T N Ninan: Check the cheques

WEEKEND RUMINATIONS

Both last year and this year, according to a salary survey across Asia, the biggest pay hikes will have been in India""an annual average increase of about 14 per cent.

This is something that all employees will celebrate, for it is evidence that average salaries in the corporate sector are beginning to catch up with senior managerial pay packages, which experienced an explosion some years ago and drew level with much of Asia.

Now, it seems to be the turn of those lower down the pecking order to benefit, so why complain?

But those whose job it is to worry about the macro-economic situation should be asking themselves: Why? If India continues to be the most generous issuer of pay cheques, at some point the competitiveness of companies is going to suffer at least a little bit.

This is especially so if pay cheques are growing faster than GDP (which is the case because GDP in nominal terms is growing by about 12.5 per cent, when you factor in inflation).

This development should be seen in conjunction with two other bits of news last week: that the software sector now employs a million people (from next to nothing a decade ago), and that Wipro has overtaken Tata Steel and become the largest employer in the private sector.

Two hypotheses are possible. First, India is past the stage of jobless growth, when companies were struggling to become competitive, and shedding flab (Tata Steel, for instance, cut its employee strength by half).

From now on, there will be plenty of hiring by companies as they power a new phase of rapid growth in everything from telecom to textiles, and from auto components to pharmaceuticals.

In software alone, if the industry's turnover trebles over the next four years (as is the forecast by McKinsey and Nasscom), another two million people will get jobs directly (more than the number employed by the railways today) and many more indirectly.

The other message is equally clear: the education system is not throwing enough qualified people into the job market and consequently the available people are beginning to command a premium.

Translated, that means the Indian job market does not have the depth that many believed existed.

Anecdotal evidence bears out these hypotheses, since reports occasionally surface about how countries like the Philippines are already cheaper places for BPO (business process outsourcing) work.

Indeed, those running BPO companies have been complaining for some time that the cost of training new employees is almost entirely on them; there is not enough of a supportive education system that trains people for the full range of BPO work, whether it is accountants familiar with US accounting rules, or diploma-holders able to do basic programming work, or anything else.

This might seem to run counter to the visible facts because teaching shops appear to be sprouting in every neighbourhood.

But these small teaching establishments cannot churn out the large number of trained people now required, and in any case it is debatable whether the youngsters who emerge after doing courses for which they have paid small fortunes are really employable.

All that can be said in favour of this aspect of the education (and it has become one) is that it has weaned youngsters away from the old obsession with degrees in the liberal arts, and encouraged them to think in terms of career-oriented training immediately after school.

But a great deal more needs to be done, and it is a pity that the human resource development ministry is not seized of the task of certification and "recognition", based on effective standardisation norms.

Economists will also ask themselves how much real unemployment there is in the economy. The periodic National Sample Surveys suggest a fairly small percentage, but much of that is not material to a discussion on trends in the organised sector.

The real employment transition that India has to undergo is in taking people off the land and putting them in industrial and service jobs. It is a transition that most other countries have already managed, and China is right now in the middle of the process.

In India, though, there is precious little movement, and if sharp salary increases continue, the message will be that the required change is not taking place.