Rising pay in India dwarfed by inflation
By Supriya Menon
India Business Report, BBC World News
Food prices are soaring and pay rises are struggling to keep up
Kedar Shirali feels that the Indian economy has bounced back and that things are
looking up.
So the investor relations director at India's largest software firm, Tata Consultancy Services
(TCS), expects his salary will be raised.
"Extra money in the bank is always welcome, so this year it will be a better vacation," he laughs.
And he is not the only one who is optimistic.
The mood in companies such as TCS is far better this year it was last year.
Rising pay
Software and computer companies faced the brunt of the global economic downturn, so in 2009
few of them gave their staff pay rises.
Mr Shirali hopes his pay will rise this year
But this year, TCS says it will look at a number of options when it comes to compensation before
making a decision in April.
S Hyde 28/06/2016
Pay rises could be in the region of 10%, according to TCS chief finance officer, S Mahalingham,
with pay only making up one part of overall compensation packages.
Average pay is expected to rise some 10.6% in India this year, according to consulting firm Hewitt
Associates India, well ahead of China where pay is set to rise 6.7%.
Though unlike in the past, the wage growth is being led by companies supplying domestic markets
rather than firms relying on exports.
Caution urged
The pay rises may sound impressive, though with the cost of food and other prices soaring,
people's spending power may not actually be rising that fast - if at all.
Everything here has become more expensive during the last year, especially food.
The price of vegetables has more than doubled and overall food inflation for February was 17.8%.
Manufactured goods are also getting more expensive.
Last month, India reported that headline inflation had reached 9.9%, having increased almost
seven-fold since October last year.
Price inflation is further fuelled by wage inflation, so many experts say companies should careful
and not get carried away and be too generous with their pay increases.
"It's a bit premature," according to Dr Ganesh Shermon from KPMG, a consultancy.
""The markets are looking better, sentiment is definitely better, people want to do all the right
things," he agrees, before cautioning that "not all the banks are lending the money, there are not
as many people going out there to borrow funds".
No improvement
But such warnings from naysayers do little to curb the enthusiasm of the many companies that
say they will go ahead and raise pay for their staff.
People here are already beginning to feel the change in fortunes.
And when the money is actually paid out, it will bring smiles to people's faces - even though the
supposed pay rises do little more than keep up with inflation, ensuring people are no worse off
than they were before.
1. Using a diagram, show the effect on macroeconomic equilibrium of the wage rises in
India.
2. Assess two effects that the rising wages have on Indian companies.
3. What are the negative effects of high inflation rates on the Indian population?
4. Distinguish between cost-push and demand-pull inflation.
5. To what extent is the rise in wages due to skills shortages in the Indian economy?
6. Assess how the Indian economy is affected by changes in wages, costs and bank lending.
Uncertainty, re-distribution of wealth, loss of competitiveness, skills shortages.
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