India's Brain Drain: Causes and Consequences

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The big story

Keshav Raj obtained a computer science degree from the esteemed SRM Institute of Science & Technology in Tamil Nadu four years ago.

Raj aimed to secure a job in the data department of a government office or a multi-national corporation by obtaining decent grades and gaining experience through internships in startups in India and Indonesia.

"I studied hard and interned to find a well-paying job quickly because my parents took out a $22,491 loan for my degree," the 27-year-old said in an interview with CNBC's Inside India.

Despite multiple entrance tests and interviews, Raj has not been able to secure a well-paying job. In a last-ditch effort, he took on a customer care executive position at a global capability center that serves customers at . Currently, he earns 22,000 Indian rupees per month, which is barely enough to cover his household expenses and pay off his student loan.

He stated that his parents are a clinic assistant and an auto driver, respectively, and they do not earn much. As a result, he needs to earn enough to cover the bills. However, he mentioned that it is challenging to find a well-paying job in India due to intense competition.

Raj is seeking employment opportunities outside of India and has stated that he is open to relocating and taking on any tasks required.

Thousands of educated Indians are looking for employment outside South Asia, hoping for higher pay, better career advancement, and a higher standard of living.

The number of international job listings made on the jobs portal foundit by consultants and companies seeking talent in India has increased by 11.4% this year. Additionally, there was a 59.4% increase in the number of applications by Indian users of the platform.

Anurag Sinha, the chief product and technology officer of foundit, stated to CNBC's Inside India that Indian companies have been adopting a cautious hiring approach in key sectors, resulting in a temporary slowdown in domestic job opportunities in the past year.

As professionals searched for stability and growth in international markets, the slowdown resulted in an increase in applications for overseas jobs, with Canada, Australia, and the United Arab Emirates being among the top destinations Indians sought opportunities in, he stated.

Indians are increasingly looking for global job opportunities, whether through relocation or remote work, to gain global exposure, work with advanced technologies, and access higher earnings potential.

The number of applications submitted by candidates in junior or middle management positions with less than 10 years of experience was higher, possibly due to their youth, ambition, and adaptability to various work settings.

STEM industries, particularly those with professional roles, had more applicants, according to Sinha's observation of sector-based movements.

Employers worldwide continue to seek out professionals for their expertise, adaptability, and cost competitiveness in areas such as software development, cloud computing, data science, and medical research.

A perennial problem

The issue of brain drain is not exclusive to India and is commonly experienced in emerging or developing markets due to the increasing number of educated and aspirational millennials.

Development economist Jayati Ghosh stated that India has been losing professionals from various fields, including medicine and engineering, for over a decade.

According to Ghosh, a professor at the University of Massachusetts Amherst, who was previously at Jawaharlal Nehru University in India, there is a clear jobs crisis in the country.

"A new generation of young people is driven to improve their lives and has pursued higher education. However, their families have had to sell land or assets to finance their studies, leaving them unable to secure employment."

According to Ghosh, India's job crisis has resulted from the country's GDP growth of 5-7% per annum not being matched by an increase in the number of jobs. He stated that the recent increase in employment reported in data is not due to genuine job creation but rather to self-employed individuals, including those who run their own small businesses or provide unpaid labor in family enterprises.

The labor dependency ratio in India is 1.52, with a mere 52.8% employment-to-population ratio, according to data from the International Labour Organization (ILO).

The country faces a challenge in employing half of its working age population, which hinders its ability to align its labor force opportunities with its economic growth.

According to the UN, approximately 18 million people of Indian origin reside outside of India, making it the country with the largest diaspora in the world.

According to Ghosh, a significant number of young and talented individuals attempt to emigrate, resulting in skill gaps, despite the large pool of unemployed individuals.

Over the past few decades, notable individuals such as Sundar Pichai, Satya Nadella, and Leena Nair have left India.

The issue, according to Ghosh, is that the government does not consider employment as its primary policy objective.

The majority of India's GDP growth benefits the top 10% of the population, while government policies prioritize large corporations owned by the Adanis, Ambanis, and Tatas, rather than medium and small micro enterprises that employ around 85-90% of the population.

The economist highlighted the issue of unfilled vacancies in public employment, with government hospitals, schools, and railways having around 7 million roles vacant. According to Ghosh, hiring that many more people would improve services, facilities, education, and healthcare.

