Communications of the ACM

Viewpoints

Emerging Markets: Labor Supply in the Indian IT Industry

By Alok Aggarwal
Communications of the ACM, December 2008, Vol. 51 No. 12, Pages 21-23
10.1145/1409360.1409369
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India is a country of extremes: for everything that exists in its socioeconomic structure, there exists an opposite somewhere close by. On one hand, the wealthiest family in India is in the process of building a billion-dollar mansion-house; on the other, approximately 10 million families live on government-owned land in shanties that each cost less than $100.^a Similarly, although the seven Indian Institutes of Technology (IITs) produce approximately 4,000 graduates in engineering and computer science that are among the best in the world, approximately one-fourth of all high school graduates who want to pursue engineering or computer science are unable to do so, primarily because of cost.

According to research conducted by global research and analytics firm Evalueserve (www.evalueserve.com) approximately 85% of the labor supply for the IT industry (both exports and domestic) in India is composed of engineers (with four-year degree courses) and Master of Computer Applications (MCA) graduates (with five-year degree courses). The remaining 15% comprises graduates (both five-year master's and three-year bachelor's) in mathematics, commerce, and sciences. During 1998 and 2008, after including inflation, the total amount spent on technical and IT education for such graduates grew by 17% every year. Whereas the class of 2004 had approximately 273,300 engineering and MCA degree graduates, the class of 2008 had approximately 454,200. During 1998 and 2008, the number of engineering and MCA graduates grew at an annual rate of 13.5%. Even if this growth rate can be maintained, the demand for such professionals is likely to increase at an annual rate of 15.5% until 2016 (see my July column), and hence there would be a cumulative shortage of 100,000 to 150,000 such graduates by 2016 (where no such shortage exists today).

The expenditure by the Indian government on technical and IT education increased from $375 million in 1996 to $830 million in 2006. Although the Indian government's overall expenditure grew at an annual rate of 8.4%, this rate is only half the overall growth rate of 17% mentioned earlier. More disconcerting is the fact that the Indian government's technical education expenditure as a percentage of total education expenditure decreased from 4.1% in 1996 to 3.9% in 2006. Furthermore, according to the National Knowledge Commission (www.knowledgecommission.gov.in) that advises the prime minister of India, approximately 75% of the current funds go toward salaries and benefits, 15% toward rent and utilities, and the remaining 10% are not even sufficient to maintain let alone upgrade laboratories, buildings or libraries, or sufficient for pursuing research. Therefore, the National Knowledge Commission has requested—and the government has approved—a 190% increase in such funding from 2008 to 2009. However, it is not clear whether the Indian government has any additional funds to spend especially because the Indian K-12 education system requires even more urgent attention.

According to the University Grants Commission (UGC) of India (www.ugc.ac.in), the number of engineering colleges increased from 571 in 1998 to 1,645 in 2008, which represents an annual growth rate of 11.2%. Currently, out of these 1,645 engineering colleges, approximately 85% are privately owned, 10% are government colleges, and others are parts of universities that are wholly or partly funded by the central, state, or local governments. Approximately 88% of students graduate from private colleges, whereas others graduate from government-owned or government-aided colleges.

Broadly speaking, private engineering colleges can be classified into two categories. Less than 10% of colleges belong to the first category whose management and advisory boards comprise eminent and experienced individuals with substantial knowledge of technical education systems worldwide. More than 90% of private colleges belong to the second category and were mainly started for making profits. These colleges typically do not provide high-quality education and are therefore often unable to enroll enough students or attract good faculty. Since earning profit is their main motive, many Indian citizens feel such profit-making institutions should not be allowed; others welcome this private initiative because it fulfills an otherwise-unmet need.

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Underwriting loans by the Indian government will allow the banks to become more liberal in giving loans and also reduce the carrying costs for students.

