Why So Poor?

Well there’s been a lot of hoopla over the last 1 month or so over IIT grads getting a pay packet of more than a Crore Rupee. There’s also been widespread enthusiasm and surprise over some grads rejecting similar offers for low paying jobs or higher studies.Big mouths from the last generation haven’t forgiven them yet.Anyway can’t agree more but it did give fodder to my thought process and I ended up doing a salary search on glassdoor to see what are we actually making in the software industry in Bangalore,India.Here are the results:-

Following are the results when you do a similar search for San Jose,California,US.

Now if we convert the national average in INR we’d get the salary for a software engineer in San Jose to be INR 5735174.71(S1).For the sake of convenience lets make it 57 Lakhs and compare it to the the Indian national average 420000(S2).Now lets divide S1 by S2 and we get a ratio of 13:1.So in other words the salary in San Jose is a 13X factor of the salary that we get out here in India.

So to keep things simple I am not even going to talk about the low inflation rate of 1.3% that US has. I am going to talk about the financial misery of software professionals in India.I have earlier written blogs about the abysmally pathetic quality of engineering crowd in our country so I am not going to mention it over here.

So this blog typically applies to good engineers coming out of different colleges across India from either a tier-2 or a tier-3 college in India.I mean its really painful to see that the salary that people tend to receive in the Indian software industry is way too less-thanks to factors like outsourcing.I mean how much does an engineer typically spend in a 4 year engineering course I’d say on an average 10–12 Lakhs.So the ROI that he tends to receive goes into negative when we take into account considerations like an education loan with a 13% interest rate and considering inflation rates moving between 5% to 14%.So what is the apparent financial benefit we tend to receive after doing engineering with excellent grades, with some genuine products, patents or publications at our disposal? I guess nothing to boast of from a financial perspective.

I do admit that the salary disparity is due to the availability of cheap labors across Asian economies like China and Phillipines but what we miss out on spotting is that across these economies the inflation rate has never gone down above 5% in the course of the last 4 years unlike India where every single day inflation is slowly eroding us off any amount of wealth we might build up.

Now lets take into account the salary hikes for a fiscal year across the software industry.I’d say the perfect salary hike would be 30% with at least couple of cases where individuals who are very good at their work or at sucking get close to 50% raises with a majority of the candidates falling in the second bracket.But for the majority of people who end up getting close to a salary hike ranging between 6% to 13% life is still the same.I mean the illusion the hikes create is difficult to dispel as people consciously start believing they got rich by a factor of X(where X is typically less than 2).

Lets also take into account the various things for which people tend to go for long term loans-could be a house,a car,an education loan for kids etc and see the impact it has on your monthly salary-lets say you end up losing a vast majority of your salary towards paying up EMIs and premiums for health and life insurance.Some wise people actually end up purchasing stocks,mutual funds,bonds,property which are subject to uncertainty and returns are abysmally low unless of course you have invested in blue chip stocks but again these stocks are not bought for short term gains but for long terms awards so you don’t quite liquidate them on a frequent basis(Supposed to be an insurance for your old age).So considering the above factors and the fact that people today are so enamored by materialism that they don’t think twice before buying a commodity be it in positive or negative.So in the end what are we left with on a monthly basis or the savings-I’d say peanuts.

How about we focus on what exactly are the components of our salary-Basic Salary,HRA,Conveyance Reimbursement,Special Allowance,Employer’s contribution to PF,Gratuity,Medical Insurance,Medical Reimbursement,Performance Bonus,LTA,Food Allowance,Telephone Reimbursement,Internet Reimbursement(I believe this pretty much covers all the components that companies distribute our annual salary into.Now subject to income tax,professional tax and minus components like PF,gratuity and yearly performance bonus is what constitutes a large part of our annual CTC or the take home.Divide this amount by 12 and you get a monthly take home.Now its but obvious your monthly take home is going to be predominantly less than your declared CTC.On top of that your monthly take home is subject to the above mentioned costs and hence is reduced to a paltry sum of money people wish to call as saving.So if this cycle continues then after 38 to 40 years of professional life the only amount of money you’d have accumulated won’t even touch a crore which brings me precisely to the another question-what is the financial benefit anyone would receive being a part of the Indian software industry.What is even funnier is that bonus which by the very semantics of the word means money added to a person’s wages in Indian software companies is actually a part of your CTC that is treated as some kind of a performance bonus you’d receive at the discretion of the management at either every year end or at every quarter end.End of the day the organization would manage to pocket money from your declared CTC quite cleverly connecting it to your performance redundancies.

