Kanika Datta: The gravy train resumes

SWOT

When the dotcom boom faded, hundreds of corporations heaved a collective sigh of relief. The crazy haemorrhage of people had finally stopped.

Hotshots and desperados who had jettisoned the conventional corporate life for the virtual charms of cyberspace with its impossibly high salaries were back, chastened by the spectacular failure of a business model that was patently imperfect in the first place. "Wealth creation," it was discovered, was about as real as panning for gold in a Californian river.

As it turns out, senior managements and HR departments have enjoyed but a brief respite from attrition. And what is worth noting, the problem is afflicting all companies equally. No longer are BPO outfits the sole victims of high attrition rates; yesterday's reviled "old economy" companies are losing people, too. Whether they are domestic minnows, IT giants or even multinationals, India Inc has become restless all over again.

The reason this current trend should have corporations worried is that, this time, it is clearly not the result of a passing fad. Faster growth in manufacturing and services and the opportunities opened up by a range of industries after liberalisation are inducing a skills shortage that spells great news for employees and terrible news for employers.

Thus, traditional consumer and manufacturing companies are losing experienced hands both to competitors in growth mode but also to the brave new world of telecom, insurance, entertainment, finance and travel.

Why, even Aviation Minister Praful Patel felt constrained to tell private airlines not to poach from the state-owned domestic carriers - though, ironically, they're doing so to cash in on an opportunity he has provided by allowing them to fly international routes.

The most potent sign of the people crunch can be seen in salary trends, which have been rising steadily since 2002. True, they are still nowhere near the kind of increases that corporations handed out in the mid-nineties. But the free-fall of the end nineties is unlikely to be repeated soon.

In 2004, Hewitt Associates' annual salary survey showed that India recorded the highest overall salary increases in all categories of employees (and this included manual labour) for Asia Pacific""higher than even China by at least three percentage points. The trend is expected to continue in 2005 (see table).

What makes this current people boom (or crunch, depending on your point of view) significant is that it appears to be less ephemeral than it was in the mid-nineties. In those years, growth was fuelled by over-investment generated by the euphoria of the early years of liberalisation. Remember the nine integrated steel plants that were going to come up in Orissa alone? The mega names in the power business that were going to transform energy-starved India?

Of course, there are scads of mega plans being announced today, but the India story has a distinctly different pitch to it this time. For one, global corporations are taking a more sensible view of the fabled size and purchasing power of the Indian middle class than they did before. (To be sure, the potential is still large""projections by the National Council of Applied Economic Research show that their numbers will more than double to 153 million by the end of the decade. Indeed, NCAER's numbers show that it is the upper income classes that will rise the fastest and the lower income ones will shrink over the decade.)

For another, the current growth is predicated on the greater competitiveness of Indian corporations than before. Concrete and often painful restructuring over the nineties has not only brought India Inc on a par with global standards but has now made it confident enough to look outward at global opportunities and global markets. These are solid, sustainable gains that will underpin the churn in the market for talent.

This is a sign that corporations in India now need to take the next step and look at creating durable organisational structures and cultures to improve retention.

True, Indian corporate cultures, especially in the family-managed businesses that dominate domestic business, have changed. But it is fair to say that this change has lagged behind the structural changes they made to become globally competitive.

To be sure, there is only so much any corporation can do to retain talent""demand will inevitably drive up salaries and, whatever the HR people may say, salaries are the biggest reason for exits. But the scope for cultural transitions is still enormous.

The views expressed here are personal