G.S.S.Murthy
It is generally realized that despite astonishing progress in creating wealth by the IT Companies, the gap between the rich and the poor is increasing in the country and that the majority of the population is, if at all affected, adversely so. The champions of the success story talk of the surplus purchasing power created by the IT revolution in the hands of the software engineers and other technical staff of the IT companies. It is argued that the purchasing power created will slowly trickle down to the lowest levels of the society and the poverty line will steadily and surely head southwards.
There is no denying the basic truth that unless wealth is created in the country there can be no solace to the impoverished. The government has to garner more revenues from the wealth so created through direct and indirect taxes so that it will have the wherewithal to provide schools, hospitals, roads and other societal infrastructure to steadily raise the living standards of the vast majority of our country. In addition, the purchasing power of the IT professionals should create more demand for goods and services of various complexion and complexity which should drive the engines of the economy, given that the government allows a free play in the market- economy subject to meaningful regulations. This demand for goods and services should generate employment opportunities in a broad spectrum of the economy and the wealth created should steadily and surely diffuse downwards. All this is absolutely correct, but what matters is the time factor associated with this painfully slow process of wealth-diffusion.
In this context it is illuminating and revealing to examine how and where the purchasing power of an IT professional gets dissipated in the economy [see Fig.1]. For this analysis, we shall restrict our examination to IT industry and exclude IT enabled Services. The average take home pay (Rs.40000/- to Rs.2 lakhs) of an IT professional in an IT company is higher by an order of magnitude than that of a white collar employee in an average medium sized enterprise. To attract the surplus income in the hands of an IT professional a whole lot of capital intensive Life-style enterprises have sprung up and woven a web around him to ensnare him. There are high end apartment complexes which have facilities for sports and pastime, swimming pool, restaurant and a shopping mall. There are high end schools for kids which charge an annual fee of a whopping one lakh of rupees or so. There are clubs and country clubs, with every possible facility for the IT professional to squander his hard earned money. (Without meaning any gender bias this article uses masculine pronoun for an IT professional.) When he goes on a vacation with his family, at his company’s cost, to a holiday resort he may easily spend a minimum of Rs.10, 000/- per day. The white goods industry, the leisure industry and the fashion industry have all geared up to lure these noveau- riche. All these capital intensive enterprises themselves are managed by a small number of highly paid managers and mid-level managers, who are again consumers in this mutually enriching web of high end enterprises.
Although the IT professional himself may not employ directly any semi-skilled labour other than a driver, a cook and a maid-servant, money does trickle out of this high end web into the hands of an average Indian, through the skilled and semi-skilled labour employed by the IT companies and the Life-style enterprises of the high end web. Most of the house-keeping services such as security, catering, transportation, travel etc. which require skilled and semi-skilled labour are out-sourced by these companies to small and medium enterprises, which are again managed by a small number of reasonably-paid managers and field-officials. The skilled and the unskilled who really handle these jobs and services get a measly pay.
This is not to say that labour rates have not risen in the country; The bright, the smart and the experienced among the skilled and the unskilled get employed by this high-end web at marginally higher salaries. The less bright and the less smart fill up any vacancies caused by this lateral movement of labour. The latter get paid at normal rates as the source of skilled and semi-skilled labour is virtually inexhaustible in our country.
It is this skilled and semi-skilled group employed by the high end web which joins the consumer pool of the lower end urban web consisting of the grocer, the vegetable vendor, the shop keeper at the corner, the service-person like plumber, electrician etc. Blue collar and white collar employees of non-IT sector, Government employees, retired persons and teachers are the hapless consumers of this lower end web [see Fig.1]. Most of the city dwellers participate in this web, some as consumers and many as both consumers and providers of services. Most of them, but not all, would be above the poverty line.
Quite clearly, much of the wealth created by exporting software goes to enriching the pockets of the high end entrepreneurs of the high end web, their company directors and their share holders. A portion of the share of MNC’s in this pie definitely gets repatriated too. Output of the IT Services sector including engineering services and R&D and software products during 2006-07 was about Rs.1.3 lakh crores ($ 30 billion). The sector employs about 7 lakh IT professionals (In contrast, the total non-agricultural labour force in India is estimated to be 20 crores). It is a reasonable guess that 40% of the output goes towards pay of IT professionals, about 75% of which is likely to be spent in the market. Out of this 39000 crores, how much will move to the lower end web is anybody’s guess. That it could not be more than 10% seems reasonable.
Savings of the IT professional will definitely go towards new investments in the economy but so long as the new investments get confined to the high end web, the average Indian has nothing much to be happy about.
To the extent that revenues of the Government get augmented through direct and indirect taxes on the total software services and products and to the extent that this augmented
revenue goes towards improving the quality of human resources, health care and agriculture, the average Indian does gain in the long run; but as J.M.Keynes famously put it, we are all dead in the long run. In the mean time, the burden of inflation flung at the masses by a galloping GDP is to be silently borne by the majority. An average citizen who does not manage to catapult himself to the upper web cannot afford a decent education to his children and cannot even dream of owning a roof over his head. He will find himself unwittingly hurtling downwards to float on the poverty line. While the IT sector will continue to grow propelled by its own momentum, its propensity to accentuate the divide between the rich and the poor should not be lost sight of. We need other export- oriented sectors to flourish like the garment, leather and food-processing industries which may have a large potential to employ persons of physical skill rather than those of mental skill.
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