Salaries in India are Surging. How to Mitigate Against Rising Costs

India’s salaries are on the rise. The Salary Budget Planning Report by Willis Towers Watson, projects salaries to increase by 9.3% in 2022, up from 8% in 2021, with the high-tech sector expected to see the greatest salary increase at 9.9% (Basu, 2021). This is followed closely by consumer products and the retail sector both at 9.5% and the manufacturing sector at 9.30%. (Basu, 2021)

435 Indian companies participated in the 2021 survey which further revealed that middle management, professionals and support staff gained the most proportionate increase in variable pay from 11.6% last year to 22.2% this year. (Basu, 2021)

So what’s behind this sharp rise in salaries and how can UK based organisations with service centres in India mitigate against these rising costs?

One of the primary reasons why salaries are on the increase is attributed to the global pandemic.

New ways of working post-Covid has broadened the talent pool

The world has moved to remote working in response to the outbreak of Covid19. And as a consequence, in India, individuals now increasingly have the opportunity to apply for roles in parts of the country that would not have been feasible pre-2020.

Historically, family ties in India are strong, and anecdotally, contacts in India tell us that prior to the pandemic many workers wouldn’t have considered relocating from their family city to change job. Remote working has enabled workers to put their career first without having to compromise on location. As a result, companies who would previously have competed with comparable companies across the city for labour, are now also contending with companies across India to secure the best talent.

Many organisations are finding that as the talent pool has opened, to attract high-calibre applicants, salaries have had to rise. Evidence from CareerNet suggests that Hyderabad, Bangalore, Delhi/NCR and Mumbai are the top four cities with the highest hikes in salaries in 2021 (Goel, 2021). They found that the salary increases have been greatest within domestic employers – average salaries have gone up by 34% and 36% for entry level and middle level candidates, whilst the global market recorded only 17% and 15% hikes in comparison (Goel, 2021).

Remote working is preferred, and therefore increasingly likely to become the norm post-pandemic

Remote working is also being driven by behavioural preferences. A study by Gartner, released this month, revealed that contrary to their counterparts in China and Japan, Indian hybrid workers reported that they prefer virtual meetings over in-person meetings (Sakpal, 2021). Kotipalli, principal research analyst at Gartner, said “Virtual meetings has always been desired by Indian workers. During the pandemic, Indian workers experienced first-hand the flexibility benefits they can reap out of virtual meetings, and now this has become their preferred choice.” (Sakpal, 2021)

Not only that, but the study revealed that 50% of Indian hybrid workers considered themselves to be more productive when working remotely, with choice of location and flexibility of working hours cited as the top enablers for productivity (Sakpal, 2021).

It can be argued that the evidence suggests that the pandemic has irreversibly changed working patterns and behaviours across India. In summary, remote working has increased choice and opportunity for workers in India, who have embraced, and prefer this approach. A nationwide talent pool has opened up to organisations, but to attract the best candidates has come at a price.

Awareness

Forewarned is forearmed. The evidence is mounting that times are changing in India. Organisations should mobilise now to find ways to lessen the financial burden on their business. But how?

Retention Incentives

Organisations should prioritise retaining their workforce. This can be achieved by understanding what motivates them and what drives loyalty to the business. Salary will of course be a major consideration, and organisations should benchmark their salaries against competitors to ensure that they are not significantly adrift, but can organisations improve retention in other ways?

The Chartered Institute of Personnel and Development cite the following practices which have been shown to play a positive role in improving retention:

• Flexibility – as highlighted above, flexible working practices are highly valued by employees in a post-pandemic world
• Fairness – treat people fairly
• Wellbeing – support managers to help their teams thrive and manage issues such as workplace stress and presenteeism
• Career development and progression – maximise opportunities for employees to develop skills and careers. If promotions are not feasible, explore sideways moves that allow employees to gain different development experiences.
• Consult employees – ensure that employees have a voice.

(Maxwell, 2021)

Of course other benefits can and should be considered as part of a potential employees’ overall package. If salary increases are prohibitive, can the organisation offer benefits such as annual leave, private healthcare, transport schemes, equipment, training and development commitments etc.