"As you create more jobs, it creates a multiplier effect with higher demand, which eventually generates employment and results in a bubbling up of growth, not just a trickle down," she stated.

A term from the last century

The Indian government is adopting a "contemporary way" of looking at movement and mobility as throngs of Indians seek employment abroad, according to External Affairs Minister Subrahmanyam Jaishankar.

At a lecture series at the Institute of South Asian Studies of the National University of Singapore earlier this year, he stated, "When people go outside, we lose something. I think we need to get over it."

The global workforce is becoming increasingly interconnected, leading to the term "brain drain" being viewed as outdated, according to Sunaina Kumar, a senior fellow at the Observer Research Foundation (ORF).

The global dispersion of the Indian workforce brings economic benefits, such as an increase in remittances, according to Kumar. The World Bank predicts that remittances to India will rise slightly from $123 billion last year to $124 billion this year and $129 billion in 2025, due to stronger labor markets in the U.S. and Europe.

The future of India's workforce

The debate over whether the emigration of Indians will positively or negatively impact the country's economy has been ongoing. However, it is crucial for India to prioritize the development of its citizens' skills and abilities to excel in their careers, both domestically and abroad, while also addressing their social and economic requirements.

To remain relevant to business needs and consumer demands, Kumar proposed that India provide upskilling initiatives for both new and experienced workers.

She recommends that the government invest in urban planning and infrastructure to improve the livability of cities and attract more people to settle down there.

Indian cities are difficult to live in due to environmental degradation, poor infrastructure, pollution, and traffic jams. As a result, some of our best will leave to find a better life elsewhere.

Sinha believes that organizations can compete with international firms by offering clear career pathways and leadership development opportunities to candidates.

The proposed solutions in India tackle fundamental problems and will require time to implement. However, if executed effectively, they can enhance India's competitive workforce, providing opportunities for individuals like Raj.

Need to know

The Adani Group's financial difficulties are intensifying. Fitch Ratings has placed several of the group's bonds on its negative ratings watchlist, indicating a potential downgrade. Deals and investments associated with the Adani Group, such as the airport agreement in Kenya, have been canceled or put on hold. According to Leonard Law, a senior credit analyst at Lucro Analytics, the U.S. indictment is likely to limit the group's ability to secure new financing in the near future. Despite this, the group maintains its innocence.

The Competition Commission of India (CCI) has rejected Apple's request to halt an antitrust investigation into the company's practices in the app store market. The CCI had previously found that Apple abused its market dominance by imposing unfavorable conditions on app developers. Apple had requested a pause in the investigation because it claimed that the main complainant had not complied with the CCI's order to destroy past investigation reports.

Reddit aims to expand its user base in India, where its international user base is only half of its total users. The country's large English-speaking internet population makes it a "big opportunity" for the company to grow. Reddit plans to enter the local advertising market, such as Indian brands advertising to Indian users.

What happened in the markets?

This week, it seems that India's stock markets will experience a slide, with the index falling by 8.6% since its all-time high earlier this year. Despite this, the index has still managed to achieve a 2.26% increase over the last five sessions, bringing this year's total returns to just over 10%.

Despite rising to 6.863% last Friday, the 10-year Indian government bond yield has remained relatively flat at 6.805% over the past week.

Fook Hien Yap, senior investment strategist at Standard Chartered Bank, believes that while countries worldwide will experience tariffs due to U.S. President-elect Donald Trump's proposed tariff policies, India will likely benefit and won't be as heavily impacted.

Gokul Laroia, CEO of Asia and co-head of global equities for Morgan Stanley, stated that with India's projected economic growth of 6% to 7% and earnings growth in the mid-teens, there is no reason not to stay invested in the country's market. Additionally, Laroia noted that the alleged charges against the Adani Group are likely to be "idiosyncratic" and not something that can be extrapolated to the rest of the market.

What's happening next week?

Nisus Finance Services and Suraksha Diagnostic are among the companies that will have IPOs open for subscription next week, while we will receive a GDP print on Friday.

On November 29th, India's Q3 GDP, the euro zone's CPI, and U.S. financial markets will close early after Thanksgiving.

Dec. 2: U.S. ISM Manufacturing PMI, China Caixin Manufacturing PMI

Dec. 4: India HSBC Composite PMI final for November, OECD Economic Outlook