View from Delhi: Indians may now move into R&D

The backlash against outsourcing took a serious turn in the US last week when the state of Indiana scrapped a $15 million software contract to a well-known Indian company. The company is TCS America, a US subsidiary of Tata Consulting Services, the largest software company in India, bigger even than Infosys Technologies.

The contract, which was with the state's department of workforce development was cancelled by the state's new governor, Joe Kernan. This was part of Kernan's recently launched initiative under which the state government has decided to re-open its earlier contracts for purchase of goods and services, including outsourcing of software.

This is the first time a contract with an Indian company has actually been cancelled, though several US states have recently passed legislation to review such contracts. The intention is obviously to help domestic companies and workers. TCS has said that they are still studying the legal implications.

There are at least a dozen US states which have passed laws on the lines of Indiana though they have not acted on them. Most of these states, including Indiana, do not have companies in the IT services business large enough to take on such jobs. It is, therefore, very likely that the work will be outsourced again, and may still come to India through a different route.

Indian software companies work mainly for clients in the US and are in fact dependent on them. It brings in something like $12 billion a year, a large sum that amounts to nearly a quarter of India's total export earnings.

The workload has become so heavy that the companies have been recruiting software engineers by the thousand every year. The total software workforce is now more than half a million.

The main reason for India's success in software programming is the vast difference in salaries. An Indian software worker makes around a sixth of what an American makes. A top class Indian software engineer makes about Rs25,000 to Rs50,000 or $500 to $1,000 a month. His American counterpart takes six to ten times as much for the same quality of work.

In fact, Indians may now move into research and development (R & D) which used to be American specialities. General Motors recently set up a $21 million automotive laboratory in Bangalore, its first outside the US.

The automotive industry is growing rapidly in India and will soon touch the million-vehicles-a-year mark. Several Indian auto companies have acquired firms in Europe and the Far East which they propose turning into hubs for their exports.

Indians have a natural aptitude for mathematics and even schoolchildren are taught to make complex calculations without using calculators or computers.

In states like Andhra Pradesh and Goa even primary schools are provided with computers, so that by the time students reach engineering colleges they are thoroughly familiar with computer technology.

Until recently, most Indian engineers who graduated from elite institutions like IIT (Indian Institute of Technology) went abroad for jobs and generally stayed there. But this trend is now changing. Many are now returning home to start their own companies or to work for Indian companies like Infosys and Tata. They are not all that bothered about what is happening in the US, though it is indeed a setback.

The writer is an India-based senior economic advisor