India’s position as a labor arbitrage market may continue for another “25-35 years”, said IT consultancy Everest Group. However, it is unlikely that earlier offshored work would be back to its home market, it added.
“There is no doubt that India is still a highly attractive and viable option for low-cost labor, albeit not quite as good as it was 15 years ago, but still very compelling, and it will likely remain so for another three decades,” said Michel Janssen, Chief Researcher at Everest. “We move out our estimate for the end of the India labor arbitrage to beyond the 2040-50 time horizon.” Indian IT firms have put it that they have shifted from a model based purely on labor arbitrage and have been hiring in bulk onshore.
However, changes to the business model have seen slow growth and hurt margins. “The services jobs that moved to offshore locations will not be coming back in any large quantities because labor arbitrage economies will continue to be attractive,” Everest said in its report.
India’s huge talent base will also ensure a buffer to rising labor costs. Around one million engineers enter the job market every year and salaries for fresh engineers with no specilaised skills have remained stagnant for nearly a decade. “Fifteen years ago, we thought that wages in Bangalore would grow to reach those wages in Dallas. But we didn’t take into account the growing talent pool. That really keeps a lid on costs,” Janssen told ET.
He further said that while robotics process automation (RPA) would change some of the ways companies do business, it may not be a drastic change. “RPA is important, but if the costs of labor remain low and you can get access to talent at low prices it might limit the amount of process automation a company might put in place. They may not need to invest as much in RPA.”
While automation will render pressure on headcount, the country’s talent base will be an advantage as the industry moves to more digital technologies.
“The current limited availability of niche/emerging skills in India puts them at a premium; however, as more people learn these skills, they may lose their premium status,” the report said. This will further restrict labour rate hikes.