India: IT, Recession and More

Is the IT saga of India over? Are we seeing the demise of India's IT success story? Has the recession finally burst the IT bubble? These are questions that lurk in everyone's mind these days. These are important questions due to the visible effects this industry seemed to have for at least a decade. For the first time since independence, the best and the brightest chose jobs in private companies than government. A sense of the "harder i work, the more i earn" kinda sense started pervading amongst the youth. Also, the IT industry tended to erase the divisions created within govt departments due to the effects of Reservation (which simmers in the background in govt departments). But good things as all bad things don't last forever.

A sense of uncalled for over-confidence and euphoria started pervading. From being prudent savers (our parents are the best examples here) many became consumerist like Americans, running behind every gadget, latest cars. There is a problem when people take out a loan just to avoid taxes. It is all fine if these loans are short term and within someone's repaying capacity. But when a person making 50K-75K a month takes out 25-40L as loan for an apartment, it is mindless. They started believing this trend of sky high salaries will only keep growing. We all know what this has led to. A huge real-estate bubble. A 2400 sq.ft plot in suburban chennai going for more than a crore is a joke. A similar plot of land a couple of hours from chennai cost around 25 lakhs. You know it is a bubble when when a plot with no access to basic amenities like water, 24 hr electricity or public transportation costs that much. But everyone bought into the idea believing the IT boom would never end. With this recession, many would be either laid off or would be forced to take a pay cut which would drastically reduce the disposable income which in turn will affect the housing loans that our banks hold. This begs the question, are our banks in for some serious trouble like here in the US because of bad loans adding to our owes?

Our IT industry being what it is might have to go through a rough period because of this downturn. Even if it is able to make this through without much damage, the future for the IT professionals aren't looking great. When anyone from any background with a degree can either do a computer course or do a MCA to move into the field and given India's scale, we know there is going to be a too much supply than demand one day. The recession is only making it faster. This on the long run might help in keeping the wage arbitrage in favor of India, but the corollary is that the high pay packages associated with IT will be a thing of the past. Also, even before the recession there was a school of thought that said India is losing its edge due to wage inflation and shortage of qualified talent. In either case it is looking ugly.

How this is going to play out in the short/medium term? Given the US political compulsions and the steps being taken(US has removed the tax cuts for offshoring), the short term is very bad, especially people who are graduating from a variety of streams and who were planning to move to BPO or IT/ITES jobs. For people who are already working in this field, many would be able to ride this storm. However, there would be a significant portion of the workforce which would either end unemployed or under-employed for a sometime. For the lucky ones with jobs would have to take steep pay cut. Since the US tax incentive is out, the clients might push Indian companies to cut their margin which will surely affect the pay and jobs. All we can hope in the medium term is that this US would take all the right steps to avert this recession from becoming a depression. If the economies around the world start recovering by 2011, that would be good news. But the bad news is that no one knows how it is going to play out.

Many have worried during the boom times that the best minds from a wide variety of streams are moving to IT field because of the pay robbing other fields of quality manpower. This phenomenon is everywhere. But it always evens out, sometimes in very ugly ways. There is not much the government can do here unless it starts its older license raj days. If many of the industries are growing at similar rate and the rate of return is more or less equitable, it can prevent such exodus. But none of us want our govt to decide how many can go into CS and how many want to do accounting. Just like in the stock market and real estate market where we saw irrational exuberance, the IT job market nearly made a fool out of everyone to believe it will last forever. This is only natural. Some people might be very badly hurt in this process, but it is unavoidable.

In a way this recession might be a boon in disguise. The real estate market and the high inflation made it almost impossible for people who are not into IT to lead a decent life in the metros. This drop should bring back the prices to levels where the rest can at least think of educating their children, much like my father who though was not earning much was able to afford good education for me and my brother. Doing the same job he would not be able to do that again now. So, in a larger sense the society can have a sigh of relief and other fields might look equally lucrative if not better.

The biggest worry for the government apart from the slowdown in the economy is to find ways to employ the young and unskilled in the long run. India in a few years would have the highest number of youth in the working age. It already is the youngest nation. For whatever its worth IT/ITES industry employed barely 2 million in all these years. Some might argue that due to the high consumption of the IT types there would be a trickle down effect which is true, however, as we are seeing this is not enough or a long term solution. Do i have a solution for this? No. Investing in infrastructure, agriculture and other social development projects which could employ unskilled youth in large numbers can be a start.

If this demographic is forgotten, we would only see outfits like VHP, Bajrang Dal, Ram Sena (and their political masters) recruiting these disgruntled youth for talibanisation of India. We are already seeing this with the Mangalore incident and all the valentine day episodes. If India is to avoid a Maoists take over like in Nepal or talibanisation of our country in the name of Hindu culture or naxalism becoming an all India phenomenon, it has to act with a longterm vision. People who claim that we have survived this long and we will survive in future forget the difference between surviving and living. When more than half the population is surviving with less than what many pay for a coffee each day, there would be a backlash sooner or later. If unemployment, recession, climate change, water problem all start to hit together we won't be in a position to respond to any of them. But here i am hoping that would be the worst case scenario and we would never have to deal with all of them together. We will surely have to face each of them for sure.

Rahman and Pookutty are atleast a couple of reasons to cheer about in spite of the dire mood of the post :-)