Pay raise in 2020 to be negligible once adjusted for inflation

Going forward, your real salaries may see a less than 5 percent annual rise because of food and medical inflation.

Source: Moneycontrol.com | Dec 20, 2019 09:18 PM IST

Pradeep Joshi was given an annual salary hike of Rs 60,000 in FY20. However, after deducting the increase in his house rent and monthly grocery expenses, the real increment was negligible. While on paper his hike looked decent, there was no real impact of the compensation increase.

With a rise in inflation even as salary hikes stay muted, the real wage hikes will be negligible in 2020.

In November, India's retail inflation rose to a three-year high of 5.54 percent on the back of rise in food prices. Food inflation rose to 10.01 percent and vegetable inflation jumped to 35.99 percent as compared to 26.1 percent in October.

Similarly, medical inflation in India has also been at around 20 percent and is seeing a steady increase. So, even a standard 10 percent hike will translate to very little in terms of an increase in the actual disposable income.

"Real wage hike will be less than 5 percent because inflation adjustments are not done.  But this will stay more or less constant," said Sunil Goel, Managing Director, GlobalHunt.

A recent study by Korn Ferry showed that while the 2020 projected salary increase would be 9.2 percent in India, the inflation-adjusted pay will be 5 percent. However, the study did mention that this is among the highest globally.

Companies are cutting down on the fixed component of the salary and are instead focussing on raising the variable component. This variable pay is subject to how well an individual has performed as well as how profitable the company is.

"Given the current economic conditions, even a 9 percent salary hike would be considered exceptional. Due to the cost constraints, inflation-adjusted hikes are not viable in India," said the head of human resources at a financial services firm.

Unlike other mature markets, India has a policy of yearly salary hikes based on performance in the previous year. In countries like the US, it is based on the years of work experience and contribution to the team performance.

This is due to the fact that in metro cities like Mumbai, there is a standard annual increase in several expenses like grocery, transport and rent. The city especially has a system where there is a fixed 10 percent increase in the house rent every year.