Friday, November 17, 2006

Inflation, growth and IT salaries

I recently received an email on a list talking about how "we" (specifically targeted towards IT professionals) can stop inflation by not spending money, by not going to cinemas, restaurants, cafes, by not booking a house etc. He also goes on to talk about how the current inflation is being caused primarily due to high spending by IT guys who earn a lot by working really hard and working night-outs and by being away from family etc. He also talks about how if we decide to not visit restaurants etc for one month, inflation will come down etc. For your reference, a copy of the mail is here. I shot back a mail with appropriate response.

I thought this should make an interesting read and should cook up an interesting debate or two. I have more ideas on this topic and I shall be writing more about this.

I don't know who wrote this email, but I am sure, he knows very little about economics - certainly not about the economincs of consumption, growth, inflation etc.

Firstly, the IT guys earnings is not because we sit in the night away from relatives and functions. A lot other professionals also do that - CAs, Lawyers, Doctors, Journalists etc. We earn higher because of the demand for good software and the way software has been priced. On one hand, many companies made money through licensing, while a lot of others made money through innovative distribution mechanisms and revenue models. Whatever said, it has nothing to do with our night outs. Night outs just happens to one of the many lifestyle choices we software guys have made, nothing to do with how much we earn.

Secondly, India is almost a free market today. Every company has a right to enter the market, exit it, sell and buy goods and price it at whatever they wish it for. Eventually the market is what is deciding the prices for all goods and we IT guys form a very small section of this market. The market is being driven up by a consumption growth fuelled by the Govt choices of keeping interest rates low and it is a result of the low growth 90s that the Govt is pushing for growth.

If you talk about stifling inflation, then growth will also be equally hindered. Growth and Inflation are two sides of the same coin.

As for the real estate boom, it is again the result of open market economy driving up demand and supply is yet to catch up. I understand that there are a lot of people with easy foreign earned money who might be pushing up demand in this section, but it is quite a localized phenomenon nothing to do with what we IT guys earn or do. Real estate boom-bust cycles have been happenning for the last 100 years - nothing new about it.

Real estate pricing is exactly the way any other good is priced. You market it one way and you charge in another. Same when you buy a bike and same when you get a loan. And to be frank, the same way Software companies charge you separately for trial, installation, upgrades, maintenance etc. It has nothing to do with how much IT guys earn.

Lastly, todays rich and the spendy people are fairly distributed among a lot of industries, not just IT. People from Insurance, Manufacturing, Finance, FMCG etc are making as good money as we are, just not in the same volumes. And there is also the big section of business families who still retain and grow their wealth much faster than our salaries. If you happen to hang out among particular restaurants in Bangalore, you might be getting the illusion that software guys occupy 70% restaurants. Thats just rubbish. I would challenge the guy to visit 5 restaurants in 5 metropolis in the country and take a survey and prove I am wrong. I am sure this guy can't.

This mail seems the result of an extremely frustrated IT guy who does not know how to manage his money and most probably fritterring it away. He doesn't know a thing about economics and just shooting off his mouth.

Be careful about such mails.


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