Labour no longer cheap in India

Contrary to common belief (and media reports), labour is no longer cheap in India.

With salary levels rising fast to catch up with inflation, it is no longer true that daily wages of an average Indian is ‘just US$2’ or ‘less than US$2’.

During his recent visit to Bangalore, the editor of this newspaper heard employers saying that it was increasingly difficult to get people to perform even menial jobs for less than Rs 10,000 (about US$185 a month).’

“Add to this a number of allowances such as cost of living, transportation and food, the average salary works out to at least US$225 a month. It is just impossible to get anyone for less,” an employer said.

Electricians, plumbers and other skilled workers are another story.

Although there is no dearth of supply, such persons add such charges as call out and travel in addition to labour on hourly rates.

“The situation is even more acute in larger cities like Mumbai and Delhi. Even construction workers, who are paid less than US$1 about 50 years ago, would be available only if they are offered at least US$ 60 a week now. Everyone has a mobile phone and market rates for jobs are communicated fast,” he said.

The demand of higher salaries has also had its negative effect.

Although the number of overseas companies outsourcing jobs to Indian companies has been on the rise, at least some organisations have begun to consider the cost-effectiveness of the move.

Less than two years ago ‘New Call Telecom,’ a British company, relocated its call centre from Mumbai to Britain, demonstrating the fact that India’s advantage of cheap labour is losing its allure.

New Call Telecom, which started the call centre in Mumbai in 2008, said that it chose to shift base to Lancashire as it felt that labour is cheaper in that country than in India. The shift created around 25 jobs in the UK; the figure is expected to rise to 100 this year.

The move by New Call Telecom, which provides broadband and telecom services, was not the first. British Telecom shifted 2000 call centre jobs from India back to the UK in 2009, a far cry from the days when companies from countries such as the UK and the US outsourced jobs to offshore locations in India as they had to pay staff less here. However, with salaries in India rising fast, some companies are finding it difficult to maintain profit margins.

Salaries are set to rise by 14% on average in 2013.

According to Aon Hewitt, a global research firm, inflationary pressures and high attrition rates are major challenges for the Indian outsourcing industry.

“Indian companies are responding to these by starting their operations in Tier- II and Tier-III locations and by introducing employee engagement practices,” P Vijayakumar of the Centre for Social and Organisational Leadership (CSOL) at the Tata Institute of Social Sciences (TISS) said.

“The cost advantage depends basically on the effect of exchange rates and whether we are in a position to provide the skilled personnel needed by the industry.”

The cost of renting space for business has also increased to the extent that it is now as costly in India as in the UK or some other nations, according to media reports.

New Call Chief Executive Nigel Eastwood told Daily Mail that salaries in India are not cheap any more.

“Considering the cost of travel by our executive, hotel accommodation and other expenses, the cost of outsourcing will be the same as obtaining these services in Britain,” he said.

These moves do not however suggest that outsourcing is waning in India.

The country continues to attract overseas firms and multinationals such as Microsoft, Google, Intel, Apple and others have their research centres based in India, the only country outside the US.

It is also true that Indian workforce is becoming attractive for companies in the US, UK, Canada. According to experts, highly qualified Indians impress their employers with their hard work, honesty and high standards of professionalism.

Corruption, nepotism, inadequate infrastructure, chaotic traffic are among the many issues that confront the average Indian. These will form the basis for our reports in the next issue.

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