India's Manpower Shortage in Skilled Labor Threatens Expansion

By Abhay Singh and Subramaniam Sharma

Aug. 21 (Bloomberg) -- Karthik Agashe, a 27-year-old software salesman, has changed jobs four times in his 4 1/2-year career. Manjit Singh, 29, who met Agashe in 2005 when they worked for U.S. software maker Oracle Corp. in India's technology hub of Bangalore, has had three jobs in 3 1/2 years.

Each switch boosted the men's salaries by an average of 40 percent, to about $20,000 apiece. Both are ready to jump ship again if their current employer, whom they decline to name, doesn't transfer them to the U.S. so they can get more sales experience -- and another raise.

Is their job-hopping mercenary? ``Absolutely,'' says Agashe, seated in the coffee shop of the Taj Residency hotel in Bangalore. ``I get into a job, I expect certain things,'' he says. ``If it doesn't happen over a period of time, this is not the place for me to work. I'll search for a better company.''

Agashe and Singh -- young, educated and mobile -- are the faces of India's boom. They've helped spur the fastest growth in more than five decades -- an average of 8.6 percent a year during the past three years. They invest in stocks, hang out at Western- style malls and catch such movies as ``Live Free or Die Hard,'' fostering an image of India as a rising economic power.

Bogus Theory

With 54 percent of India's population of 1.1 billion made up of people age 24 or younger, outsiders view the country as flush with English-speaking workers who can fill advanced jobs in technology, medicine and finance and attract foreign investment, says T.V. Mohandas Pai, director of human resources at Bangalore- based Infosys Technologies Ltd., India's second-largest software services company. That perception is wrong, he says.

``The demographic dividend theory in India is bogus,'' Pai says. ``They are not trained people.''

Agashe, Singh and others with the know-how employers require are rare. And their successes are masking a potentially crippling shortage of skilled employees that threatens India's economic growth, Pai says.

``This is the single biggest factor that is going to hurt India,'' says Pai, 48, who wants to hire 26,000 people during the year that ends on March 31, 2008, to add to Infosys's 76,000 employees.

``It is not the lack of power, because you can set up a generator. It is not lack of roads, because it will take you an hour more. It will not be an airport, because you can fly from many places. It is lack of qualified people.''

Precious People

Along with Infosys and other Indian companies, scores of international firms such as Citigroup Inc., General Electric Co. and Google Inc. are looking to India for engineers, accountants and programmers and coveting people like Agashe and Singh.

India's expansion -- and the expectation that it will continue -- has lured asset managers such as Janus Capital Group Inc. Its $8.7 billion Overseas Fund jumped 55 percent in the year ended on June 30, ranking it first out of 1,024 funds that invest in stocks outside the U.S., according to the company's Web site.

Goldman Sachs Group Inc., the world's most profitable securities firm; Morgan Stanley, the No. 2 securities firm; and JPMorgan Chase & Co., the third-biggest U.S. bank, are all buying shares of Indian companies, pushing the benchmark Bombay Stock Exchange Sensitive Index to a record 15,794.92 on July 24.

India's manpower shortage threatens to dampen the frenzy. Underneath the growth is a gap between India's haves and the larger percentage of have-nots.

Millionaires, Illiterates

The number of Indian millionaires rose 20.5 percent in 2006, the fastest pace after Singapore's 21.2 percent gain, according to the June 27 World Wealth Report by Cap Gemini SA and Merrill Lynch & Co. At the same time, about 40 percent of adults in India are illiterate. Only 10 percent of Indians ages 18 to 24 are enrolled in higher education compared with 45 percent in developed countries, Prime Minister Manmohan Singh said in a June speech marking the 150th anniversary of the University of Mumbai.

Those who do graduate from college aren't good enough for most jobs, says Sanjeev Bikhchandani, chief executive officer of Info Edge (India) Ltd., which runs naukri.com, the country's biggest employment Web site. Naukri means job in Hindi.

