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India reverses its brain drain

Posted on July 12, 2011
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Stockbrokers trade in Mumbai. Many Indian-born executives are returning home, trading their dream of conquering Wall Street or Silicon Valley for working in Gurgaon or Mumbai.

MUMBAI // After 11 years in Hong Kong and London working with global consultancies such as McKinsey & Company, Gaurav Jain was the least likely candidate to return home.

Armed with degrees from the top-flight Indian Institute of Technology and the Indian Institute of Management, he was part of a “brain-drain generation” that migrated overseas in droves to tap opportunities in hot spots of global finance.

But in 2008, he decided to go against the tide. With his wife and children, he returned to India and settled in Gurgaon, the fastest-developing city in northern India, where roads are cratered with potholes, power cuts are frequent and setting up a business can seem as hard as launching a lunar mission.

But he had returned to a new India, which despite all its ills, is fast emerging as a promised land for entrepreneurs.

“In India, there is opportunity everywhere,” Mr Jain, 42, who is the managing director of Aamod resorts, a chain of boutique hotels and townships, told The Economic Times newspaper last month as part of its new survey on brain drain. “Building a resort? I couldn’t have done that in UK.”

Many Indian-born executives such as Mr Jain are returning home, trading their dream of conquering Wall Street or Silicon Valley for working in Gurgaon or Mumbai.

Last year, about 60,000 professionals from around the world returned to India, according to the recruitment advisory firm Heidrick & Struggles. The study, which said the trend was likely to grow this year, was a joint project with The Economic Times. It said 82 per cent of non-resident Indians (NRIs) and people of Indian origin living elsewhere were willing to move to India if suitable opportunities came their way.

The trend is part of a “brain gain” phenomenon that is accelerating as India’s economy expands rapidly, salaries grow annually in double digits, and there are opportunities galore to make an impact faster than in Western economies still reeling from the global downturn and EU debt crisis.

Rajiv Inamdar, a director at Heidrick & Struggles, says that given the poor jobs market in the West, it is the new opportunities spawned by India’s dynamic economy that are luring people back.

Analysts say India has been less affected by the global downturn because the economy is less dependent on exports. Compared with Western economies, the recovery in India has been much faster.

“Today, we in India are experiencing the benefits of the reverse flow of income, investment and expertise from the global Indian diaspora,” Manmohan Singh, the prime minister, said in December. “We are drawing on the global brain bank of people of Indian origin worldwide.”

Vivek Wadhwa, a senior research associate at Harvard Law School, said last year that more than 100,000 Indians who had gone abroad in search of jobs would move back to India in the next half decade. He said a similar trend would be seen among Chinese executives who were graduates of US universities.

Asian economies such as India and China are emerging as the salvation destination not just for people who originated in those countries but also for foreign nationals.

The proportion of graduates of premier US business schools such as Wharton and Kellogg who are tapping jobs in Asia grew from 5 per cent four years ago to more than 10 per cent last year.

In recent years, India has offered new opportunities of wealth creation. Even though the country’s GDP is barely 2 per cent of the world’s, it has nearly 7 per cent of the world’s more than 1,000 dollar billionaires.

A tenfold increase in per capita income by the year 2039 from the current level of more than $1,000 is forecast if its economy continues to expand at the current annual pace of about 8 per cent, says Kaushik Basu, the government’s chief economic adviser.

The global human resources consultancy Aon Hewitt said in March that employees in India would see a 12.9 per cent increase in salaries this year, higher than last year’s increase of 11.7 per cent, despite looming high inflation and growing fears of an economic slowdown. This growth rate, which is led by the engineering services sector, is the highest in the Asia-Pacific region, followed by China (9 per cent) and Philippines (7 per cent).

“The rate of India’s salary rise is likely to be among the highest in the world as companies grow fast and domestic consumption rises due to good economic growth,” says Nitin Sethi, an executive at Aon Hewitt in India. “Investment in infrastructure, continued momentum in services and efforts towards fiscal consolidation are adding to the optimism.”

But there are several challenges.

Experts rank India as the most-preferred destination for multinational companies to invest money after China. But the real trouble starts once the money is invested. The World Bank ranks India 134th among 183 countries for ease of doing business. The ranking falls to 182 on the issue of enforcing business contracts.

Since 2006, the Indian government has approved the creation of almost 600 special economic zones – industrial enclaves designed to promote trade and exports – but fewer than half have taken off successfully.

Industrial projects worth US$150 billion (Dh550.98bn) – in the mining, infrastructure and manufacturing sectors – have stalled over the past decade, according to a study released this year by Orkash Services, a management consulting and technology services company. Regulatory delays tend to erode confidence among foreign companies keen to do business in India. Foreign direct investment in the country fell 31 per cent last year compared with 2009 to less than $24bn. Investment in China rose 6 per cent to $101bn in the same period.

India’s demographic dividend and an abundance of labour is not seen as a particular advantage. Two-thirds of India’s 1.21 billion people are below the age of 35, and India’s colleges disgorge more than 750,000 science and engineering graduates every year.

But the National Association of Software and Services Companies, an industry lobby group in New Delhi, estimates that only 26 per cent of those graduates are fit for employment in India’s $60bn technology sector.

The Grant Thornton International Business Report, a quarterly survey of global companies, said this year that 64 per cent of Indian businesses expected to increase their workforce this year, the highest among the 39 economies surveyed. But 51 per cent said the paucity of skilled labour would hamper their growth this year – a 30 per cent increase from last year.

India also does not have a start-up culture such as that in Silicon Valley, which has a history of college drop-outs and smart but unknown professionals launching innovative products.

But these problems are not preventing the return of Indians who settled overseas. Some 71 per cent of the NRI returnees surveyed by Heidrick & Struggles listed lucrative business opportunities in a rapidly growing economy as the main reason for their return.

“During the recent tech boom, 52 per cent of Silicon Valley start-ups were founded by people who were foreign born,” Mr Wadhwa said last year.

“Now some of these companies will be started in Beijing or Bangalore. That is great for India and China, but a big loss for Silicon Valley.”

10 July 2011    Anju Chopra

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