Productivity of India’s Offshore Outsourcing Sector: Business-based Evidence

Following on an earlier paper discussing the sustainability of India’s comparative advantage in IT offshore outsourcing, the authors pursue their enquiry whether rising labour costs are being compensated by rising productivity. A sample of six firms including the big three in Bangalore was selected for a field survey, and the total factor productivity (TFP) approach used to look at trends of output, capital employed and wage costs per unit labour, enriched by insightful discussions on site. While the trend towards decreasing age profile of the work force has succeeded in maintaining mean salary per capita constant, productivity performance in TFP terms is not so uniformly brilliant across the sample. Caveats and cautionary notes on using TFP as a reliable tool to gauge efficiency of labour especially in times of sharp changes in capital and labour resources and other exogenous factors including exchange rate movements have been expressed.