[Reader-list] India: Reality Check On IT - Masters or cyber-coolies?

[Harsh Kapoor]

India: Reality Check On IT
Masters or cyber-coolies?

By Praful Bidwai

[July 7 2003]

The success of India's information technology (IT) industry and 
related businesses has produced such a euphoric and exuberant 
reaction that some of its more enthusiastic celebrants have already 
declared India a "knowledge-based society" and "information 
superpower" which qualifies it for a special global status. This 
"knowledge-based" description sounds odd, to put it mildly, in a 
society in which almost half the population is illiterate, the 
general level of skills very low, and transmission of knowledge 
severely restricted by the hierarchies of class, caste and gender.

India's computer software export boom has admittedly been an 
impressive success story, with annual growth rates of 40 percent or 
more over the past decade. It has contributed significantly to 
India's foreign exchange reserves. But euphoria over it could be 
misplaced--not only because growth has now slowed down to 26 percent, 
according to the latest figures.

IT certainly contributes in growing measure to the Indian economy, 
but it remains an "island" phenomenon. It cannot drive the entire 
country into another epoch or "stage" of development. There are three 
reasons for saying this. First, the computer software business 
remains extremely (80 percent-plus) export-dependent. This is even 
truer of information technology-enabled services (ITES) like call 
centres and medical transcription, and business process outsourcing 
(BPO), which are now growing at twice the speed of software exports.

The best or most informed estimate of the size of India's indigenous 
information technology sector, including hardware and domestic 
software, is that it accounts for less than 2 percent of GDP. By 
contrast, trade and hospitality alone account for 15 percent of GDP. 
Even in external sector accounts, software exports ($7.2 billion) 
still contribute less than remittances, mainly from poor workers in 
the Gulf ($8.1 billion). Even if the ITES/BPO business grows five- or 
eight-fold over the coming five years, as optimistic projections 
estimate, its contribution to India's GDP will remain relatively 
small.

Second, despite their meteoric rise, most IT companies are puny even 
by Indian corporate standards, with their sales turnover usually 
within some hundreds of crores of rupees, or in the top range, a few 
thousand crores--as compared to tens of thousands for manufacturing 
sector majors. It is only now, this year, that India's largest IT 
company, Tata Consultancy Services, joined the "One Billion Club", 
with revenues exceeding Rs. 4,800 crores. Other IT giants, like 
Infosys and Wipro, have even lower revenues (Rs. 3,323 crores and Rs. 
4,334 crores respectively). Only four IT companies figure in the 
Economic Times list of India's top 100 corporations (rated by sales). 
IT companies' profits are high, share prices stellar, and market 
capitalisation spectacular. But their economic size and influence are 
rather limited.

And third, the geographical distribution of India's IT business is 
extremely uneven. The maldistribution bears no relationship to the 
uneven spread of literacy, education and other human development 
indicators, or to infrastructure development. For instance, of the 
total exports of computer software and electronics hardware, the 
South alone accounts for over 50 percent, with the North coming a 
distant second (26 percent), and the East lagging at a pitiable 2 
percent. If Delhi and adjoining parts of Uttar Pradesh and Haryana 
are excluded, the North's share falls to an embarrassing 4 percent.

The South has always taken the lead in IT, with Karnataka alone 
claiming half the region's share. Yet, there are no signs that these 
huge disparities are narrowing. This too does not speak of a 
national-level driving force or "growth engine". There are other 
basic constraints on IT growth too, such as poor infrastructure, low 
telecom density (just 5 out of 100 Indians are connected), and one of 
the poorest levels of penetration of computers (less than 6 machines 
per one thousand people, as compared to China's 19).

Many IT strategists pin their hopes on the relatively rapid recent 
expansion of IT-enabled services. Their growth spurted last year by 
59 percent to touch Rs. 11,300 crores (of a total of Rs. 46,100 
crores for the IT sector as a whole, which grew by 26 percent). 
ITES-BPO now contributes a quarter of India's IT exports and has 
created 160,000 jobs. ITES boasts of a 65:35 female-male employment 
ratio and also a fair amount of indirect job creation. According to 
the National Association of Software and Service Companies (Nasscom), 
ITES "has the potential of creating one million direct jobs by 2008" 
largely through outsourcing or farming out of business from the West.

