Indigo Days - Revisited
3 years ago, I posted a rant about how the call-center industry in India is just a modern version of the days when the British forced Indigo plantations in India. I argued that the relatively easy money in the industry is a disincentive for young graduates to pursue careers in their core specialisations like civil engineering or basic sciences. This discussion came up again recently among friends and I found myself even more convinced that this is not the simple result of international business alone.
Since the sunset clause on the STPI scheme (a scheme that provided for a tax holiday for firms in the IT and ITeS sector) has come under discussion, it has struck me that this specific Government policy, while being a major source of national income has simultaneously hurt the core infrastructure industries. It is clear to me now that Government tax policies can have very pointed impacts on the educational demographics of the country. The reasoning is simple enough. Lower tax burdens on IT/ITeS firms allows these firms to hire more people at higher salaries. Also, since tax burdens are lower, they can also operate on lower marginal productivity of labour, thus tolerating a less capable work force. In turn, this significantly increases incentives for students to study subjects which can get them these jobs - viz. computer science/software engineering. Also, these students are willing to pay more in fees to their engineering institutes, creating large incentives for enterpreuners to set up engineering colleges specialising only in these fields. A large number of such institutes are set up while teaching and infrastructure development for other engineering and core science disciplines suffers. Apart from engineering, there is a much reduced incentive to study in other specializations too, such as humanities or commerce.
Friends argue that if indeed this were creating an imbalance, there would be an oversupply of engineers, wages would fall and so would the incentives. Unfortunately, in my opinion, there are two other aspects to this. One is that the equilibrium itself would settle much further away than optimal because there is an imbalancing force to begin with - viz. selective tax incentives to IT firms. Secondly, the equilibrium would take a significant time to get established. This would be atleast 4-5 years long because of the gestation period required to increase supply in any given specialisation. Since the demand is significantly higher, it would take several batches of students to graduate before saturating the demand. Meanwhile, before the adverse impact of increases supply is felt, 4-5 batches of students would already be in the CS engineering pipeline while other fields like medicine etc would have much fewer students.
Also, by the time the incentives generated by a dearth of doctors or lawyers is felt by students to study these subjects, the country would face between 3-10 years (3 years at least for law and 10 years for medicine) of a severe crunch of these specialists.
The whole argument is that financial, not only social or educational policy, must be designed keeping in mind the tremendous lags that are inherent in the education pipeline. Careful management of India’s talent pool by providing the right sort of incentives to the required fields is very important and critical to India’s success in the decades to come. I hope these considerations are taken into account by the Government that has just returned to power.