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Only 12% of students graduate from colleges that are partly or wholly funded by the Indian government; most others resort to taking education-related loans from Indian banks. The amount of such education-related loans has grown from $110 million in 2001 to $3,450 million in 2007. Moreover, the educational loan as a fraction of total bank credit has also increased from less than 0.2% in 2001 to 1.1% in 2007, and the number of student borrowers has grown ninefold, from approximately 110,000 in 2001 to more than one million in 2007. Such a rapid increase in the number as well as the amount of loans is causing substantial discomfort within the Indian middle class, especially because the previous generation had to pay almost no tuition fee for college education (because all colleges used to be funded by the Indian government).

Keeping this in mind, the Indian government has recently announced establishing the National Student Loan Guarantee Corporation, which will underwrite most student loans and would also have a provision for waiving off loans if a student works for a government agency or in an underserved region in India for a predefined amount of time after graduating. Underwriting loans by the Indian government will allow the banks to become more liberal in giving loans and also reduce the carrying costs for students. However, this may also imply a bigger fiscal deficit for the Indian government, which is already reeling from a burgeoning deficit.

The All India Council for Technical Education (AICTE; www.aicte.ernet.in) is a part of the Indian government and approves new colleges after these colleges have fulfilled certain criteria. The National Board of Accreditation (NBA) is an autonomous body constituted by AICTE and provides accreditation to individual programs run by engineering colleges. Although NBA accreditation is mandatory for all engineering colleges, because of certain loopholes in the system, more than 80% of Indian engineering colleges currently do not have proper accreditation. From the colleges' perspective, however, many find it extremely cumbersome and frustrating to get all approvals and accreditation from AICTE and NBA. Hence, the National Knowledge Commission has requested the Indian government to establish a separate regulatory authority that is autonomous and devoid of any direct control by the Indian government.

Limited numbers of qualified faculty is currently the biggest challenge for engineering and IT education colleges in India. A recent report, Faculty Development in Technical Education, by Rama Rao et al. (http://www.isteonline.in/) estimated that currently there is a shortage of 75,000 faculty members (who have a minimum of master's degree in engineering or IT) and this shortfall is likely to exceed 100,000 by 2011. Moreover, approximately 95% of the 1,645 engineering and IT institutions in India do not have research programs, and in 2005, all the engineering and IT institutions combined awarded only 968 doctoral degrees. Multinational companies (IBM, Microsoft, Google, Yahoo) are exacerbating this shortage by opening research centers in India and paying their employees three to five times more than the corresponding universities and institutes.

Because private institutes are mainly looking to make profits and government-funded colleges and universities can only provide similar salaries as those provided to other employees of the Indian government, very few colleges in India are able to match the salaries being provided by multinational companies. Given these circumstances, even premier institutes like IITs have 10%–15% unfulfilled faculty positions; the situation is worse for second- and third-tier colleges. Moreover, a recent Evalueserve survey regarding the preferences of IIT graduates indicates fewer IIT graduates are likely to pursue academics, which would further decrease the availability of such faculty members. Hence, to mitigate this shortage, many colleges have started requesting retired faculty return and teach; others are hiring recent graduates (with only a bachelor's degree) who are not able to find jobs elsewhere.

Since there is an acute shortage of faculty and because previously retired faculty members or those with substandard skills are being recruited to teach in most engineering and IT colleges, the curriculum in such colleges has remained unchanged during the last two decades. For example, grades are still determined by only a final examination and not by grading intermittent tests, laboratory work, or homework assignments, and the final examinations only test students' memory rather than their creativity or ability to think independently. Therefore, students often forget the basics related to microprocessors, Internet Protocol, or the Java language by the time they graduate.

In addition, while the Indian IT exports industry has a severe need for students to have "soft qualifications" (such as proficiency in spoken and written English and the ability to manage projects efficiently), this education system does not provide any such courses. Hence, it is not surprising that a recent study by the strategy consulting firm McKinsey and Company (www.mckinsey.com/mgi) indicated only 25% of engineering graduates would have the requisite qualifications to be employed in the Indian IT exports industry. Those who do not possess such qualifications either work in the domestic IT industry or change their careers altogether, thereby earning half to two-thirds of what they would have earned otherwise.

