Surge in inflation set to limit salary hikes on switching job
2 min read 15 Sep 2022, 01:20 AM ISTThe recalibration comes on the back of retail inflation rising to 7% in August
PremiumMUMBAI : Rising inflation has sent companies back to the drawing board to try and work on wage costs and recalibrate hikes set to be offered during job changes.
The push for work-from-office will hit hurdles as employees want to factor in rising costs and demand more benefits, while companies are likely to hold back because of cost pressures.
“Rising inflation will impact next year’s hike because companies cannot afford to give the 9-10% increment that they gave this year, after two years of covid. Across sectors, joining bonuses, hikes during job shifts and quarterly bonuses will see a drop,“ said Anandorup Ghose, partner, Deloitte India.
The recalibration comes on the back of retail inflation rising to 7% in August. There is a strong chance of the Reserve Bank of India (RBI) hiking the repo rate by another 35-50 basis point (bps) in the September policy, which could affect growth.
“While on the one hand the pressure on the bottom line continues to increase, it is difficult to subdue salary increments given the inflationary stress on employees," said Roopank Chaudhary, partner, human capital solutions, Aon.
Chaudhary’s comments come at a time India Inc is seeing a high attrition rate despite the ebbing of hiring frenzy. “This is accentuated by the fact that attrition and the war for talent continues for many sectors, leaving companies no choice but to keep increments and hikes competitive," he said.
For sectors such as IT, where wage costs account for 65-70% of expenses, rising inflation is a cause of worry. On average, wage costs as a share of revenue rose from 54.3% in the March quarter to 55.2% in the June quarter. Quarterly bonuses and benefits have already been hit by margin pressure.
Recently, Tata Consultancy Services stopped its first-year anniversary increases, underscoring efforts by India’s booming tech sector to arrest high staff costs.
Companies such as Infosys are rolling out 70% of variable pay, while Wipro had delayed payouts for certain employee categories.
However, inflation’s impact in India will be different from many economies in the West, which have large tech bases, said Kamal Karanth, co-founder of Xpheno, which specializes in tech hiring.
“Unlike many economies overseas where inflation-based statutory annual revisions are done, Indian enterprises and workforce are used to biting the bullet once or twice a year. The current inflation movements will hence be absorbed within the last round of corrections, or preserved for a correction in a round later in the year," he said.
RBI will keep an eye on the trade-off between raising rates to curb inflation and sacrificing growth, but experts believe that if left unchecked, the unabated price rise would certainly hurt the economy. There are concerns that high inflation, which has already been eating into wage growth, will further impact households.
The household sector, accounting for 44%-45% of the gross value added (GVA), saw its nominal wage growth decline to 5.7% during FY17-FY21 from 8.2% during FY12-FY16, said a report by India Ratings on 8 September.
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