Disclaimer : The statistical figures used for the calculations below are more than two years old. This may or may not reflect the accurate reasoning according to current state of the ecosystem.

I’ve been thinking about the amount of compensation software developers receive in India, its comparison to the international market, economics and reasoning behind it.

From The PPP Conversion factor, Implied exchange rate from USD to INR would be 19.28
(That is, 19.28 INR in India would having purchasing power equivalent to 1 USD in USA, that is, if you can buy a pen in US for 1 USD, you can buy the same pen in India for 19.28 INR )

The following is an example how I am calculating ideal software developer salaries in India, equivalent to that of the same job in US –

Annual median salary for US based software engineer – USD 79,357 ~ 80000

Deducting US direct taxes, approx. take-home salary equivalent of 79,357 USD would be ~ 52600 USD. (Calculated with http://www.payrollforamerica.com/calculators/California-payroll-calculator.php for California state)

Considering the implied exchange rate above, the INR equivalent of US salary 52600 x 19.28 = INR 1014128 ~ INR 1000000

Direct income tax on 1000000 in India is 125000.
Hence the compensation should be 1000000 + 125000 = 1125000 INR

Hence, the Ideal Equivalent Compensation for USD ~80000 is equivalent to ~110000 INR.

(We don’t need to compare indirect taxes here, as these affect the cost of goods and services, which is taken into account while using PPP conversion factor)

Now, as you can see, on average, Indian software developer is being compensated ~2.5 times LESS VALUE than an US software developer.

Now, here comes the picture that how a software developer in India should go about the compensation –

So, this table indicates the ideal compensation structures for Indian software developers.

Skills US Salary (USD) India Salary (INR) – Ideal India Salary (INR) – Market
Average Engineer 70000 1000000 400000 (2.5x)
Mid-career 85000 1300000 800000 (2x)
Good, above average mid-career. 100000 1500000 1200000 (1.25x)
Exceptional / Top 140000 2100000 240000 (0.87!!)

This table assumes that overall average quality, competence and value generation of a US based software developer is better than that of the Indian one

The second column suggests how much a developer in US with similar competence gets compensated.

The third column tells us about the market standard software engineer salaries for the segment (data obtained from PayScale.com) and in brackets, the factor which, when multiplied to the market salary, produces ideal salary.

This comparison may vary with market trends and technology, company (organizations are the systems through which value is generated, in the inefficient systems – considered as ‘bad’ companies, engineers would generate lower value and would be compensated accordingly!) but this gives the overall idea!

As you can see, the difference between the compensation is getting reduced per skill level, and when you are exceptional, it reaches to the point where you can get more compensated in Indian ecosystem!!

The key here is, the PPP Conversion factor is directly applicable goods consumed for daily / basic needs, and especially for the goods and services produced locally.

For many of the goods and services that are produced and consumed in international markets, these are not applicable.
For example – Computers and mobiles.
Macbook Pro or iPhone 7 costs exact equivalent of the price obtained by directly converting it’s price in USD using standard currency exchange rates (1 USD = ~67 INR) + Various indirect taxes!
Hence, prices of these devices, not being adjusted with PPP, causes huge price disparity for buyers – it is about 3x more expensive in terms of value expended for an Indian to buy a macbook pro than for a US citizen to buy one. This explains why most of these ‘expensive’ devices are not very common in developing economies.