Turnover in India’s software services industry runs at about 15 percent a year on average, and can exceed 30 percent at some companies.

Nevis Networks, a company that Dham’s NewPath Ventures had backed, reported one day that a top engineer had gotten engaged and suddenly gave notice of his resignation. His fiancee’s father, it seems, had never heard of the young security company and wanted him to work instead for an established entity like Intel or IBM.

Thinking quickly, Dham had a press release drawn up, and a reporter was cajoled into writing a story about Nevis. The father-in-law saw the article and heartily approved of the young man’s career choice.

“All of the VC funds want to go to India,” said Dham, whose venture capital firm is based in Silicon Valley, “but most don’t know how to do it.”

Such cultural clashes reflect the rapidly changing nature of India’s high-tech world, where an industrial renaissance has created not only an unprecedented economic boom, but also Western-style growing pains in employee recruitment and retention.

Relative to their counterparts in the United States and other developed nations, workers at Indian companies are both plentiful and inexpensive to employ. This cheap labor, however, has led to explosive growth and, in turn, to unprecedented competition for qualified employees. Double-digit raises are the norm.

“What if someone offered you double your salary?” said Rishi Navani, a managing director at WestBridge Capital Partners. “There would be no debate.”

Evidence of India’s chaotic job market is everywhere. Upon learning of layoffs at U.S. chipmaker PMC-Sierra’s lab in this city, for example, Dham and his NewPath partners caught a red-eye flight to India and took all 65 fired employees to dinner; they hired 31 of them.

Large public companies such as Tata Consultancy Services each hire about 10,000 employees a year–the equivalent of a small town–in an effort to keep up annual revenue growth that can reach 50 percent. Although the turnover rates listed in the financial reports of these companies are substantially below the national average, services giant Infosys Technologies alone is absorbing 1,000 employees every month, said Srinath Batni, a company board member.

A fresh engineering graduate at a leading Indian company might receive a starting salary of 15,000 to 28,000 rupees a month, or $4,300 to $8,000 a year, according to various sources and figures from the New Delhi-based National Association of Software and Service Companies (NASSCOM).

A director-level manager might make $30,000 to $51,000 a year, while a division head might make $76,000, depending on experience. Those salaries are less than half that of equivalent positions in the United States.

But the gap is quickly narrowing, thanks to large multinationals that have descended upon the Indian labor market. Companies such as Hewlett-Packard, Intel and Sun Microsystems can (and will) double or even triple the salary offered by Indian counterparts, sources say.

The lure of lucrative salaries has extended beyond the private sector. The labs at the government-run Defence Research and Development Organisation is losing about 60 scientists a year to various industries.

At the Indian Institute of Science, the country’s premier research organization and graduate school, automotive and electronics companies from the West have been hiring students on the verge of finishing their Ph.D.s for 30,000 rupees a month. By law, assistant professors earn only 20,000 rupees a month, though recent changes allow them to keep 60 percent of all fees for consulting and patent licenses.

“We have a problem with internal brain drain,” said Professor M.L. Munjal, chairman of the mechanical sciences division at IIS. “This is the price we pay for globalization.”

Problem or opportunity?

Over the past 20 years, India has transformed its school system to churn out graduates for the information technology industry. In the mid-1980s, around 70 colleges nationwide admitted about 5,000 students into IT and computer science programs, said Professor Deepak Phatak, who heads up the Kanwal Rekhi School of Information Technology at the Indian Institute of Technology at Bombay (in the city now known as Mumbai).

Today, he said, 250,000 new students at 1,750 colleges enter undergraduate and master’s programs in computer science and electrical engineering.