In-demand job-hoppers such as Agashe and Singh, who have master's degrees in business management, are increasing companies' attrition rates to more than 20 percent a year, according to the Associated Chambers of Commerce and Industry of India.

Twenty-four percent of India's information technology workers left their firms in 2005, Lincolnshire, Illinois-based human resources consultant Hewitt Associates Inc. says.

Rising Salaries

India's middle class, which New York-based consulting firm McKinsey & Co. defines as people with annual disposable income of $4,380-$21,890, has more than doubled to 50 million in the past decade.

At the same time, 54 percent of the population earns an annual household income of less than $1,970 a year, or $5.40 a day -- putting Agashe and Singh and their $20,000 salaries ahead of most. According to McKinsey, $21,890 in India equals $117,650 in purchasing power parity, which corrects for differences in price levels between nations.

To keep skilled employees, companies in India are boosting salaries at the fastest pace in Asia. Wages are likely to surge an average of 14.5 percent in 2007 after a 14.4 percent rise last year, Hewitt predicted in March. Companies may start investing elsewhere -- such as in China or the Philippines -- where average wage increases are 8-9 percent a year, Hewitt said.

``If you don't fill the gap -- and I mean today, because the problem is already becoming pressing -- it will cause companies, multinationals and others to think twice about setting up operations,'' says William Nobrega, president of the Conrad Group Inc., a Miami-based firm that advises U.S. and European companies on investing in India and Brazil.

Trailing China

Chakri Lokapriya, who manages $534 million at BNP Paribas Asset Management in London, says illiteracy is one reason India trails China's 11.1 percent growth.

``China's GDP has grown faster than India's for many years because in part it recognized and addressed literacy levels,'' he says. In China, the literacy rate for people older than 15 was 90.9 percent in 2000, according to the Montreal-based Unesco Institute of Statistics. In comparison, 61 percent of Indians that age were literate in 2001.

Beyond India's looming manpower crisis, the gap extends to health care, housing and sanitation. India has among the world's highest prevalence of underweight children at 47 percent compared with 28 percent in sub-Saharan Africa, according to the United Nations Children's Fund. About 22 percent of the country's 193.6 million households don't have safe drinking water, the 2001 Indian census found. Singh's government plans to spend 1.76 trillion rupees ($43 billion) by 2009 to help rural India modernize.

Government Control

Pai says India's greatest calamity is the government's failure to improve education. India, which gained independence from British rule in 1947, still hasn't succeeded in providing universal elementary education. The percentage of first graders who continue to the fifth grade was 78.5 in 2003, according to the South Asia Economic Report by the Asian Development Bank. The global average is 86 percent.

``Excessive control on education by government has been one of the biggest flaws,'' says Ajit Gulabchand, managing director at Hindustan Construction Co., a Mumbai-based engineering and construction firm. ``The numbers being educated are far too low compared to what India would normally require.'' India's soaring growth puts an extra burden on the workforce, Gulabchand, 59, says.

In Ganangur, a village of about 1,500 people 30 kilometers (19 miles) northeast of Mysore, the primary school is one of the better ones. The single-story building, built in 1950, has five rooms and a sloping tile roof. The classrooms each have rows of benches and attached desks, a blackboard and a cupboard. The government supplies textbooks, a midday meal and uniforms.

Barefoot Children

On a July afternoon, the children stare excitedly at visitors. The boys wear khaki pants and light-blue shirts, and the girls wear dresses. Some of the students are barefoot. During summer, when the outside temperature reaches 35 degrees centigrade (95 degrees Fahrenheit), there's no electricity from 6 a.m. to 6 p.m. while children are present.

Most people in Ganangur are either farmers or laborers who earn about 100 rupees, or $2.50, a day. The village got its first high school last year. Before, students who wanted to continue on to grades eight to 10 after primary school had to travel 10 kilometers each day to attend another village's high school. Most boys at the high school will attend nearby colleges, and most girls will drop out and get married by the time they're 15, says Krishna Kumar, who teaches English and history at Ganangur.

