TCS has announced that it is planning to hire 60,000 staff in the upcoming fiscal year – just 10,000 down from 2010/11’s 70,000 new additions. Meanwhile, rivals Infosys and Wipro are also said to be on a hiring spree, rubbishing rumours that Indian offshore software development is unable to move forward in a changing market situation. 

There is an ever-growing demand for software engineers in India – outsourcers are experiencing competition from offshore software development companies like Microsoft and IBM which are in turn challenged by local banking, finance and manufacturers hiring their own IT staff. Employers offer pay rises as high as 50% to poach workers.

Obviously this is leading to extreme pay hikes. TATA will offer an average pay rise of 12-14% to its employees in 2011 – the highest in three years. Now is this good or bad? Is the Indian IT industry becoming less competitive, lowering its 50-60% cost arbitrage to a mere 20-25%?

Looking at TATA’s rise to international fame these doubts seem unreasoned. Of course, an estimated 6,000 low-cost BPO outsourcers went out of business during the financial crisis and yes, many low-cost positions are moved to cheaper locations. But the IT industry, India’s real asset, is growing as strong as ever, despite the narrower profit margin for foreign investors.

It is a process that all developed and developing nations have experienced. Manufacturing moved from the US to Mexico and then to Asia. KPO shifted back-office roles to India and will continue shifting them, most recently to China and the Philippines. Even low-end offshore software development has been said to come out of Bangladesh lately.

Does this leave India at loss? Surely, wage inflation and the growing competition in the region are a challenge. Offering high-end IT solutions and an innovative edge will be India’s key to positioning itself in the higher segments of the IT market that deserve increased wages as well as international attention.