Tuesday, July 09, 2013

Rupee slide stalls Indian students' home return

When Vivek Goyal applied to the Stanford Graduate School of Business in 2010, the IIT-Kharagpur graduate and operations department manager with Procter & Gamble was confident of setting up base in India after completing his MBA. But like several other fellow Indians studying at leading global B-schools, he has dropped his plans of returning this year due to the slackening economy back home and the sharp depreciation in the rupee coupled with the signs of revival in the US.

The investment environment has deteriorated considerably in India since the time he enrolled into the programme, Goyal points out. "Venture capital investments have gone down over the past six months and it makes sense to stick to the Bay Area and gather a network here," says Goyal, who launched e-commerce venture RentZeal with batchmate Abhishek Poddar three months ago and graduated recently.

His partner and other batchmates share his pessimism, evident in the fact that none of the other eight Indian students in their class of 2013 is planning to shift back home this year. Last year, four of the seven Indian students at Stanford had returned to India, partly because of the dismal economic situation in the US even as the domestic economy was also on the decline.

"One has to take a substantial hit in pay packets to come and work in India, and it does not make sense to earn in rupees and pay loans in dollar terms," says Poddar, who has to pay back about $140,000 (around Rs. 8.5 million), the average loan amount taken by students for an MBA at Stanford. Data gathered by ET from the alumni networks shows the situation is much the same at Wharton Business School, Harvard Business School and Europe's top schools such as Insead, with fewer Indian students planning to return to the country after graduation this year.

Just three or four of the 45-50 Indian students at Wharton are planning to return to India this year, down from 15-20 of a batch of about 30-35 last year. "Fewer Indian students from my batch are returning to India this year and many of my classmates are staying back in the US. And the few who are coming back are mostly coming back for personal reasons," says Mukta Darera, who is joining Booz & Company as a consultant in San Francisco, adding that the prospects seem better in the US at present.​

India's GDP growth hit a decadal low of 5% in 2012-13, and a consistently depreciating Indian rupee plunged to an all-time low of 61.21 against the US dollar on Monday. Overseas investors pulled out a record Rs. 441.62 billion from the Indian capital markets last month amid concerns over the depreciating rupee. The developments are a far cry from the time these students had enrolled in 2010-11, when India clocked a GDP growth of 8.5%.

Also, the Indian students who are opting to start their own ventures are finding that being in the US helps grow businesses better. This was not the case earlier, when Indian students from overseas schools were returning to India to open their startups.

"The general optimism about the Indian economy that was there in my batch (class of 2011) is gradually waning," says Anirudh Suri, managing director, India Internet Group, and a Wharton alumnus. Most of the people who returned from his batch were to start their own ventures. "However, now with the US having a more startup-friendly environment, most of them are opening their enterprises there, particularly technology-based ventures," says Suri.

PE funds are not offering as many India placements as they did two years ago either, says Suri, reasoning that perhaps these firms have got slowly overstaffed in the country. At Harvard Business School, the number of Indian students returning to India slumped to 10 in 2012 from 15 in 2011 in a batch size of about 25 Indian students. The number has stayed at 10 this year, in spite of an increase in the number of Indian students in the batch.

Those who chose to come back to India over the past two years are grappling with bigger loans, a result of the depreciating rupee. With the rupee having depreciated more than 10% in the past couple of months, people who have paid about 10% of the loan last year would be back to square one, says a graduate from HBS who started paying off a dollar-denominated loan of Rs. 5 million last year.

Arun Dubey, a graduate from Stanford's class of 2012, recalls that the rupee was at about 48 against the dollar when he applied for his student loan. "This is a big burden and definitely a concern. We are keeping our fingers crossed," he says.

Employment statistics released by Harvard Business School for the class of 2012 revealed that India severely lagged behind other regions such as China, Hong Kong and Brazil in terms of salaries offered after graduation. The median base salary offered in India was $58,500 in 2012, compared with $130,000 in Hong Kong, $100,000 in China and $96,706 in Brazil.

Raj Chinai, a Harvard, Kellogg and University of Pennsylvania alumnus and the co-founder and co-chair of HBS Alumni Angels of India, an association of Harvard alumni interested in investing in high-potential earlystage companies, feels that most Indians who consider returning to the country are motivated by the idea of pursuing their entrepreneurial dreams soon after completing their education overseas. "The local MBA talent has also grown in the country and MNCs looking at hiring here have wider options to choose from at a lower cost," he says.

Students also cite policymaking in India among the reasons for staying back. "India's reputation among the global B-school fraternity is not as positive as it was two to three years ago. There is lack of clarity on key issues and foreign investors are pulling out of India," says a graduate from one of the world's top three business schools. "Some of the American companies are also moving their manufacturing operations to the US, which is a good sign," adds the graduate, who is joining an American multinational tech giant in the operations team and does not wish to be named.

The number of Indian students coming back from Insead has also been going down over the past two years. While 27 students returned to India in 2011 of 104 Indian students, the number dropped to 11 in 2012 from a batch size of 111 Indian students.

"The equity markets in the US are doing much better now and are hence much more favourable for entrepreneurs, who need capital. A higher number of candidates will get attracted to places where there's capital," says Anviti Shankar, an MBA student at Insead's December class of 2013. Until things start looking up back home, Indian students abroad are clearly in no hurry to pack their bags.

Source: The Economic Times (Online Edition), July 9, 2013

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