Rajabahadur V. Arcot,
Director of South and Southeast
Asian Operations
ARC Advisory Group
Dedham, Mass.

Suppose you were a newly minted engineer in India. If you had graduated from one of the elite technology institutions there, you would be a highly desirable hire. IT companies would wine and dine you. They might offer you a salary of as much as $6,000 annually if they thought you were among the very best. But for every Indian engineering student who manages to get such a generous starting salary, there are nine others willing to accept half that.

Still, engineering students generally are in great demand, and this is particularly true for students graduating from big-city colleges. Colleges with a good academic record report that almost 85% of their graduates secured a position before they left school. Last year, the number was 70%. But it is virtually 100% at the Indian Institutes of Technology, sometimes dubbed the MIT of India. And these institutions graduate about 4,000 students annually.

To put that in perspective, today India has approximately 3,500 engineering colleges, with over 450,000 engineers graduating every year. These numbers are more impressive when viewed in the context of national economies. India is only a $1 trillion economy, whereas the U.S. and U.K. are $13.2 trillion and $2.3 trillion economies, respectively. But annually the U.S. and U.K. only graduate around 60,000 and 25,000 engineers, respectively.

Like their counterparts in the U.S., Indian engineers work hard. The official work week is typically five days of 8-to-10-hr days, but longer weeks are not uncommon. Engineers at many manufacturing companies put in six-day weeks. And the extra work is “free.” Engineers generally don’t get paid overtime.

The engineers who emerge from the country’s engineering colleges have an education similar to that of their American counterparts. Indian colleges offer four-year Bachelor of Engineering (BE) or Bachelor of Technology (B.Tech) degrees. Students enter engineering colleges after completing 12 years in school and a two-year preuniversity course commonly referred to as “+2.” But unlike the U.S., engineering students in India get only one year of basic science and core engineering disciplines, followed by three years of study in a more-focused engineering discipline.

Though the IITs are probably best known, India’s second-tier engineering schools are also held in high esteem. There are a large number of engineering schools affiliated with well-known universities in cities such as Chennai, Mumbai, and Delhi. This has made India a good hunting ground for companies in search of talent. Such leading global companies as ABB, GE, GM, IBM, HP, Hyundai, Samsung, Siemens, Sony, and Toyota have design, engineering, and manufacturing facilities in India.

A lot of these companies have set up shop in major cities. So that has led them to do most engineering recruiting at the bigger schools found nearby. But the pipeline of this engineering talent is getting empty. The response has been to look farther afield. Engineers concentrating in computers and electronics have been the most sought after. Now, employers are more likely to look at engineers in other disciplines. And they are casting their net farther out to recruit at engineering colleges outside metropolitan areas.

It is easy to see that the situation for engineers in India differs from that in developed countries where there is a steady decline in the number of people pursuing careers in engineering and science. In contrast, the number of graduate engineers is on the rise in developing countries such as India. The reason, simply, is that engineering looks like a means to better living standards.

The Enginering Landscape in India
Many countries face challenges in making computer and electronics engineering studies interesting. That doesn’t seem to be a problem in India, where the number of engineers graduating and specializing in these fields is on the increase. Almost 30% of engineering students there take courses that lead to degrees in electronics, communication, or computers.

A lot of these kids end up in the software industry, which is booming right now. The software industry’s direct contribution to India’s GDP is only around 3%, but its overall impact is more profound. It distributes disposable income among the Indian populous, thereby contributing to the virtuous cycle of economic growth that has put India among the fastest growing economies in the world. The kick-start from the software industry, as well as from other kinds of services, is beginning to pull people from the bottom of the economic pyramid, the majority of whom earn less than $2 a day. The youth, of course, can see this, and it contributes in a major way to the large number of them enrolling in engineering colleges.

The IT industry also gets a lot of the women engineering graduates. Statistics on women engineers are difficult to come by, but estimates are that men outnumber women in engineering colleges by about 6:1.

In this regard, India’s manufacturing industry is still a man’s world. It only started taking roots about 40 or 50 years ago and is still nascent. It started with process industries such as aluminum, cement, electric power, fertilizers, and steel. At the beginning, the country had to overcome a threefold problem: lack of access to relevant technologies, no such thing as private capital, and a dearth of qualified engineers and experienced managers.

