The adverse impact of rupee appreciation against the US dollar is well known for the IT sector, but the robust local currency is also narrowing the gap in salaries of software professionals in the United States and India.
While the gap is likely to drop by up to 21 per cent in 2008 from the levels seen in 2006, it is still high enough to keep India's competitive edge as a low-cost market, says a white paper by leading executive search firm Manpower.
According to data compiled by Manpower, the sector's staff level salaries were as much as 86 per cent higher in the US compared to India in 2006. However, this gap declined to 82 per cent in 2007 and is expected to decline further to 78 per cent in 2008.
In executive level salaries, the gap dropped from 68 per cent in 2006 to 60 per cent in 2007 and could further decline to 52 per cent this year.
However, the steepest decline of 21 per cent is likely to be seen in the middle manager level, where the US salaries used to be 69 per cent higher in 2006, but would be only 48 per cent higher than India in 2008. This difference stood at 57 per cent in 2007.
While noting that salary is the biggest cost component, accounting for 45 per cent of IT companies and 40 per cent of BPO costs, the white paper said that a close comparison of Indian and US salaries indicates a narrowing gap in cost arbitrage during 2006 to 2008.
Concerns have also been raised periodically that the adverse impact of rupee appreciation could force IT companies, for whom exports account for a major part of revenues and profits, to cut down on the wage hikes and other employee costs in order to offset the impact on their margins.
However, "as long as the cost arbitrage exists and major companies remain profitable, the chances of a slowdown in recruitment may not be in the offing," the paper noted.
"While most of the companies have managed to weather the storm rather well, they have started to gear up for further appreciation in the rupee and taking other remedial measures to increase productivity and improve efficiency in their operations instead of resorting to cost cutting around people," Manpower said.
According to data compiled by Manpower, the average annual executive salaries in the US stood at $205,047 in 2006 and increased to $213,336 in 2007. In comparison, the Indian average annual salary is expected to rise from $65,356 to $103,167 in 2008.
The estimates for 2008 are based on the assumption that salary levels remain unchanged in the US, while there would be an average 15 per cent increment in the Indian salary, Manpower said. It took into account 2006 dollar rate at Rs 45, while for 2007 and 2008 it has considered rupee level at 40 and 38, respectively.
For middle-manager level, the US average annual salary actually dropped from $104,681 in 2006 to $103,379 in 2007, while in India it rose from $32,733 in 2006 to $44,250 in 2007 and would further improve to $53,566 in 2008.
The Indian staff-level salary is expected to rise to $20,337 in 2008, from $13,156 in 2006 and $16,800 in 2007. In the US, the staff-level salary dropped from $92,201 in 2006 to $91,965 in 2007.