TCS Makes India Poorer in Favour of Foreign Companies

When Henry Ford started paying $5 per a day in 1914 to workers employed in Ford Motor company, he was essentially trying to reduce the turnover rate of workers.

1953 Saturday Evening Post article sponsored by Ford Motor Company

“The move proved extremely profitable; instead of constant turnover of employees, the best mechanics in Detroit flocked to Ford, raising productivity, and lowering training costs. Competitors were forced to
raise wages or lose their best workers. Ford’s policy proved, however, that paying people more would enable Ford workers to afford the cars they were producing and be good for the local economy.”

In 2001 IT companies in India started paying Rs 3.3 LPA for an average engineer. As with Henry Ford the motivation was to attract the available engineering talent from other sectors.

Adjusting for inflation, growth rate and forex rates, the same amount now translates to Rs 11.5 LPA in current day terms. In lay person terms this means what an individual could purchase with 3.3 Lakh in hand back in 2001 is equivalent to what he/she could purchase with 11.5 lakh in 2018. So whoever is getting paid less than 11.5 LPA at an entry level is essentially poorer than an average software engineer from 2001 and is subjected to exploitation of wage slavery.

At the moment, the Indian employee market is mostly dictated by over supply of engineering graduates. There is more number of engineers produced every year so the IT companies are getting away with paying
as low as possible. This was made possible by the deliberate policy of the government to allow hundreds of engineering colleges without considering the likely demand in the future. Profit driven private
engineering colleges proliferated. Lakhs of young students spend huge amounts to get an engineering degree, but they are left with the prospect of no jobs or very low paying jobs. A tea master makes Rs 60,000/month, but an an average engineer makes Rs 30,000 per month. Its a pity that an educated person pays the price of commoditized education/job market. With the profit driven demand/supply system continuing, the scenario will continue to remain so for generations to come. People will continue to become poorer and poorer while company owners continue to become richer and richer in
the next generations to come. The ripple effect – experienced people have to settle for low hikes or get replaced by lower experienced person. The net effect is that low engaged middle/senior management just drag their feet to work and hence the productivity and technical strength of nation remains poor.

the Indian employee market is mostly dictated by over supply of engineering graduates.

Almost all industries in India go below IT in terms of compensation structure. As IT itself pays lesser and lesser year after year, you can imagine the magnitude of every worker in India becoming poorer and
poorer year after year.

TCS, one of the biggest employers in the Indian IT industry, roughly covers 12.5% of the Indian IT industry revenues. It is also a well known fact that TCS pays some of the lowest salaries in the industry.The largest player paying the lowest essentially results in bench marking the salaries for entire Indian IT sector. Other companies can just show the salaries of TCS and get away with paying the same or slightly more. For the management of other companies, the company owners put pressure on managers that when TCS can get so many people why can’t we get people when we pay slightly more.

Due to this, the captive entities (US companies with offshore base like ADP, JP Morgan Chase, Bank of America, Pega Systems, Amazon development, Google etc. ) are also getting away with paying only
slightly more than what an average Indian IT firm pays. About 75% of the Indian industry at the moment is IT services and remaining 25% is of captive entities. Out of the 75% of the services companies around
half of the companies (like Cognizant, Accenture and IBM etc.) are promoted by non-Indian parent based out of west. As a whole, about 50% of the Indian IT at the moment is owned by foreign promoters.

Even in Indian promoter companies, the low salaries translate into low billing rates to the clients in Europe and US. Still, while the profit generated by the Indian promoted companies will come back to India,
that of the captive companies and foreign services companies goes back to their parent company in the west.

Essentially when an IT company makes profit out of low salaries of Indian employees, the misery of the employees translates into profit for a foreign company. As a result we as a nation are losing significantly valuable foreign exchange and collectively as a country also we become poorer and poorer year after year.

Who is to blame? Of course it is TCS – the big daddy of Indian IT. Unless TCS increases the salaries no one else in the industry will. It looks like TCS does not want to pay anything to its employees if it can get away with that. They want to stash Rs 50,000 crore of surplus and use that to create new companies like Tata motors and buy companies like Jaguar Land Rover, Bhushan steel etc at the cost of making entire India poorer and poorer every day. To be fair, lets say TCS and its founders are not intentionally doing this but just being a party to this without much of their knowledge. But as TCS enjoys 12.5% of the market share, the company alone can change the scenario -only if they intend to change the scenario and make the country prosper.

Lets say, hypothetically, by some miracle TCS starts paying $30/hr for each of its employees in India. This means TCS not making any profit at all or making substantially low profit and sharing almost all the generated billing to its employees. Let us also assume that this would force all Indian companies to match. Many small and medium companies will not survive and end-up selling/merging with large companies like TCS. All the captive entities and foreign services companies will not have any rationale to set-up their own entities and so they would sell/merge these entities to local promoters and leave. Essentially companies like TCS will swell to 4 times its current size resulting in more profit in volumes and less profit per hour. The valuation of the company might suffer in the short term but eventually comes back to normal.

Little less hypothetically, lets say that TCS starts paying Rs 12 LPA to all its entry level employees and accordingly adjusts salaries at all levels. Essentially ~8LPA increase per employee per year – nearly
equivalent to a increase of $5.55/hour. Even this will make a big impact.

But, the free market competition leads to cut throat pricing and pushing down of wages by employers. The government of India is supposed to play a significant role in this menace. They are supposed to set
minimum salary guidelines for each skill, experience level like all developed nations do. If they do this right, (with right intention and ensure its compliance properly) humans will no longer be treated like
a commodity with demand-supply. The government and the leaders should tell the companies that abundance of supply of talent should not be a reason for paying less. If that’s the way, the employers will not make the nation begging poor for the sake of profits and gain of a handful of people.

As the salaries increase and the other companies are also forced to match, everyone renegotiates the billing rates with the foreign companies, it is all readjusts to average increase in billing rates of India and none of the companies lose in the long run. In fact as salaries increase, more and more people purchase products in India, resulting in more business activity and increased IT spending, car purchases etc. originating out of India. Essentially all of us as a country prosper together.

But of course the entire government is run by TATAs and few other rich entrepreneurs in a proxy mode. So you can naturally expect nothing can change. I guess we, as a nation, have long way to go. Our leaders are certainly more selfish and less matured than that of the advanced countries in the west. It is shocking to see the mid/senior level leaders forget their national/humanitarian responsibilities and protect the interests of the investors by staying quite or advocating like brokers.

Only the working class can break this cycle by joining together in unions and forcing governments and employers to act in the interest of our country.

– Prasanth

NDLF IT Employees Wing president Mr. Shyam has published a book “IT life – FUN or Problems” Please read this book ( you can buy or read online), please go through the same and you will have more information about the rights of employees.

Locations to pick up “IT Employees Life – Fun or Problems?”