End of the day you’re just another labor in a low income economy trying his guts out to make his ends meet.The bottomline of a company is not attached to the take home salary that a software guy receives.Good part of that money that comes as profit goes to shareholders as dividends,to executive directors of the board and to senior management as bonuses for fulfilling targets on a year-on-year basis which makes sense because their compensation and bonuses is directly attached to their performance.On top of that since they hold ESOPs they are driven to work as hard as possible as their hard work is directly linked to how the stocks perform at Wall Street.

On the other hand any other person in the software industry is on a different side of the horizon where his salary is a small function of time,hard work,physical investment,mental investment(and emotional investment in some cases) which will be subject to so called forces of economics and reduced to an abysmally small amount at the end of his professional career when he just has barely a decade to live by.Now consider how software guys are paid in the States as Dustin Moskovitz talks about it in his famous blog lets take a look at what a typical facebook or a Dropbox engineer would end up making in Silicon Valley.

A Real Company Valuation Employee#100's Upside(10bp)

Dropbox $10B $10M

Facebook $200B $200M

As you can see from the above example that any random employee after spending time with these phenomenal companies would end up getting rich and would be able to provide for his family in a far better way than any of us out here in India.

So coming down to the initial discussion what eventual benefits are we getting being a part of the Indian software industry when financially we aren’t making anything but peanuts.When we join a new organization committing to putting X amount of years of our precious lives towards the growth of the organization we should be equal stakeholders in its growth curve.But is that so the case-I guess not because we don’t receive any stock options which if liquidated would fetch us hard cash that could be used to procure products and services after the end of Y years(that we need to spend working for the company if we wish to vest the entire 100 % stock options).Now lets say after spending X amount of time in an organization we can return the money back the organization paid us as annual CTC but can the organization give us back our time-No as in this 3-dimensional landscape we are prisoners of the time dimension(Apologies for using such jargon.Have been bitten recently by the interstellar bug ☺) .

This sort of salary disparity exists at every level of the organizational pyramid though at the top it’s a little less as incumbents tend to receive appreciable bonuses and ESOPs that could make them wealthy enough as long as they are alive.But how about the rest of the people.These guys don’t take risks,wish to play safe,are either pushed to be an engineer and lack passion or are smart but are complacent enough to follow the linear growth pattern.For such guys I believe its a waste of time and resources as the ROI isn’t that great-but the larger question is are they aware of such intricacies or are they totally oblivious to such economic events that strip them off any opportunity that could make them wealthy.What is the tangible benefit they extract out by being part of the Indian software industry when they can’t cash in enough wealth at the end of their career?

I mean this is a sad situation but people have gotten so used to being part of such a lackluster dimension with materialism in their minds that they tend to ignore any thought that could help them grow wealthy in as little time as possible.I mean when I see SRK(Shahrukh Khan) minting money using his talent and business acumen like this or when I see Gisele Bundchen making millions from modeling and business like this or how Bill gates multiplies his wealth like this or when I see Sachin Bansal and Binny Bansal pocketing a fortune like this I don’t see a reason why normal people with enough grit,determination,smartness,risk taking abilities,knowledge and some amount of luck can’t get wealthy.Unfortunately the status quo is quite different as people wish to live lowly lives filled with misery and regrets and are happy with short sighted financial victories than work hard on making themselves immensely wealthy.I’d like to conclude by quoting Jordan Belfort,“The only thing standing between you and your goal is the bullshit story you keep telling yourself as to why you can’t achieve it”.