World Inc may shed India

May 24: Promod Haque, who was ranked first among global dealmakers by Forbes in 2004, said escalating salaries posed the biggest threat to the development of technology companies in India. Salaries for technical workers in Bangalore are likely to catch up with Israel’s, where employees are paid half US levels, in the next two to three years, Haque said in an interview in Bangalore.

Compensation levels in the city have already increased to about one-third of that paid in the US from one-fifth a few years ago, he said. Rising pay may jeopardise the country’s chances of winning the 3 million so-called white-collar jobs that will be moved overseas from the US by 2015, Mr Haque, 57, said. Salaries in Indian cities such as Pune and Chennai, rivals to Bangalore, are already at a quarter of US levels, said Mr Haque, managing partner of Palo Alto, California-based Norwest Venture Partners.

“India today is the leading recipient of information-technology outsourcing jobs,” Mr Haque said. “If salaries continue to escalate, China is more attractive to us as venture capitalists, Israel is more attractive to us, and Eastern Europe is more attractive to us.”

Employees at start-ups in Israel and Eastern Europe are more willing to accept stock options instead of large salaries, helping maintain lower costs, said the Indian-born Haque.

Bangalore is two to three years away from getting serious competition from Israel, where the engineers also have more product development experience, he said. “The cost advantage that India had is starting to erode.”

he growth of the technology sector is critical to India, where well-paid software engineers are fueling economic expansion by spending more money and creating additional jobs, said Anand Shah, who helps manage $1.5 billion at Kotak Mahindra Asset Management Co. in Mumbai. “Every information technology employee buys cars, and eventually, they have drivers and maids at home,” Mr Shah said in an interview. “They have been creating jobs, which has been phenomenal.” Software exports accounted for an estimated 2.7% of economic output in the country in the 12 months ended in March, according to the National Association of Software & Service Companies, Nasscom, and almost 19% of total exports. Norwest is funded by Wells Fargo & Co., the fifth-largest US bank by assets, and invests about $1.8 billion on developing nascent information technology companies. The company plans to spend about $100 million this year in new investments.

— Bloomberg