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Help Wanted: The Indian IT Skills Gap And How More H-1Bs Can Make It Worse

by Gary Endelman

Is there anyone out there who does not know in his bones that India has an inexhaustible supply of top-flight engineers and IT specialists?  India is an engineer factory.  Right? Suppose that this was not the case. Suppose there was a looming shortage of IT talent just over the horizon that could blow India's gilt-edged reputation apart. What would the impact be for US immigration policy, especially with regard to the H-1B visa?  More than any other visa, the H-1B was linked to the boom of the 1990's and became the poster child for the bust that followed. Defended by its champions as necessary for American competitiveness, derided by its detractors as a sell-out of good American jobs, the H-1B is ground zero for the national immigration debate. If a way could be found to use the H-1B in a strategic sense to preserve white collar opportunities here at home, a sea change in this conversation would doubtless ensue.  Maybe looking east to India is the clue.

There is a dirty little secret that India does not want you to know: they have a looming IT shortage!  Oh sure, numbers are not the problem; Indian universities churn out about 400,000 engineers every year; quality, now there's the rub. According to a recent study done by a major Indian trade group, the National Association of Software and Service Companies ("Nasscom"} found that only 1 in 4 engineering graduates had the technical skills, knowledge of international business practices, English language fluency and networking ability to be employable.[1] Nandan Nilekani, the CEO of Infosys, and a man one presumes not naturally given to hyperbole, believes that India has reached a crossroads[2].  Ironically,  both US and Indian observers, have been so transfixed by the sheer size of the Indian graduating class that they do not drill down to look more closely. " There are two and a half million graduates every year in India, " Nasscom President Kiran Karnik observes, " but the employable pool in this is very, very small…We are ahead but in five to 10 years, we will need more people with doctorates." [3]  Even a superstar like Google has heartburn when trying to sign up enough talented engineers for its high-tech research center in Bangalore.[4]

Indian software exports have outpaced the ability of the Indian educational system to keep pace.  Nasscom predicts that the number of technology jobs is expected to almost double to 1.7 million by 2010[5]; where will the talent come from?  Indian IT moguls shudder before an anticipated shortfall of as much as a quarter million skilled workers. Kiran Karnik bemoans the fact that "Companies are able to select only eight or nine people out of 100 who apply and that's a pretty low selection ratio…In my estimate, only a third of the pool has the [6]right skills to be absorbed into the industry right away." R. Sankar, country manager in India for Mercer Human Resource Consulting, is no less pessimistic: "Just look at the technology sector. Look at the numbers they are trying to achieve. Thousands of thousands of employees…And there just aren't enough skilled graduates in India to fill these jobs."[7] Intel (India) president Frank B. Jones spilled the beans when he confessed to a software conference in Hyderabad that "it was becoming more and more difficult to find the required skills among school leavers and graduates in India."[8] So tight has the IT skills crunch become, that Intel now recruits 10% of its Indian work force by luring home Indian nationals from the United States.[9] What sweet irony!

India is the victim of its own success. The very size of the outsourcing bonanza it has enticed to come may be its undoing. There is no way that IT growth targets can be met should the doomsday predictions of a shortfall in It talent come to pass. Nasscom vice president Sunil Mehta knows what this would mean: "A possible skills shortage will directly impact the business being handled by India, and gradually affect the size and nature of contracts being outsourced by India, and industry revenues."[10]   Sheer numbers can no longer mask the inescapable impact of a skills shortage Nasscom, with the enthusiastic backing of the entire IT industry, has launched an IT Workforce Development Initiative to prepare India for what is coming.[11] The stakes for India could not be higher.  That is why the inability of the Indian educational system, other than the highly acclaimed 7 prestigious Indian Institutes of Technology, to hold their own places the nation's future in peril. It is not just high-tech that is worried. In New Delhi, for example, city fathers "warned of a massive shortage of engineers to oversee public works in a country whose infrastructure is notoriously bad."[12]  Nothing is immune. Even the famous Indian call center industry worries who will man the phones.[13]

The Indian IT skills shortage is creating a tsunami of wage inflationary pressure that threatens to undermine the very rationale of outsourcing. Entry-level IT wages have soared in recent years by 12-15% per annum.[14] How good does the bottom line look when Indian IT compensation grew by 14.5% in 2004 according to Hewitt Associates?[15] Other surveys were even more ominous. The 2005 Salary Survey of Indian Technical Telecommunicators found that metropolitan IT salaries exploded at an annual rate of 22%![16]Not surprisingly, a study by PriceWaterhouseCoopers ranked India behind both China and Eastern Europe as the place where IT outsourcing was likely to take place.[17]

A similar report from the London-based Mercer Human Resources Consulting revealed that Indian salaries were going up faster than anywhere in the world![18]  The results are toxic. Even making money does not reassure anxious investors. Wipro, an Indian IT giant,  turned in quarterly profits in excess of market predictions this past summer and still saw a 5.5% drop in shares following a warning of coming wage hikes. Satyam, India's 4th largest IT company, turned in an unbelievable 75% increase in quarterly profits for 3Q 2006 only to be rewarded with a drop in share price due to investor concerns over skyrocketing salaries.[19] When investors turn their backs on a company that makes money, it can only be because they do not believe this can continue for long. Know what? They are right. While the wage differential between Indian and American IT workers is now five-fold, within a matter of 4-5 years, experts predict that this could slip to three, or maybe even two-fold.[20] When that happens, it may make sense to stay home.

