AFTER years of benefiting from a low-value currency and an army of willing workers, India's growing prosperity is beginning to bite.
The increasing cost of labour has forced the country's largest software services provider to hire 5000 employees in Mexico.
Tata Consultancy Services, which opened a software development centre in Guadalajara, Mexico, last week, will outsource the first 500 jobs from India in this financial year.
A further 4500 jobs will follow over the next five years.
A talent-supply crunch in the booming services sector in India, coupled with a sharply appreciating rupee against the dollar, is threatening to knock the country off its perch as the world's leading outsourcing centre.
"We see costs rising in India and people becoming less available," said Gabriel Rozman, president of TCS in Latin America, Spain and Portugal. "That's why we're going to places like Latin America, which has professionals and reasonable costs."
Mexican salaries are as little as half those in the US, where TCS employs about 12,000 people. In addition, more than half of the group's $US18 billion ($21.2 billion) revenues come from the US and having a centre in the same time zone means that its programmers can service customers more quickly.
TCS is not the only software group to express concern at the rising cost of doing business in India. It and several of its rivals, including Wipro, Infosys and Satyam, have set up operations in China, where an oversupply of well-trained software engineers has kept salary inflation under control.
India's IT companies are struggling to cope with wage inflation of about 15 per cent a year while the country's universities - which are churning out more than two million software engineers a year - cannot keep up with the demand for new recruits.
The rupee has gained 9.2 per cent against the US dollar this year, eroding the earnings of Indian companies that generate a large proportion of their sales in the US.
The National Association of Software and Service Companies, the trade body for India's $US48billion IT industry, has said the rupee's surge will blunt the country's competitive edge.
A survey published this week by the Federation of Indian Chambers of Commerce and Industry found that export prices of Indian products in 11 sectors had become uncompetitive by an average of 10-12 per cent relative to competing countries because of the hardening rupee.
Metal manufacturers have had profit margins fall from 12.6per cent to just 1.6per cent.
Food processing exporters are losing market share to countries such as Brazil, Pakistan and China.
"If you would have asked me two years ago, I would have never said the rupee would strengthen this much," Mr Rozman said. "Nobody was smart enough to predict it."
