staffing needs.

     Even with these efforts to provide additional training, Gopalakrishnan acknowledged that finding half a million or more qualified new workers each year will not be easy.  He also noted that by themselves, the companies represented at the roundtable in Chennai would probably be attempting to hire 150,000 to 200,000 new workers in the coming year.

     India needs more than just technical workers; it also needs people with the management skills to help run its rapidly growing companies efficiently.  Lakshmi Narayan, Vice Chairman of Cognizant Technology Solutions, estimated that his company needed to hire one MBA for every 40 technical people that it hired.  However, the number of MBAs produced by the Indian educational system is not keeping pace with the needs of industry.

     To further exacerbate the human resources challenge, many IT companies are attempting to move from providing low-cost, routine, “commodity” services to offering more value-added, knowledge-intensive services, such as research and development (R&D) and business process consulting.  Increasingly, India is not only providing “back room” operations for companies in the United States and elsewhere around the world, it is becoming an attractive destination for major corporate operations, including R&D activities.  How far India’s high-tech sector has come is dramatically illustrated by the commitment that Cisco Systems has recently made to expanding its presence in the country. According to Laura Ipsen, Cisco’s Vice President for Global Policy and Government Affairs, Cisco has decided to invest $1.1 billion in India.  The company will also locate one-fifth of its top talent in India and triple its total workforce in the country to 10,000 people over the next three to five years.  In addition to establishing a pilot manufacturing capability in Chennai, Cisco is planning to make India the hub for developing key technologies in routing, software, and network management.

     As companies such as Cisco expand into more sophisticated operations, they will have to recruit more workers with advanced degrees. However, India produces only about 6,000 PhDs each year in the sciences and engineering (compared to about 25,000 science and engineering doctoral degrees in granted in the United States in 2003).   Ironically, the IT industry’s success has exacerbated the problem of recruiting people with advanced degrees: More Indian students would probably chose to enter PhD programs if they were not so heavily recruited to attractive jobs in IT when they receive their bachelor’s or master’s degrees. 

     Finally, although IT companies have led the revival of the Indian economy, they are no longer the only players in the field with regard to competing for qualified workers.  Shamsher S. Mehta, Director General of the Confederation of Indian Industry (CII) and trustee of the Aspen Institute India, pointed out that as the economy expands, other sectors are beginning to grow and exert their own demand for workers.  For example, the bio-pharmaceutical sector is beginning to grow rapidly. Repairing and improving the country’s infrastructure is expected to involve approximately $350 billion in investments over the next five to seven years. Healthcare and financial services are also beginning to expand.  General Mehta noted that engineers and other well-trained graduates who are choosing to work in the IT sector today because it offers the most attractive opportunities may make different choices in the future as other sectors compete more aggressively for new employees.

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