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back to index backGLOBALtalk February,  2005

HR in India - country report

India is second only to China when it comes to a growing economy and size of its potential workforce. Yet the two countries are as diverse as their cultures when it comes to the HR issues and challenges being faced.

When studying human capital issues in India, it is critical to get a grip on the idea that it is not just sections of the Indian economy that are booming - but the entire nation is progressing rapidly. From an outsider's perspective it is easy to be mesmerised by the strong performance of the IT industry in India. This burgeoning industry, including the country's massive business processing operations (BPO) capacity, has become a focus of intense overseas interest in recent times. It is wrong, however, to believe that the Indian economy is driven by ever increasing hordes of call-centre employees. With the entire economy growing, HR ramifications are felt across industries.

The Indian economy is currently the world's second fastest growing  with a growth rate of 8.2% in 2003-2004. The growth phenomenon can be understood better by looking at the contribution of some of the component sectors. In 2003-2004, the agriculture sector grew by 9.1%, manufacturing by 7.3%, and the services - which includes the IT and BPO industries - grew by 6.8%.

Liberalisation and growth of economy
India's journey towards the globalisation of economy started in the '90s with the liberalisation of economic policies by the government. Years of state-controlled, semi-socialist economic strategies - with high tariff regimes and high government ownership of enterprises - had stymied economic growth to a standstill. The present Indian Prime Minister Manmohan Singh spearheaded the movement towards liberalisation as the then Finance Minister. The performance of the economy has vindicated Manmohan Singh's policies.

A growing workforce with complex HR issues
With its population resting at 1.02 billion, India is the world's second most populous nation. It confronts a complicated range of human capital issues, which need to be worked through for the economy to progress in the right direction. Furthermore, 54% of the population is aged less than 25 years; meaning India will need to manage the forces of an expanding workforce in the coming years. This contrasts with economies like Japan and Europe where the ageing workforce feature as a notable factor in the human capital equation.

With respect to the middle class in India, this group alone includes around 110 to 150 million people. They are unaffected by poverty and have the motivation, and the income to maintain high education and technical standards in the next generation.

By 2013, the projected net addition to the productive population (say, between the ages of 25 to 44-year-old) will be a further 91 million people. This is a growth rate of 33% in the workforce in just nine years from now. The growth in size of this working population brings with it several HR issues.

On the negative side lies the unchecked growth of population that is the destroyer of poverty alleviation because, as the national wealth increases, so does the cumulative demand on that wealth by the new population. On the positive side, the growth in workforce means that India will be able to sustain the well-educated workforce which has underpinned the country's expansion in the IT and BPO sectors.

Further broad scale HR issues include-
  • Equity of access to education
    On a national scale, there is danger that the economic benefits of liberalisation could end up being focused on improving the lot of the existing middle class. A greater division could arise where the poor get poorer and the middle class enjoy yet more comfort. The Ministry of Human Resources Development (HRD), Government of India, sees that equity of access to education is a significant HR challenge facing India. India has a vast number of educational institutions and the government is active in sponsoring scholarships to ensure that the education system can be accessed by students from all socio-economic backgrounds.
  • Preventing exodus to the cities
    India faces the HR challenge of ensuring that benefits of globalisation are spread to the rural areas as well as the cities. The rewards to work in rural areas both in terms of lifestyle benefits and remuneration must be boosted as the economy grows. Many Indian cities are already over crowded and there will be little overall benefit to the society if rural work conditions and living standards fall well behind the cities. Such a situation could lead to a catastrophic population shift to the cities.
  • Managing further deregulation and liberalisation
    The pace at which further liberalisation takes place is an emerging issue for the Indian government. While it is true that the Indian economy is undergoing a process of liberalisation, it is also true that the economy is not yet fully open. The government actions are still targeted and controlled. Moreover, if the pace of change is too fast, massive social dislocation and greater poverty can be created in the process. If it is too slow, the Indian economy may miss out on opportunities for wealth creation in the long term.
  • Taking into account the Indian democratic system
    The pace of human resources change can only be at the pace that the general democratic consensus will allow. The government is not in a position to make autocratic decisions and push them roughshod against all opposition. In this process it may need to confront power groups, factions, and lobbies that hold up and skew the speed and direction of change.
  • Danger of locking in a 'cheap' mindset
    While India currently gains a huge competitive advantage from its inexpensive labour rates, there is a danger in allowing the economy to be locked into a permanent mindset about cheap labour.
    The first problem is that, as business grows, the workers will find out the truth about their situation. A push for higher wages could follow this and the competitive advantage can be eroded. The Indian economy should manage rightful distribution of wealth to workers via the wages system. Asian countries, notably Japan and Singapore, have made the transition from low cost/low wage centres to higher wage, higher cost centers. India needs to follow their example in this respect.
  • Reaching the limits of the English speaking capacity of India
    While much is made of the English speaking capability of India particularly with regard to IT and BPO industries, there are limits to this resource. The limit is not the number of people in India who can speak English but it is the number of people who can speak Mid-Atlantic English. The English spoken on the Indian streets is heavily accented and would sound virtually like a dialect of English to many foreigners. 
    The move made by an Indian company to establish an English speaking call centre in the Philippines - the world's third largest English speaking country - has already been made. India needs to train future workforces not only in English, but with Mid-Atlantic English as a dialect, to retain its position of primacy in off-shore English speaking call centers.
  • Coping with wage-driven inflation
    Wage-pushed inflation is a growing issue in India's IT and BPO industry. The Indian economy has to build the capacity to recognise valid aspirations of Indian employees for higher wages while retaining the viability of the industry. The wage disparity between India and the rest of the world will slowly ease, particularly in the industries most open to globalisation.
  • Managing social discrimination
    In common with most economies of the world, India has to fight and eradicate various forms of social discrimination. India has taken enormous legal strides in reducing the formal discrimination found in the traditional caste system, but discriminatory issues related to caste are still found in the workplace. This is an on-going HR issue for the Indian economy.
  • Status of women
    The status of women and their freedom to enter the workforce and participate in the economic benefits of liberalisation is an on-going issue being fought.

With liberalisation and opening of the economy to the global market continuing on a planned basis over the next decade, India faces the HR challenge of making sure the country's human capital asset is matched with the demands of the growing economy.

Source: HCA Human Capital Asia - GAI

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