Clearly both the public-funded and the private-funded education programs are inherently inadequate, and even combined would not be able to meet the burgeoning demands of the Indian domestic and exports industries. With this in mind, the three initiatives described in the following paragraphs have gained momentum during the last decade.

Realizing the Indian college system (which was primarily government funded) was unable to provide much IT training, in 1981 two entrepreneurs started an IT training college, NIIT, which provided supplemental tutorials and training classes. During 1998–2008, NIIT grew enormously and resulted in the formation of a supplemental IT training industry in India, which provided 3.2 million student-course units and had approximately $610 million in revenue in 2007. These training colleges provide short-term courses such as Java, C++, SQL, SQL database, and .NET to corporate clients who send their employees for supplemental training; a course typically costs between $75 and $300 per student. Long-term courses have durations of three years and cost between $2,500 and $3,500 per student. Most students enroll in their long-term courses while very few working people enroll in evening or weekend classes. Also, most students who enroll in long-term courses are also concurrently pursuing undergraduate or graduate programs. Finally, most of these training institutes provide a job guarantee for students enrolled in long-term courses and also have partnerships with banks to provide five- to seven-year loans.

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Many IT export companies in India have created their own training institutes and have begun training new employees.

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During 1998–2000, when the Indian IT industry was experiencing unprecedented growth due to the dot-com boom and the Y2K problem, Indian central and state governments established Indian Institutes of Information Technology (IIITs), mainly as public-private partnership institutions.^b The main goal of these IIITs is to provide education at the master's and Ph.D. levels although some of them are also providing undergraduate education.

Currently, there are eight IIITs in India that graduate approximately 3,000 students every year, and the Indian government has announced the creation of another 20 during the next five years with the goal of producing at least 20,000 master's and Ph.D.s every year. Furthermore, faculty members are likely to be given competitive salaries and each IIIT will have the autonomy to decide its own salary structure so as to compete with private institutes and multinational corporations. For each IIIT, the Indian government would provide 50 to 150 acres of land and approximately $25 million in seed funding and would have only a minority representation on the board. Private companies have been playing a major role in providing ongoing finance, faculty, and most importantly, governance. Furthermore, the collaborating private organizations would be requested to send their experienced employees as visiting faculty members and more faculty-exchange programs with universities abroad are being envisioned.

Many IT export companies in India have created their own training institutes and have begun training new employees. For example, Infosys intends to spend $170 million in training and Wipro has its own training campus where it can train more than 5,000 employees simultaneously. Overall, Evalueserve estimates the Indian IT industry may ultimately spend approximately $1.1 billion—or about 3% of the revenue it earned—during 2008–2009.

Some of the key programs started by Indian IT companies include a seven-month program, Tata Ignite, wherein Tata Consulting Services would train science and mathematics graduates (with three-year degree courses) to become software professionals and then employ them; Campus Connect launched by Infosys in May 2004; Mission10X launched by Wipro Technologies, which is trying to promote changes to current teaching-learning paradigms, will include 3,000 faculty members in 2009 and 6,000 faculty in 2010; Satyam Entry-Level Engineering Development (SEED) program launched by Satyam, which is a four-month training program for entry-level engineers who will be eventually employed by Satyam; and the establishment of approximately 100 Centres of Excellence (CoE) jointly by HCL Infosystems and Microsoft, which will provide training and certification in Microsoft technology to 50,000 students.

As I've described in this column, the process of IT education in India continues through its chaotic and lumbering evolution. Nevertheless, in spite of its fits and starts, this process seems to be progressive, and by 2016, India will have the second-largest IT labor force in the world that is likely to be only 20%–25% smaller than its U.S. counterpart.

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