India - Inflation to eat into salary hikes

PTI
New Delhi: Surging inflation will soon start reflecting onto the pay packets with the companies looking at cutting down the salary hikes of their employees for the next year and the high-flying IT space could take the maximum hit.
According to a survey by HR consultancy major Hewitt Associates, IT sector would see the lowest pay hike of 11.3% in India next year, down from 12.5% in 2008.
It would be followed by the ITES sector with the second lowest hike of 11.4%, down from 12.5% in 2008.
The survey of 150 leading corporates in India found that a majority of companies are taking into account inflation and rising input costs for their salary hike budget for next year.
“While the year 2008 has still seen a strong average salary increase of 14.8%, the global economic slowdown, US sub-prime crisis and rising inflation have caused Indian companies to revisit budgets for 2009 and the average salary projections for the coming year are lower by a percentage point at 13.9%,” Hewitt said.
Interestingly, the pay hikes for both IT and ITES sectors is on the decline in recent years.
The IT industry saw a salary rise of 15.4% in 2007 which came down to 12.5% in 2008. Similarly, the ITES sector witnessed a jump of 14.1% in 2007 while the figure declined to 12.6% this year.
“Adversely impacted by the recent rupee-dollar volatility and the slowdown in the global economy, the IT-ITES sector is treading cautiously on salary and rewards,” it said.
Infrastructure sector to gain
For 2009, Hewitt has projected infrastructure sector to see the highest pay hike to the tune of 18.8%. However, the expected rise for the industry is much less than 24.1% jump in salary witnessed in 2008.
On the other hand, the report pointed out that there is an acute talent crunch because of which “we see a one per cent increase in the projected salary increases for 2009.”
Among them, only telecom is projected to have higher salary rise as compared to 2008. The industry is expected to witness a hike of 16% next year as compared to 14.9% this year.
The report noted that telecom sector is projected to see continued growth in India especially with the advent of five new players over the last one year.
“Projections for 2009 are slightly lower than the increases given in 2008 across sectors, with Telecom being the only sector showing an increase.
“This is reflective of the cautious approach companies are taking towards salary increases in the current economic environment and the dip is largely in the range of one to two percentage points. Infrastructure is showing the maximum dip although they are still projecting the highest increases for 2009 at nearly 19%,” the report said.
Manufacturing sector is expected to see a pay rise of 15.1%, followed by FMCG (14.7%), BFSI (14.2%) and pharma (12.4%).
About 63% of the companies said that inflation and rising input costs have been discussed and considered in the context of their salary increase budgets for 2009.
While none of the organisations are expecting a “salary freeze” next year, nearly 42% said they would have lower salary increases, bringing in a greater correlation between performance and pay