Rising salaries are due to a tight labor pool; would the IT companies be hiking their compensation if the number of available IT professionals was growing at the same rate as the number of jobs?
The unemployment rate in the US is 4.5%, which is considered pretty tight. During the dot com boom, the rate was at 4%. Traditionally, the Fed expects the unemployment rate to be at or above 5%. Bernanke's reasons for not bringing down the interest rates are mostly about inflation fears driven by high capacity utilization in the labor pool aka tight labor market. Besides, Bil Gates wouldn't be testifying before the Congress to increase H1-B quota's if their only consideration is to cut labor cost, since labor in India is still cheaper than the U.S.
On the other hand, while the Indian Rupee appreciated by more than 10% in less than 6 months, the Chinese Yuan has appreciated by much less than 10% in over 2 years. One of the reasons, is that China has not really faced as bad inflation as India (they do have inflationary pressures, but it simply isn't as bad as what India faced early this year). One reason is that China has been able to supply ample amount of unskilled and in-experienced labor. Where they face labor shortage, they have seen jobs moving to other countries such as Vietnam.
Since India targets the higher end of the labor outsourcing market, it needs to constantly churn out well qualified labor. If India has to maintain its comparative advantage in this arena, it needs to