Come now full circle from India to the H-1B debate.  The very existence of such a controversy assumes that jobs for which the visas are awarded will remain in the United States. If this were not the case, if they went to India, what difference would US immigration policies make to an employer who had relocated to Bangalore? You could, after all, have no caps on H visas but this would be of little interest. The inability of immigration advocates to demonstrate any real or sustained connection between the H-1B and outsourcing, indeed between outsourcing and US immigration in general, has given the entire issue an air of unreality. It is as if events changed, but the contestants took no note, acting instead as if the US remained the only game in town. Now, for the first time, the looming IT shortage in India offers a chance to supply the elusive missing connection.

The following specific steps commend themselves but, if like other ideas better, try them on for size. So long as America gets to the right place, the road taken will not matter:

·         Exempt all Indian H-1Bs in information technology or engineering from numerical restrictions.

·         All other H-1Bs from India would not only be subject to the cap but would require proof that the an equally qualified US candidate could not be recruited;

·         No longer require a college or university degree for any IT H-1B case. There is no indication that the absence of such a credential would make the IT visa holder any less creative or productive;

·         Allow all Indian H-1Bs in information technology to apply for adjustment of status to lawful permanent resident without a current priority date or demonstration of American unavailability. Approval of such application would require immediate visa availability.

·         Make all Indian IT H-1Bs completely portable so that there would be no need for subsequent employer sponsorship. Once the Indian H-1B techie had true occupational mobility, the possibility for being taken advantage of by an unscrupulous employer would vanish along with the need for any labor condition application. The market could protect the Indian H and his American counterpart far better than the DOL.

·         Allow the Indian H-1B to self-petition for the visa at a US Consulate in India.

What would happen if these suggestions were adopted?  Smart Indians engineers could come to the United States. As President Bush recently told DuPont employees at an energy symposium in Wilmington, Delaware, it "makes no sense to say to a young scientist from India, you can't come to America to help this company develop technologies that help us deal with our problems…"[21] What should America do with the H-1B?  Simple. Adopt polices so that the number of top quality Indian IT specialists would decline and the wages of the less qualified who remain behind would rise. This would reduce the pressures on US IT firms to outsource to India and diminish their incentive to do so. Truth be told, there is not an American or an Indian IT scale but a global wage since knowledge and its transmission are seamless, knowing neither national allegiances nor immigration regimes. To the extent that wage levels are brought into balance, a transnational prevailing wage will allow employers to focus on the enhancement of employee productivity as the source of competitive advantage. This is a battle that American workers can fight. India has an IT shortage? Let's use the H-1B to make it worse. Then we can move on to other industries and win there too.


1 Somini Sengupta, "Skills Gap Hurts Technology Boom in India," New York Times (Oct.17, 2006). The situation is, if anything, worse in China where only 1 in 10 engineering graduates have the necessary skills. See Henry Chu, " India faces tech-talent challenge,"  Los Angeles Times reprinted in the  Indian Catholic (Sept. 26, 2006)

2 Id.

3 "Indian tech firms face skills gap". BBC News ( Sept. 13, 2004)

4 Adam Tanner, "Google finds huge talent shortage in India," Reuters (Oct. 10, 2006). "Google Director Ram Shriram acknowledged as much to a private investment conference in San Francisco: "I know first hand that we've had a bit more of a challenge in trying to hire engineers for Google in Bangalore compared to other parts of the world." "Google questions 'talented' India Inc." Reuters (Oct.19, 2006).

5 Id.

6 "India's qualified worker population running out."  Offshore Outsourcing World, June 9, 2005.

7 Karishma Vaswani, " Indian firms facing talent crunch," BBC New (Oct. 11, 2006)

8 Omer Farooq, " India firms warn on IT Skills gap," BBC News, Hyderabad (Nov. 7, 2006)

9 Id.

10 Tim Ferguson, "India IT skills crisis still looming, warns Nasscom"  (Nov. 9, 2006),3800004871,39163947,00.htm 

11 "Skills Shortage: The Looming Challenge for India."  SiliconIndia ( July 4, 2006)

12 Henry Chu, "India faces tech-talent challenge, "Los Angeles Times reprinted in the Indian Catholic (Sept.  26, 2006) http://www/ In December 2005, Duke University researchers compared the Indian, Chinese and American university systems in the areas of engineering, computer science and information technology. Vivek Wadhwa, a co-author of the Duke study, confirmed India's worst fears:        

     The country that's in the deepest trouble now as far as education goes is India. China has gotten its act together; the U.S. has already had its act together. It's India that's going to be facing sever challenges. The number of graduates that they're churning out is not keeping up with economic growth. If the country wants to grow at 7 percent to 8 percent, they simply don't have the number of graduates to sustain that.

13 "Gartner Says Skill Shortage in India's Call Centers Has Negative Impact on Service Delivery,"

14 Richard Morris, "The India Skills Gap," (Dec. 28, 2006).

15 Eric Schoeniger, "IT Talent: A Shortage in India?"  This may be an understatement since some experts contend the 2004 jump was, in select cases, as high, as 35%.

16 Francisco Abedrabbo, "Salaries in India: Boom or Bust?"  Mr. Abedrabbo is the Senior Director of Documentation in Server Technologies Division of Oracle in India.

17 "Global IT firms on a hiring spree in India."

18 Ft.Com, "Salaries in India are fastest rising in the world," Financial Times (Oct. 4, 2005)

19 Andy McCue "Indian outsourcers warn of rising salary costs." (July 24, 2006).

20 Sharon Gaudin, "Rising Costs Threaten India's Hold on Offshore IT." (February 8, 2006).

21 Arun Kumar, "Get more smart Indians to US: George Bush," (Jan. 26, 2007)