Having lost many of its most highly skilled workers to the West in the past half century, India struggles today to fill posts in its own burgeoning information technology (IT) sector.

India, unique among developing countries, has the educational capital to produce a highly skilled labor pool. This is in part the legacy of the six Indian Institutes of Technology (IlTs) founded in the 1950s. Modeled on the Massachusetts Institute of Technology, the IlTs represented one of the cornerstones of Prime Minister Jawaharlal Nehru's selfsufficiency program. However, with the exodus of many of India's best minds to the West in the following decades, many Indians railed against what they saw as a taxpayer-financed subsidy for Western industry. Though the brain drain rages on, the more pressing problem today is supplying India's own IT industry, one of the most developed in the world. India would do well to invest all it can in its technical-education sector, where an increase in the number of graduates could bolster the tightening high-tech labor market within India.

With the tremendous boom in computer-related industries in the 1980s and 1990s, many of the highly skilled Indians who emigrated in the 1960s and 1970s now find themselves leaders in the global IT sector. The legacy of that migration is profound. Today, approximately one in three Silicon Valley engineers is of Indian ancestry, and Indian CEOs lead seven percent of Silicon Valley high-tech firms.As founders of a wide variety of companies, ranging from Sun Microsystems to Hotmail, Indian emigrants have flourished in the industry, and the services of their successors have commanded a premium. Responding to demand for Indian IT workers, the US Senate increased the quota of H I B visas for skilled workers from 115,000 to 195,000 in 2000. Indians now receive nearly 45 percent of such visas each year. Furthermore, Indian students are increasingly in demand at universities in the United States and Europe. The US Educational Foundation reports that Indian students now rank third in arrivals each year, behind China and Japan. Other countries ranging from Germany to New Zealand have undertaken similar endeavors with the intent of securing for a volatile industry workers that they are unable to supply internally.

In addition to the brain drain, India faces a relatively new problem: a shortfall of IT workers, what one might call a brain strain. The global demand for Indian students is exacerbating a shortage in skilled domestic labor supply within India itself. At the height of the brain drain, India had no skilled sector to speak of. Now India's IT industry holds a 20 percent share of the world market for software development and customized software. If it doubles in size as expected over the next 18 months, its demand for labor will finally exceed domestic supply. A recent study completed by the National Association of Software and Service Companies and the consulting firm McKinsey pegs demand at 140,000 new skilled IT workers in the 2000-2001 fiscal year and a domestic supply of only 73,000 to 85,000 graduates of technical institutes. The outlook appears even less hopeful for the near future: the study predicts that the Indian IT industry will require 2.2 million workers by 2008. Even Tata Consultancy Services, one of India's largest software companies, has felt the effect of such a tight labor market, as it currently has a shortage of over 1,500 personnel despite scoring record profits in the past year. One Tata executive commented, "The present manpower is just adequate for 30 percent of our needs."

While India's IT labor market has tightened, the last decade has actually seen a decline in the proportion of computer science graduates emigrating to the United States-down from 84 percent in 1993 to 60 percent today. This is largely due to greater opportunities for skilled labor in India's IT industry. But the supply for the Indian IT sector is still not sufficient.The introduction of stock options for IT workers in 1994 has helped keep them within Indian industry, but even as the rate of loss to US firms fell from 25 percent to 14 percent over the past six years, Indian companies had to pay higher wages in order to keep their own workers. India must compete with similar rising demands in the United States, Europe, and elsewhere in Asia, such that the comparative advantage the Indian IT industry previously enjoyed due to lower labor costs is slowly eroding. If wages continue to rise and current labor demand trends continue, the present growth spurt of the Indian IT industry might well be stunted.

Whereas the brain drain was (and still is) largely fueled by India's high-quality technical education, the brain strain is happening because the number of spots in technical institutions is insufficient. The IlTs accept fewer than three percent of the 125,000 students who apply, a rate of admission significantly lower than even the most competitive universities in the United States. A tier lower, the 43 regional engineering colleges scattered throughout India currently can enroll only 31,000 students, leaving few options for the majority of students seeking a technical education. Beyond these academic institutions, approximately 35 private vendors run nearly 30,000 training centers offering a range of computer courses, turning out technicians to supplement the supply of professional computer specialists.

The solution lies in India's institutes of technical education. At Prime Minister Atal Behari Vajpayee's behest, many of the emigrants who succeeded in the United States are returning to help raise US$1 billion for the six IlTs. But as the Scientific Advisory Committee to the Cabinet has warned, such donations should not be used to subsidize faculty salaries and student fees at IlTs at the expense of India's other, much more numerous technical institutes. In urging caution towards private investment in the IlTs, Dr. Abdul Kalam, the committee's chair, noted the potential for a widening wealth gap between the already elite IlTs and the lower-tiered technical institutions. Furthermore, an issue not addressed by the committee and perhaps the most important one for the Indian IT industry's future-is the insufficient quantity of graduates produced by the current system. Improving the quality of already elite institutes fails to address the most pressing issue of a stagnant labor supply.