The State addressed the first two challenges by seeking technology through licensing agreements and opted to establish State Owned Enterprises (SOE), because there wasn’t enough private capital available for large projects. SOEs established training schools as a short-term measure. Meanwhile, the State began to set up engineering colleges for meeting long-term goals. The result was the globally renowned Indian Institutes of Technology.

It is only lately that Indian engineering graduates have done well. In the late 1950s, the country’s emerging manufacturing industry provided an Indian engineer the prospect of a starting annual salary of $120 (calculated at today’s exchange rate of 40 rupees to a dollar)! But that was better than the alternative, which was to languish as an employee in a government office earning less than $60 annually. In the mid-1960s, an experienced engineer as a General Manager in an SOE would have earned close to $900 in a year. Only those with around 25 years of experience could have dreamt of that bounty.

The 1990s are considered the dawn of India’s software industry. But engineers in the manufacturing industry had to wait an additional decade for things to improve. At that point, the software industry began to realize it could only sustain rapid growth by attracting domain and functional experts, and the manufacturing industry had them. That trend continues today with talent from brick-and-mortar companies going to Indian Global Service Providers (GSP) such as HCL technologies, Infosys, Satyam Computer Services, TCS, and Wipro Technologies.

Indian software companies pursued growth opportunities in the manufacturing sector as well as in the areas of product design and engineering services. As in the past, their success with these new domains depends on whether they can attract engineers having deep knowledge of such areas.

Fortune Changes for Indian Engineers
Currently India’s manufacturing sector is seeing buoyant demand and company balance sheets are looking good. Indian manufacturers are making profits big enough to fund massive capital expenditures. Their current challenge is in attracting and retaining good engineering talent, and in preventing their most experienced professionals from being lured away by software companies. This phenomenon is pushing up manufacturing salaries.

Analysis by ARC reveals that the current average annual salary of a software professional in India is around $20,000. A typical engineer in manufacturing earns a little over $10,000. Another interesting observation is that while in the last two years the top three Indian GSPs almost doubled the number of people they employ, the manpower in the manufacturing industry went up by less than 5%. Small wonder, then, that engineers in India are enthusiastic about joining software companies.

Benefits vary from company to company and from industry to industry. India still has a large number of SOEs. These entities typically provide free medical facilities for employees and their family members. It is also common to find SOEs contributing close to 10% of their employees’ salaries towards a severance fund, and employees make matching contributions. Engineers also are entitled to four-week vacations and are also paid a vacation travel allowance which may equal a month’s salary.

Of course, engineers at software companies enjoy more benefits, including stock-option plans, The software industry currently employs around 1.6 million people. The majority are engineers with a four-year degree. The industry is growing at a CAGR (compound annual growth rate) of 30% and is on a recruitment binge.

This growth is making engineering talent scarce, so much so that there is a resulting rise in salaries. This is a concern, but the feeling within India is that the country should be able to overcome this challenge in the longterm and keep growing.

Despite rising salaries, India still remains a low-cost supplier of engineering talent. And software companies see a way of mitigating engineering employment pressure: They have been hiring engineers to perform jobs that really require no engineering skills. This practice is already disappearing. Instead software companies have begun recruiting science graduates and have started their own training schools.

In an era when talent was easily available and affordable, software companies could recruit the best and brightest. Many companies focused only on the top 20% of the graduating class. But with the war for talent beginning to have its impact, these companies have started to look at the other 80%. That has led to a shocking recognition: Only 20% of the graduates emerging from colleges are employable! That’s led to talk of starting preparatory schools and more interaction between industry and academia.

The skill sets and expertise of Indian engineering graduates are also moving up the value chain. There was a time was when most engineers could work only at the production level. They’ve subsequently moved up to the engineering design and development level. That’s one reason manufacturing industries in India have thrived. The machine-tool industry in India has seen close to 30% annual growth over the last two to three years. India’s automotive industry has grown at an impressive 17% over last year with vehicle sales touching 10 million in 2006 compared to 8.5 million in 2005.

Indications are the country is emerging as a compact-car hub. Tata Motors, a domestic automotive company, has announced plans to design and engineer a car in-house costing less than $2,500. Likewise, India’s auto-component sector is growing as well, generating sales of about $15 billion in fiscal year 2006-07, including $2.8 billion worth of exports. And Indian engineers’ success stories include the launching of geostationary satellites and the design of military aircraft using composites. All told, the Indian economy is growing in excess of 9% and according to many analysts this growth will continue.

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