Indian software industry: Now that the profits are drying up…

A JOURNALIST friend recently asked me how recession is affecting India’s software professionals. He wanted to write a story on how recession has adversely affected the lifestyle of software professionals, who are compelled to cut their expenses on eating out, watching movies in multiplexes and shopping in plush malls.

An Indian socialist

While the worldwide economic implosion threatens many people’s livelihoods in the developing countries, India’s mainstream media sheds tears at the deteriorating lifestyle of software engineers.

The blue-eyed boy of India’s ‘success story’ of economic liberalisation, the IT industry has posted successive annualised growth of around 33% for many years. At times, the top IT companies (TCS, Infosys, Wipro, Satyam) consistently reported annualised 50% increases in profits every quarter. The industry is highly export-oriented; exports amount to two-thirds of its revenue.

India’s specialisation in software was driven by two sorts of wage advantage that reinforced each other. Lower wages for Indian software developers relative to those of their US and European counterparts make Indian software cheaper in global markets. Meanwhile, the higher wages earned by software professionals in India relative to those in other industrial sectors ensured a steady supply of software professionals.

However, these higher wages isolated software workers (who see themselves as ‘knowledge professionals’) from India’s wider masses on the social, political and economic fronts. Living in their virtual enclave, they considered themselves forerunners of the ‘era of prosperity’ that was supposedly dawning in India.

Most of India’s population, including 90% of her workforce that are employed in the unorganised sector, lacks even basic necessities like safe drinking water and primary health care facilities, but her capitalist class and media shamelessly tout the idea of India becoming a superpower.

Youth in the software industry, moulded by propaganda and blinded by new prosperity, became votaries of the neoliberal market cult. The market, too, was quick to milk this new breed of ‘high-profile customers’ who are in their 20s or early 30s.

Multiplying multiplex theatres, sprawling shopping malls, the array of investment and insurance products – all the tentacles of the consumer economy grasped them. However such market orientation towards the induced needs of highly-paid ‘professionals’ had catastrophic effects on the rest of the working class, especially in housing, education and health services.

This is most evident in housing where the needs of a migrating IT workforce were quickly transformed into attractive investment opportunities. Interest rates on home loans were lowered and the government offered substantial income tax benefits on them.

Builders, politicians and land hoarders seized the opportunity, leading to an unprecedented surge in real estate prices in cities reputed as ‘software hubs’, where property prices soon rose by as much as 400%.

This brutally ended the home-owning dreams of fellow workers in other industries ‘not paid so well’. The large number of people migrating from rural areas into cities, looking for cheap jobs, are left with no option but to settle in already cramped slums. This further exacerbates the ghettoisation seen in Indian cities.

The social composition of the IT workforce helps explain its distance from the rest of the working class. It also exposes the myth that the industry offers opportunities for social and economic mobility irrespective of caste, religion and regional background. On the contrary, if anything it helped to widen this disparity.

Most of its workforce (in some cases as high as three-quarters) is drawn from urban, upper/middle caste and landowning agriculture communities. A study of IT employees in Bangalore shows that brahmins (upper-caste priest community) constituted 48% of the workforce. The brahmins’ predominance is not surprising, given their historical monopoly over higher education and employment in the formal sector, especially in south India.

Inequalities and exclusive mechanisms in India’s higher education system are further compounded by IT recruitment processes which look for workers who can be moulded into ‘global’ professionals. Another study describes the IT companies’ criteria: good communication and social skills, confidence, and the ‘right kind of personality’, as nothing but elements of cultural capital.

And in India such capital is so far monopolised by the urban middle classes and upper castes. So IT recruitment processes tend to ‘weed out’ any lower caste/rural candidates that may have otherwise qualified.

Global crisis

Apologists of neo-liberalism often claim that India’s IT industry has flourished mainly because of the absence of state control or intervention. But the industry has all along received substantial state support, directly through subsidies, tax holidays, provision of land and infrastructure, etc. and indirectly through the large pool of “knowledge workers” produced by decades of state investments in higher education.

These apologists cheered the IT industry bosses’ entrepreneurial zeal and global vision for leading India towards becoming ‘knowledge capital of the world’. Captured by this, many young minds, including IT workers revered their bosses. However, with recession now deepening its grip, their gods are falling!

Being predominantly export-oriented, the software industry is prone to problems in the global economy, especially with its particular reliance on the US and UK. Statistics for the finance year 2007 show that the US and UK markets accounted for 61% and 18% of total Indian software exports respectively.

To add to the problem, banking, financial services and insurance, the industry domain worst hit by the global economic crisis, is the single largest growth source for software exports, contributing a whopping 40.4%. Faced with such a daunting situation, Indian IT companies and their promoters – the former ‘entrepreneur heroes of emerging India’ – are showing their true colours.

The IT workforce is already stripped of many facilities like free transport, pensions, and subsidised food in company hours that workers in other organised sectors benefit from. The situation is even worse in the business process outsourcing industry where workers have to keep long and irregular work hours, do night shifts, take short lunch breaks and do dull, mundane work.

Obsessed with higher growth rates, IT companies are shedding their workforces, refusing salary rises, replacing higher paid engineers with lower-paid trainees and doing everything possible to make sure their profits and share values don’t fall. As a finance manager in an IT industry bluntly put it – the software industry is in the business of nothing but selling man-hours.

This is a crude demonstration of the Marxist theory of surplus value. Charging the clients for (minimum) 8 hours (at a rate of around US $80 an hour), companies pay workers for barely 1.5 to 2 hours; the rest (almost 70%) becomes surplus value appropriated by the most senior managers and by the shareholders.

Workers get peanuts and are supposed to be content with it. But with the wind changing direction; unceremonious job cuts, negative annual increments and harsher company policies, may scratch the surface of their expectations. It will lead them to realise that they are nothing but cheap labour for the West and for their bosses, who are solely accountable to their shareholders.

Common interests

Recently, Ramling Raju (founder of Satyam Computers, India’s fourth largest IT company) resigned, admitting fraud to the tune of around £1 billion. The company’s account books were grossly manipulated with 94% of the cash being fictitious.

Such frauds are motivated by pressure to maintain the high pace of growth, to please investors and shareholders and to justify inflated share prices-to-earnings ratios during a six-year bull run on the Indian stock market.

While the media lauds institutional investors for their role, the spectre of losing jobs threatens more than 50,000 employees of Satyam in particular and IT workers in general. Some IT recruiters shamelessly await such catastrophe, hoping to cherry-pick employees.

While Raju may be prosecuted, all other complicit elements including the auditors (PriceWaterhouseCoopers), board of directors, domestic institutional investors and foreign institutional investors (that held 48% of the shares) would walk away, leaving workers alone to bear the brunt of the crisis they did not cause.

Such hostile circumstances may provoke workers to question the prevalent market system which thrives on exploitation of their labour and in return offers them only crumbs even in the best of periods. Their castist interests may conflict in their own eyes now, but a further deterioration in material conditions and the presence of a clear socialist alternative may help them identify a common interest with the working class of the rest of society.

From The Socialist (Paper of the Socialist Party England & Wales)