The real India remains, at best, untouched and at worst, negatively affected by the prosperity that outsourcing/offshoring brought along to "India 2.0".
I recently read an article on Tech Republic that showcased how women in India are being benefited by outsourcing and offshoring. While I completely agree with the views expressed by the writer, I think it is equally important to look at the other side of the coin. Outsourcing has also caused a lot of problems in the Indian economy. Let me clarify here that I am one of those who were highly benefited by the outsourcing and offshoring trend in the US. For the longest period of time, I had seen nothing but advantages for India in the outsourcing trend. My views, although, were challenged when I started visiting the interiors of India while doing a project for the Indian government. That was the first time that I had come face-to-face with the "Real India."
What I have come to realize over the past few years is that the India that benefited from outsourcing is really what you may call "India 2.0". The real India remains, at best, untouched and at worst, negatively affected by the prosperity that outsourcing/offshoring brought along to "India 2.0". Discrepancies in the distribution of National Income have always been endemic to the Indian socio-economic setup. These discrepancies in the past were driven by caste divisions and lack of basic education. This time however, the dividing line between the "haves" and "have-nots" is neither the caste barrier nor basic education. This time the division is on the basis of one's knowledge / fluency in English or lack thereof. Ironic indeed for a country that prides itself on being the birth place of nearly 14 highly evolved and literature rich languages.
The dollar flow that came in due to outsourcing has helped a large number of Indians rise from the lower middle-class to the middle and upper-middle class. But it has also resulted in the concentration of immense purchasing power in the hands of a few. As the number of people with disproportionate purchasing power went on increasing, inflation has started running rampant in the Indian economy. Recently, India saw double-digit inflation. This has been brought down as claimed by the government. However, this reduction in inflation is only on paper. A chat with any resident of India will let you know that the rise in the cost of living in the past few years is very real and obscene. I have myself seen public transport fares, grocery prices, real estate prices shooting through the roof.
Today, portions of India are facing a drought situation. This has compressed the incomes of a large number of households in India. Ordinarily, in the traditional Indian economic cycle, lesser disposable income in the hands of the population would have brought the general price levels in the country down. However, this is no longer happening. This is because a sizeable chunk of working professionals (the ones who are riding on the outsourcing wave) today is insulated from the vagaries of the monsoon. Their incomes vary more based on the health of the US economy. This meant that there was enough disposable income in the economy to keep the general price levels from coming down. The rural population and non-outsourcing-dependent professionals have found themselves at the receiving end of this situation.
One way of looking at this is that this development has provided resilience to the Indian economy. It has also insulated the economy from seasonal fluctuations.
However, the lack of inclusive growth and pronounced inequality in the distribution of national income is laying the foundation for unrest among the "not-so-privileged" population. It has also made the Indian economy that much more susceptible to fluctuations in the global economy. Also, the quick wage-rise that is happening in the IT/ITES/BPO/KPO / Call Center industries signifies that there is a general shortage of the required skills. This wage-rise will soon erode away India's cost advantage. Once that happens, these outsourcing companies will pass on work to the next available source of cheap manpower. Once that happens, these people who are currently happily enjoying the dollar advantage will find it difficult to adjust to the lower wages in the rest of the industries.
I think there are three things that the government of India needs to do immediately:
- Build the required infrastructure to ensure that the people have easier access to relevant training and education to develop the skillets required by the outsourcing-driven segments of the industry. This will ensure an abundant supply of manpower and will consequently arrest the crazy wage-rise in the industry. This will help India retain the cost advantage.
- Encourage (via Tax Holidays, subsidies or other benefits) the US-dependent industry segments to come up with innovative business ideas to leverage the same skillsets to serve domestic Indian customers. This will again insulate the economy from any global economic crises like sub-prime mess etc. It will also help keep further US jobs in the US itself. This is equally important since a reduction in US per capita income and consumer demand will anyway reduce the need for even the already outsourced services.
- Work on encouraging, building, strengthening and growing the non-outsourcing-dependent industries in the rural and urban areas. This will help build some parity between the "India 2.0" that I mentioned above and the real India. This will help contain any unrest that may be building within the population and will ensure that the prosperity of one does not become a problem for some other segment of the population.