Go East, young man!

A labour crisis is threatening India’s extraordinary economic boom. Are we witnessing the rebirth of a super state?

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By  Stephen Corley Published  April 23, 2006

|~||~||~|A labour crisis is threatening India’s extraordinary economic boom. Are we witnessing the rebirth of a super state? Like the young Americans who flocked to Eastern European cities such as Prague and Budapest after the fall of communism, US college and business school graduates are heading to the world’s second most populous nation to be part of its historic economic expansion. Desperate to meet growing demand for software engineers in India’s high-tech hub, headhunters are even adopting the concept of “speed dating” to job recruitment. Infosys, India’s second largest software supplier, which has about 50,000 employees worldwide, aggressively recruits foreign employees and interns, hoping its international work force will help it compete in the global marketplace. Each year, more than 10,000 applicants apply for its 100-plus internship spots and there are currently more than 800 US graduates working in IT in Banagalore, the nation’s self styled IT hub. India’s economy still trails China’s in size and growth rate but unlike China, English is widely spoken, making its culture and career opportunities more accessible to foreign workers. After India ended its long tradition of industrial protectionism fifteen years ago, a US style pragmatism enveloped it’s commercial ethos and it embraced the US style, “can do” approach to business. Now annual growth is 8%; one in every three IT experts is Indian and Indians run every sixth firm in Silicon Valley. As an ethnic group, Indians are the most successful in America. India’s share of world trade, which had fallen from 2% at independence to 0.4% in 1980, now stands at over 1%. You have to wonder then why George W. didn’t visit earlier. After all, his ratings are higher there than virtually anywhere else at present, including home. He may not have got around the country in the schmaltzy manner of his predecessor but his landmark deal, offering the sub continent the opportunity to import civilian nuclear technology and build atomic power stations, gives India the prospect of a critical step away from oil dependency. Oil, at over US$60, is a huge economic hit to India, one of the more inefficient energy importers in Asia and annual crude costs come in at around US$43 billion. The country would have a US$4 billion trade surplus if those imports were excluded. Globally there is a huge exodus of NRIs and these RRIs (recently returned Indians) are changing the way India thinks and works. The country has embraced economic reform despite the swings in political leadership. The economy has averaged 8% growth during the past three years, driven by the rapid expansion of its software, IT and business-process outsourcing industries. Industrial and services sectors are expected to sustain the growth momentum, helped by cyclical factors, rising rural incomes and increased public spending on physical and social infrastructure. However, the bubble is likely to burst unless India addresses its labour crisis. Indian companies are investing in new capacity, but face an acute shortage of management talent to execute their plans. A recent study warns that it may lose almost half of its market share by 2007. In the cutthroat world of outsourcing, it is perpetually vulnerable to competitors. Dubai, so long a net beneficiary of India’s combination of entrepreneurial zeal and cheap labour, now promotes itself as an outsourcing base. The UAE continues to gain as the pace of development here offers more opportunities for returning Indian professionals to get closer to family ties, often at better salaries and without the tax headache. Meanwhile, countries from Hungary and the Philippines to Malaysia and China are competing for lower-end work. For the moment though, investors are afraid of missing out. Indian mutual funds raised nearly US$4 billion in the first quarter, compared with US$242 million for the same period last year. The Sensex is trading at an average of 20 times expected 2006 earnings after a meteoric three year rise and in a scenario eerily reminiscent of recent activity in the GCC stock markets, there is simply too much money chasing too few stocks. Unfortunately, overseas investments account for three-quarters of new funds flowing into the market. This year, Morgan Stanley reckons foreigners will invest US$20 billion in India’s stock market, nearly double last year’s figure. Corporate earnings have been running at 15% but there’s little room for companies to make mistakes. Interest-rate hikes could also hurt. In the past two years, India’s central bank has raised rates three times, taking short-term rates to 6.5%, the highest level in two years, while US rates are at a five-year high with more to go. For a country that reveres the cow, it’s ironic that the bulls may be about to be led to the slaughter. Stephen Corley can be contacted at corley@emirates.net.ae ||**||

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