Page last updated at 23:48 GMT, Tuesday, 16 March 2010

Rising pay in India dwarfed by inflation

By Supriya Menon
India Business Report, BBC World News

Indian women and children
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.

Kedar Shirali,investor relations director, Tata Consultancy Services
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.

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.

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