The Times of India is reporting that the increasing rentals in Pune could be a significant deterrent in growth of IT in Pune.

Sunil Patil, president (Pune region), UBICS, a software company of the UB group, believes that the rentals may spoil the show. “Rentals in Pune for software companies have gone up 300% in three years. We are being offered space at Rs 65 per sq ft, which at $1.50 is the rate in Manhattan,” he said.

This comes on top of the disappearing cost advantage, especially in product companies. Salaries have been going up, and what used to be a 1 :: 6 or at least 1 :: 4 cost advantage is fast evaporating, especially at the higher levels. For people with 7-8 years of experience or more, I’ve heard numbers like 1 :: 1.5, and in some cases, I’ve heard that execs in India actually need to be paid more than the equivalent US salary. Factor in the increasing cost of real estate, travel, and other overheads associated with having India operations, and the economics of the situation start looking troubling.

When riya.com (now like.com) shut down their Bangalore operations, CEO Munjal Shah wrote a detailed post on why they couldn’t afford India. It is very instructive reading. Larger companies have an internal headcount ratio – if you have budget to fund a 100 person team in the US, how many people can you fund in India. This number used to be 300 earlier, and there’s at least one company that has updated its numbers to 100. Think about that. They end up with the same cost irrespective of whether the team is in the US or India – and this factors in the fact that junior programmers in India are much cheaper than those in the US.

If you are not careful, your job is going to Shanghai. Or Philippines.

Note: I am talking about product companies that are trying to do full-fledged product development out of India. In services (i.e. outsourcing) the ratios are better. But even there the situation is grim. Read Sramana Mitra’s “The Death of Outsourcing“, for example.