Average Indian Salary to Increase by 10 Percent in 2014

February 28, 2014 Posted by India Briefing Reading Time: 4 minutes

DELHI – Salaries in India are projected to increase by an average of 10 percent in 2014, according to Aon Hewitt’s Annual Salary Increase Survey, released on Wednesday. Aon Hewitt, a leading provider of human capital and consulting services internationally, sought opinions from 565 firms across a number of different sectors in reaching its survey results.

The 10 percent increase will be the lowest rise in a decade, other than in 2009, where salaries increased by 6.6 percent due to uncertainties following the global financial crisis. In fact, the salary increases will barely keep up with inflation, which has been persistently high for a number of years, hovering around double-digit figures for most of the past year. The CPI increased by 8.79 percent in January, and 9.87 percent in December. However, the Reserve Bank of India (RBI) has demonstrated its determination to curb inflation by raising interest rates, and has set a target of 8 percent inflation by January 2015.

Compared to previous years, the projected salary increases for 2014 are only marginally below the 10.3 percent average increase reported in the 2013 survey. Anandorup Ghose, Rewards Consulting Practice Leader at Aon Hewitt India, commented that even as growth recovers in both advanced and developing economies after the economic crisis, it is slower and more muted than the unsustainable growth rates in the pre-crisis period.

According to the Central Statistics Office, in the year ended March 2013, India’s GDP grew by 4.5 percent — the lowest annual growth rate in a decade. A slightly higher growth rate of 4.9 percent is expected for the 2013/2014 fiscal year.

Despite the relatively low increases in salaries, attrition rates have declined from 19.3 percent last year to 18.5 percent, due to a lack of job opportunities. The attrition rate for critical talent is particularly low at only 4.5 percent (compared to 5.7 percent a year ago). A contributing factor for this decrease is the better-than-average pay increases given to top performers, who will see an average raise of 15.3 percent in 2014.

The disparity in pay for top performers and average performers has been increasing in recent years, reflecting a shift in pay structures as earnings become increasingly variable and linked to performance.

Sector Breakdown

Projected salary increases varied across sectors, ranging from 8.8 percent in the retail sector to 12.0 percent in the pharmaceutical sector. The survey revealed that sectors dependent on the domestic economy (pharmaceuticals, chemicals, cement, engineering services and consumer goods), projected the strongest salary increases of higher than 10 percent. Moreover, in these sectors, labor costs make up a small portion of businesses’ cost structures.

Meanwhile, the retail, financial services, automotive, infrastructure and energy sectors have been hit harder by a slowdown in the economy and consumer spending. Labor costs in those sectors make up a larger proportion of businesses’ overall costs.

The survey observed that the disparity in increases between the best and worst-performing sectors has narrowed to around 3 percent, compared to 5 to 7 percent in 2013.

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