Below Average

``Because of mass media -- television, computer, newspaper -- the parents get some knowledge, and they are eager to send their children to school, even though they themselves are illiterate,'' Kumar, 38, says.

India's federal and state governments, municipalities and village committees control and fund 90 percent of schools for grades one to five, 72 percent for grades six to eight and 41 percent for high schools. Most universities are government controlled -- and in poor shape.

``Almost two-thirds of our universities and 90 percent of our colleges are rated below average on quality,'' Singh said in his June speech.

Christ Church College in Kanpur, 434 kilometers southeast of New Delhi, opened in 1866. In August, the red-brick buildings have no electricity. Paint peels from the walls of the theater- style lecture rooms, which have six rows of wood-and-iron benches for about 90 students.

``The classrooms haven't changed in two decades,'' says Ramit Mitra, head of the economics department.

Prized Hires

Salaries set by the University Grants Commission, an arm of the government, discourage teaching as a profession. Without a college degree, an employee at a call center can make 30,000 rupees a month after a few years -- twice as much as a university lecturer.

``We are not getting faculty,'' says Kalyani Gandhi, chairman of the Nadathur S. Raghavan Centre for Entrepreneurial Learning at the Indian Institute of Management Bangalore, one of the country's premier management schools. The Bangalore college has positions for 110 teachers. There haven't been more than 80 for the past few years, she says.

The country's six Indian Institutes of Management turn out a total of about 1,500 graduates a year, making the students with their master's-level degrees prized hires.

In 2007, the 235 graduates of Indian Institute of Management Ahmedabad received 493 offers from 91 firms, according to its Web site. Of the offers, 120 were from overseas, up from 86 in 2006. Students accepted 64 of the foreign offers at salaries as high as $300,000. Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, made the most offers at 17. It got 14 acceptances.

$17 Billion Market

Permitting foreign universities to operate in India would improve quality and enable more students to attend, Conrad Group's Nobrega says. Singh's government deferred introducing a law to allow international universities to open campuses after its communist allies opposed the idea. The July 29 issue of People's Democracy, a weekly magazine of the Communist Party of India (Marxist), says foreign institutions would lead to commercialization and deterioration of quality.

``This is a country of a billion people, and there are people going to bed hungry at night,'' says Nobrega, who estimates that a $17 billion-a-year market for higher education awaits foreigners. ``The government is going to have to quickly embrace public-private partnership in education to bring in the best minds and bring in the capital.''

Arjun Singh, minister for human resource development, didn't respond to requests for an interview.

Engineers From Philippines

Strapped for employees and with the government at a standstill on foreign universities, Indian companies are courting workers from other countries, making training part of the on-the- job experience and trying to hold onto the people they have.

Hindustan Construction is bringing in civil engineers from the Philippines. In 2006, it put overseas expansion on hold for three years because that would have stretched it too thin, Gulabchand says. It's making do with fewer people and updating its job sites with cameras to monitor construction rather than assigning engineers to supervise.

``There was a time when engineers used to come very cheap,'' he says. A civil engineer with 10 years of experience gets about 1 million rupees a year.

Last year, the company boosted salaries 52 percent across the organization, the most in a decade. Even so, employees have been hard to land. Hindustan Construction has endured three instances in the past year and a half in which candidates accepted a vice president job, which pays about 15 million rupees a year, and then backed out because their current employers agreed to pay more.

`War for Talent'

``People are behaving in unethical ways,'' says Dinesh Mirchandani, regional managing director for Asia-Pacific in the Mumbai office of Boyden Global Executive Search, based in Hawthorne, New York. ``There is an absolute war for talent.''

Tata Consultancy Services Ltd., India's largest software services provider, plans to add 5,000 workers in Mexico because people aren't available in India, says Gabriel Rozman, who heads the Mumbai-based company's operations in Latin America, Spain and Portugal. In April, Tata raised salaries by 12-15 percent to stem defections.

