LABOR SHORTAGES EMERGE IN SOUTH INDIA

UNCLAS SECTION 01 OF 02 CHENNAI 000317 SIPDIS SIPDIS STATE FOR EB AND SCA/INS USDOC FOR ANESA/OSA/LDROKER/ASTERN E.O. 12958: N/A TAGS: ECON ELAB EIND EINV EFIN PGOV IN SUBJECT: LABOR SHORTAGES EMERGE IN SOUTH INDIA REF: CHENNAI 00289 ¶1. SUMMARY: Five years of rapid economic growth in south India has increased the demand for skilled labor. Businesses are aggressively recruiting talent from elite schools, at the same time training up recruits from lower ranked institutions in an effort to get them ready to contribute. But the region is beginning to experience labor shortages and wage inflation, threatening one of south India's major competitive advantages driving its recent growth. END SUMMARY. -------------- RAPID GROWTH LEADING TO LABOR SHORTAGES -------------- ¶2. The rapid growth of south India's automotive, textile, pharmaceutical, and information technology sectors has stretched the region's strong human resource base (reftel). A survey by the Confederation of Indian Industries showed 18% growth in revenues for the automotive sector and 25% for information technology for the period of October 2006 to March 2007. A University of Madras study reported that growth in these sectors ranged from 15% to 65% per year between 1997 and 2002. According to the University of Madras study, strong growth has resulted in labor shortfalls ranging from 5% to 15% (depending on skill level). Contacts from across all sectors report that skilled labor is becoming increasingly scarce. ¶3. Labor shortages have had impact on wages. The Deputy Registrar of the Indian Institute of Technology (IIT) Madras told post that starting salaries for its graduates had jumped by 30% between 2005 and 2006. He attributed the increase to recruitment of IIT graduates by major multinational financial institutions such as Goldman Sachs, Credit Suisse, and Lehman Brothers. He said that more than 200 over the 1,200 graduates in the class of 2006 were hired by such financial institutions. ¶4. Reversing the normal flow, labor shortages have forced some Indian information technology (IT) companies to look to the United States for talent. Tata Consultancy Services is in the process of recruiting 1000 graduates from colleges across the United States. Infosys Technologies has over 200 U.S. citizens in an orientation program at its Mysore facility. This effect is not limited to the big players in Indian IT: a senior vice president of MindTree, a relatively small consulting firm, told post that it was now looking to recruiting in the United States. -------------- -------------- SCRAMBLING FOR ELITE GRADUATES; TRAINING UP THE REST -------------- -------------- ¶5. South India prides itself on producing a huge number of college graduates; Tamil Nadu government officials often note that the state produces more engineering graduates each year than the entire United States. While graduates of south India's celebrated educational institutions such as IIT and Anna University are much sought after, business leaders report concerns over the quality of graduates from lesser institutions. An official from India's Planning Commission told reporters that only a fraction of India's 3 million graduates a year are actually employable. The Regional Director of the Tamil Nadu chapter of the well-respected National Association of Software and Service Companies (NASSCOM) told post that in south India only 12% of graduates are ready for employment. An executive from Hexaware Technologies, a software developer, agreed with NASSCOM's bleak assessment. He blamed the poor quality of graduates on the rapid growth of private colleges which admit students on the basis of their financial background rather than academic performance. ¶7. With poor quality in the low ranks, graduates from elite institutions are in high demand. In order to attract the best and brightest university graduates, companies in south India seek to establish strong brand identities on university campuses by sponsoring research projects and summer internship programs, as well as through aggressive on-campus recruitment activities. The president of IBM India, Shankar Annasamy, told post that it allows students from IIT Madras access to high end computers to test their software in return for an opportunity to assess and recruit students from the school. Shashun Chemicals, a pharmaceutical manufacturer, has a summer placement program that provides opportunities to post-graduates from a broad range of educational institutions. Shashun's Managing Director told post that the program affords an opportunity for the candidates and the company to assess each other. ¶8. Most companies cannot rely on graduates of elite institutions alone to fill out their ranks. As such, they are forced to take on graduates who require additional training before they can begin CHENNAI 00000317 002 OF 002 work. In the business process outsourcing, information technology and information technology services sectors, the requisite English language skills are often lacking. Hexaware's representative told post that engineering graduates often lack the English language skills needed to communicate with the company's clients. Hexaware spends an average $1000 and $1500, the equivalent of three months salary, to improve recruits' communication skills. ¶9. Recruits in the manufacturing sector tend to be even less finished. Textile sector recruits, for example, tend to be students who did not complete their degrees. The South India Mills Association has a rigorous program aimed at imparting technical skills and a proper work ethic to these recruits. After the training program, recruits go on to work as apprentices at local mills before being brought on board as full time staff. In the automobile sector, Hyundai India's managing director said that his company had to invest in further training to bring recruits up to company standards due to the poor quality of many graduates. ¶10. COMMENT: South India's high skill, low cost human resource base has been a major reason for its economic growth, especially in information technology and manufacturing (reftel),but the rapid pace of expansion has resulted in labor shortages. These shortages threaten continued growth by cutting into one of south India's primary competitive advantages. Individual industries and business chambers are working on solutions but such approaches are necessarily limited in scope. Educational institutions and governments need to address on a broader level the low rate of employability of the vast majority Indian graduates. U.S. universities, community colleges, and vocational training institutions have a long history of success in this area. There is scope for collaboration between Indian and U.S. institutions to help solve potentially damaging labor shortages in south India while providing opportunities to U.S. educational institutions to function in India. END COMMENT. HOPPER