India’s Corporate Salary Bill Surges at Record Pace in a Decade 2023
India, as a booming economy and home to a vast talent pool, has witnessed significant growth across various sectors over the past few years. However, 2023 marks a remarkable year for India Inc as the combined salary bill for corporates has seen its fastest surge in a decade. Let’s delve deep into this development, explore its causes, and understand its implications.
Reports indicate a robust double-digit growth in the salary bill across sectors, making it the steepest rise in the last ten years. While the exact figure varies depending on the source, there is unanimous agreement among analysts that 2023 has seen an unprecedented uptick.
The fastest growth in ten years, India Inc.’s overall pay expenditure increased by a healthy 14.3% to around Rs 9.4 trillion in FY23. In addition, the average wage in the organised sector increased by about 10%, a record high and far more than the nation’s rate of retail inflation.
According to a research by Jefferies of 7.5 million workers from 1,800 publicly traded companies, the increase was caused by the IT industry’s significant wage increases. When salaries in the IT industry are taken out, the increase in pay packets falls to 6.8%, in line with the 10-year average.
When the data is accounted for, the predicted rise in compensation per employee is even greater at an effective 15.6%, which is also an eight-year high. The number of people employed increased by a respectable 4% to 7.5 million in absolute terms, following a 7% gain in FY22, a year in which the economy was still recouping from the pandemic’s impacts.
According to a survey by analysts at Jefferies, the increase in hiring in the BFSI (banking, financial services, and insurance) sector more than offset the slowdown in hiring by IT businesses.
In comparison to the IT industry, where headcount increased by 6%, this sector had an 8% growth. Together, the two industries were responsible for nearly 85% of the extra employment added throughout the year. It was interesting to see that state-owned businesses continued to lay off employees in FY23.
According to experts, increased salaries and employment will increase consumption demand in the upcoming quarters. While softening inflation played a role in the substantially stronger rise in private consumption in the June quarter—6% y-o-y as opposed to just 2.8% in the March quarter—bigger paychecks also played a role. After reaching a 15-month high of 7.44% in July, the rise in the CPI inflation rate eased to 6.83% y-o-y in August.
With a potential boost from increasing capital spending, the services sector has been mostly responsible for the increase in employment. For instance, Larsen &Toubro (L&T) maintained a 0.27 million contract workforce in FY23, which was below the FY15 peak. The increase in labour demand “at the lower end” that is anticipated to accompany the capex cycle upturn will increase consumer demand. Over the next five years, the construction industry is expected to add almost 7.5 million jobs, according to Jefferies analysts.
The global COVID-19 pandemic took a toll on India’s economy, leading to a contraction in 2020. However, with subsequent economic policies, vaccination drives, and global market rebounds, the Indian economy started reviving. This revival led to enhanced business confidence and, consequently, higher compensation to retain and attract talent.
Over the past years, the inflation rate has been on the rise, pushing the cost of living higher. Companies have had to adjust their pay scales to ensure that real wages don’t diminish.
The digital transformation drive across industries and the IT boom, especially in areas like AI, ML, and data science, have escalated demand for tech talent. This has resulted in skyrocketing salaries in the tech sector, which has had a cascading effect on other sectors.
With many Indian professionals now working for global corporations and the rise of remote work, Indian companies have had to compete with global salary standards to retain top talent.
As mentioned, the IT sector has seen a major chunk of salary hikes. Companies like TCS, Infosys, and Wipro have reported substantial increments to their staff.
With the economy on the rebound, the finance sector, which includes banking, insurance, and NBFCs, has seen a healthy rise in their salary outlay.
The manufacturing sector, which was hit hard during the initial pandemic phases, has bounced back and is ensuring competitive salaries to prevent a talent drain.
The pandemic has underscored the importance of healthcare and pharmaceuticals. This sector, being at the forefront of the battle against COVID-19, has witnessed a significant increase in salary bills, especially for R&D roles and frontline workers.
With companies offering higher salaries, employee expectations will naturally rise. This could lead to greater demands during salary negotiations, even at entry levels.
To justify the higher pay, companies might invest more in training programs to enhance employee skills, ensuring they get the best ROI on their salary bills.
While higher salaries are an indication of a booming economy, they could also exert pressure on company profit margins unless paralleled by productivity gains.
The sharp increase in India Inc’s salary bill is a testament to the country’s economic resilience and the importance of talent in driving growth. While this surge brings optimism, companies must balance their books and ensure they achieve the right blend of employee satisfaction and business profitability.
