Salary inflation in India: Where is it heading?

The salary for Indian knowledge workers is going up and up. So the question comes to everybody’s mind is ‘Where is it heading? How sustainable this growth is?’ The salary inflation is reflecting in everything we see today. Let me give a simple example: To hire an Embedded Systems engineer we interview about 30 people in my organization. Even after hiring the organization is having no guarantee that the Engineer will accept the job offer and join the organization. There are multiple reasons why this is happening:

1. At present, too many jobs are chasing too few ‘good’ engineers in India. So the trend is to have at least 3-4 job offers in hand and take the final decision based on salary.
2. Among Asian countries India is witnessing maximum amount of salary raise of 15% year-on-year. This is mainly because of the double digit growth rate Indian companies are witnessing in the recent quarters.
3. The rupee is becoming weaker day by day. Organizations which are dealing in foreign currencies get about 5% of their margins by smart treasury management.

Even though the above mentioned factors are acting positive as of today, it is not sustainable at all. This is mainly because, the wage difference between US and India is narrowing down and other outsourcing locations like China and Eastern Europe are picking up pretty fast. Apart from this, growing any money (Including salary) at 15% year-over-year is ‘Almost impossible’ from the basics of investing. As far as I know only the ‘Investment Guru’ Warren buffet is able to offer such a remarkable Return-On-Investments (ROI) over a long period of time.

So what do we do about this? According to me we can address this problem in two ways:

1. Increase the ‘Quality’ of supply: According to McKinsey report only 25% of technical graduates and 10 % to 15% of science graduates are suitable for knowledge industry today and this is mainly because of the low skill level. Increasing the ‘employability’ is the dire need of today and it needs to be addressed by providing high quality training to these graduates. According to me this initiative needs to come from the industry by promoting a closer ‘Industry-Academia’ relationship. This will address the demand supply problem to a larger extent.
2. Drive towards value creation: For existing knowledge workers a strong drive needs to be created towards creating ‘Value’. The value addition should come in the form of intellectual property creation, product innovation for emerging markets and getting into the non-technical aspects of the product life cycle. This will make sure that there is a ‘Beyond-cost’ advantage for organizations by having their shop in India.