Some Indian companies are luring employees with the promise that they can gain work experience while they earn a college degree. Genpact Ltd., an outsourcing company in Gurgaon that raised $494.1 million in an August U.S. IPO, attracted 18-year- old Manali Bhatnagar straight out of high school.

College a Waste?

``What's the point in attending college?'' says Bhatnagar, who works as a recruitment executive. ``Usually, there are no classes, or teachers don't show up. I did not want to waste three years of my life.'' Instead, she takes classes while working for Genpact.

As Pai carries out Infosys's hiring plans, he knows he'll have to train most of his 26,000 proposed new workers -- if he can find them. The company spent $145 million on training, or 4.7 percent of its annual revenue, in the year that ended on March 31.

``The information technology industry may be spending $1.5 billion a year on educating and training its people, half of which may not be required if the education system was up to speed,'' Pai says.

Infosys puts fresh graduate recruits through a 14-16 week boot camp at a 110-hectare (270 acre) campus on the outskirts of Mysore, 150 kilometers southwest of Bangalore.

The campus, a slice of developed-world nirvana in the heart of southern India, is a city in itself. Students stay in three- story dorm-like buildings, two to a room. The glass-and-concrete main education center features classrooms that bear the names of famous personalities such as Henry Ford, founder of Ford Motor Co., and Akio Morita, co-founder of Sony Corp. There's a computer for each student.

Finishing Touches

A short walk past landscaped lawns leads to the recreation center, which looks like a hacienda. It has a gym, a bowling alley, badminton and tennis courts, snooker tables, a supermarket and an open-air pool complete with deck chairs and umbrellas.

On a Friday afternoon in July, students mill around in jeans and T-shirts. Next door, there's a four-screen movie theater. The Floating Restaurant, surrounded by a fishpond, serves Indian and international dishes such as Indonesian nasi goreng, Thai vegetables and lamb, bean and artichoke stew.

Pai says the training center is essential to give Infosys's recruits the finishing touches -- how to dress, speak, use the correct cutlery during official dinners and master phone and e-mail etiquette to communicate with global clients such as Airbus SAS and Sears Holdings Corp. Because it can't find enough engineers, Infosys has hired geologists and turned them into software developers.

`Gray Hair'

``We have taken away all the civil engineers everywhere, and we are going to take away more of them,'' he says. ``We have taken away all the accountants everywhere, and we will take away more of them.''

Mahindra & Mahindra Ltd., India's biggest maker of tractors and sport utility vehicles, may be one victim of Pai's talent stealing. Pawan Goenka, president of Mahindra's automotive unit, wants the company to develop SUVs with as much global brand recognition as Land Rover's.

A lack of engineers is making that difficult, he says. The company designed and built the Scorpio SUV in 2002. Today, only about half of the 120 engineers who worked on it are still with Mahindra. The rest have moved to other industries such as telecommunications, Goenka says.

Singh's Dilemma

``Our biggest problem is we do not have enough experienced manpower to design the last 5 percent,'' he says, referring to the troubleshooting stage. ``The last 5 percent is not something you read in textbooks. It's what you get after getting gray hair. Unfortunately, before someone gets gray hair, he moves on because of the way the whole job market is churning in India today.''

Agashe and Singh are prime examples of the churn. As they debate yet another job switch, they have their resumes posted on job search Web site naukri.com. They say they're getting lots of interest from headhunters. A year after quitting Oracle, Singh says, the company phoned to invite him back to a better job at a higher salary. Oracle wasn't the only one.

``I get a call from a consultant who offers me the same role, with more money,'' says Singh, who shares an apartment with a friend. ``I'm in a dilemma: Should I take it, or should I honor my commitment to my present employer?''

Singh's dilemma is one symptom of his country's talent shortage. Key to India's economic future and its attraction to investors is providing the training and education that will produce millions more skilled workers like him.

To contact the reporters on this story: Abhay Singh in New Delhi at abhaysingh@bloomberg.net ; Subramaniam Sharma in New Delhi at ssharma@bloomberg.net