Perform a Personnel Risk Management Exercise

Person dependency is a particular risk to any organisation. ‘Key-people’ can operate within any level of an organisation – their critical and tacit knowledge is key.

Consider this: If Person X were to take several weeks out of the business will the business still run effectively without them? Do others in the organisation know how to access and use all key business systems? Would it be difficult to recruit a replacement for Person X?

Answering these questions will help organisations to identify how dependent upon a particular person their organisation is.

So once key personnel are identified what next? Handle the risk as deemed appropriate:

• Accept – Organisations may choose to simply accept the risk and the consequences of that risk. This could include possible reduced income due to interruption in business continuity and possible damage to the company’s reputation
• Mitigate – Organisations may choose to mitigate the risk by:
  • engaging in retention strategies (as identified above)
  • sharing knowledge more widely across the team – essentially succession planning
  • using systems and processes that all can access and operate, ensuring training is readily available.

• Avoid – This could be achieved by looking at a hybrid model of offshore and onshore resources at a fixed cost with the supplier. This would mean that the supplier takes the commercial risk.
• Transfer – Organisations could look at on-shore and near-shore solutions where the employment market is (currently) more stable therefore transferring the risk.

Creating a Commercial Construct That Supports Headcount In and Out

Organisations should have a strategy that acknowledges and supports both recruitment and exit from the business. Healthy businesses thrive through staff who are engaged and empowered to do their work effectively. Through embracing training, this spreads acquired knowledge widely within the partner organisation thus lowering person dependency, and lessening the impact when employees leave the business. It is also the case that a certain level of ‘churn’ of staff is desirable in any business and should not be viewed as wholly negative. Far from it. Staff turnover prevents teams from becoming stale, provides greater opportunity for fresh perspectives and new ideas, and also gives staff members a career progression pathway within the organisation – a key motivator for many ambitious colleagues.

The offshore resource market is changing and it is not yet clear where it will finally settle. What is clear is that the current rise in salaries in India and staff turnover rates are impacting services (both in terms of cost and delivery quality) and that businesses need to understand and plan for this.  We’ve identified ways in which companies can mitigate the financial risk of rising salaries, and what will be the correct course of action for one organisation may not necessarily be the right course for another. It must be noted that ultimately suppliers cannot run their businesses at a loss and, if there is a risk of doing so, suppliers will try to raise their charges, reduce their service quality or, ultimately, walk away from existing contracts by whatever means available.

The “working remotely” model created by Covid-19 has enabled professionals to compete in a global market. In particular, procurement professionals should be aware of the following:

1. Low cost, offshore suppliers are not running “benches”, whenever they win a deal they go to the market to compete for resource. With the near-term growth expectations in this sector, demand for resource is outstripping supply, thus wages commanded by IT professionals are increasing at a significant rate.
2. Awareness – now that we understand that these changes are real, we can look for evidence as to how our own businesses are being affected. Are SLAs being missed, are response times longer, are people no longer at the end of a phone? Being ‘alert’ to these issues will support the business to identify them quickly and put resolutions in place.
3. Review existing contracts – in particular, assess indexation and termination clauses. Understand how these could be used to mitigate the suppliers’ reduced revenues and take appropriate remedial action.
4. Reassess the factors leading to the selection of using an offshore model – If those objectives are no longer valid, start planning now for a review.

Basu, S. D. (2021, October 20). India to see higher salaries at 9.3% increase in 2022, up from 8% in 2021: Willis Towers Watson Survey. Retrieved from Economic Times

Goel, S. (2021, November 30). India inc sees 29 per cent average hike in salary; Up to 86 per cent at entry level. Retrieved from New Indian Express

Maxwell, D. G. (2021, November 1). Employee Turnover and Retention. Retrieved from CIPD

Sakpal, M. (2021, November 30). Gartner Survey Reveals 50% of Indian Hybrid Workers Consider Themselves More Productive When Working Remotely. Retrieved from Gartner