India has emerged as the preferred ITES outsourcing destination ahead 
of China, Russia, and many other countries because of advantages like 
low costs, language, scalability, and stability of policy, according 
to investment banking research firm Brean Murrary Research. In its 
report, "Secular Megatrends: India -- Software Outsourcing 
Superpower", the firm says India should adopt the outsourcing model 
as a "strategic necessity". This projection is based on the fact that 
top firms like Infosys and Wipro have recently signed large contracts 
in the $20 million to $100 million range with big US manufacturing 
companies.

However, even here, hope is running up against social obstacles. The 
greatest of these is rising awareness in the Western countries that 
India's ITES has grown largely because of outsourcing and transfer of 
jobs. For instance, well-known consultant Forrester Research 
estimates that 3.3 million service-sector jobs will have left the US 
by 2015, perhaps half of them to India. Another firm (Deloitte) 
predicts that ITES operators in the First World will move two million 
jobs to low-wage countries over the next five years, again mostly to 
India.

Similarly, in Britain, The Sunday Times carried the "shock and 
horror" headline: "Banks prepare to shift 200,000 jobs to India". 
This has so alarmed British trade unionists that they have decided to 
launch a campaign against India's call centres and software industry 
which, they feel, are big "job-snatchers".

These are not all "crying-wolf" scare stories. In the US, Silicon 
Valley programmer Kevin Flanagan recently shot himself to death, 
because he couldn't face the prospect of losing his job to 
outsourcing. Ironically, before being given the marching orders, the 
programmer helped train the very same Indian workers who were 
supposed to take over his job. Flanagan's suicide was an extreme 
step. But his circumstances were by no means exceptional. He was one 
of some 800,000 Americans who have lost their jobs to outsourcing in 
the past year alone. No wonder this has prompted legislators in New 
Jersey to ban the export of IT-related state contracts to other 
countries. Other American states (Missouri, Connecticut, Washington, 
Maryland) are also moving in that direction. It won't be easy to 
prevent such curbs--despite US rhetoric about "free markets". 
Livelihoods are at stake.

The basic reason why India is seen as an outsourcing "threat" is 
simple. In the US, it costs $43,000 to hire a full-time employee in 
the ITES business. The cost of an Indian employee is $6,180, or seven 
times lower. Because of time-zone difference, India can provide 
round-the-clock service on all days of the week. (There need be no 
closures on weekends). The average Indian employee's productivity is 
high. Big companies like General Electric report 85 to 92 
percent-plus "satisfaction" ratings for its Indian employees. There 
is a relatively large pool of English-speaking low-skilled manpower 
in India. All this makes India a Western corporate attraction--and an 
IT worker's nightmare!

The crux, the key, is low wages. That's the bottom-line! India's 
ITES-BPO, like its computer software business, is heavily 
concentrated in low-paid jobs and low value-addition segments. Indian 
companies have developed very few finished, marketable software 
products, selling which generates the cream. They tend to develop 
components or sub-packages/assemblies/programmes that go into the 
final products made and marketed by US companies. Thus, a good 
proportion of the sub-programmes in Windows 95 and 98 were developed 
by Indian engineers. But it's Mr Bill Gates who skimmed off the 
profits!

The situation is even worse at the level of call centres. Here, young 
women and men work painfully long hours practising cultivated 
American accents to sell products they have never seen or give 
invisible customers information they don't remotely comprehend (e.g. 
about a restaurant's location in Memphis, Tennessee)--all for a 
pittance. This disembodied, alienating relationship to work, and low 
levels of skills and wages--lower than even a bank chaprasi's--are 
turning these people into almost mindless cyber-coolies.

This is not something we should be proud of--no more than the Chinese 
should be proud of producing low-cost goods thanks to repressed, 
non-union, low-wage labour. If we want to get into high-end, 
high-value-added services, which alone can upgrade our people's 
skills while raising their incomes and redistributing new wealth, we 
must set our sights high. That implies ambitious goals for manpower 
training, skill generation, backward-region development (through the 
conscious creation of new jobs in Bihar or Punjab), export content 
rules, etc. We can't let Western companies do that for us. Setting 
our goals in accordance with our people's needs and resources is the 
only way we can move from being cyber-coolies with no rights and 
little security, to dignified, respected workers who control the 
labour processes they work under.--end--

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