Indian Companies Struggle as Wages Rise

Despite its massive population, India faces worker shortages in many sectors. Rapid growth means businesses must offer higher wages to keep employees

by Nandini Lakshman

Chief Executive Officer of India's Infosys Technologies, Kris Gopalakrishnan addresses a press conference at the Infosys campus in Bangalore, 11 January 2008. DIBYANGSHU SARKAR/AFP/Getty Images

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In a country with over 1 billion people, a worker shortage shouldn't be high on the list of concerns for corporate executives. But India, with the world's second-largest population, has a labor shortage in many industries. Even as Mumbai stock market investors suffer whiplash from the global subprime meltdown and worries about recession in the U.S. (BusinessWeek.com, 1/22/08), Indian companies are finding they need to boost salaries in order to attract or retain employees.

According to a recent report from London human resources firm ECA International, average wages at multinationals in India are likely to jump 14% this year, putting India at the top of a ranking of 47 countries worldwide for the second year in a row. "Salaries in India are catching up to developed nations at a faster rate [than in many other Asian countries]", says Lee Quane, Hong Kong-based Asia general manager for ECA. "Companies have had to provide higher salaries."

According to another recent survey, by human capital firm Watson Wyatt Worldwide (WW), sectors such as manufacturing and pharmaceuticals will boost salaries this year. Manufacturing salaries are likely to grow 16%, with pharma rising 15.7%, Watson Wyatt reports. In 2007 these two sectors saw increases of 12.5% and 12% respectively. Overall, the firm projects average salaries across sectors this year to increase 14.8%.

Expanding Company Ambitions

The pay hikes are also pronounced in other fast-growing sectors such as retail, infrastructure and engineering, aviation, health care, technology, and real estate, where the demand-supply gap is huge. In the IT services industry—where companies such as Tata Consultancy Services (TCS), Infosys Technology (INFY), and Wipro (WIT) hire thousands of workers every year—companies have to accommodate growing demands from impatient employees (BusinessWeek.com, 1/17/08) for salary increases and career development.

The paucity of people isn't the only factor affecting salaries. "It's also to do with the expanding ambitions of existing companies, and new entrants to the sectors, says Harminder Sahni, managing director of KSA Technopak, a New Delhi retail and health-care consulting firm.

For instance, there are just four listed health-care companies in India today, but over 50 more are keen to enter the sector. And some of those already in the health-care business have major expansion plans that call for hiring of many more workers. Fortis Healthcare, the operator of a dozen Indian hospitals and a subsidiary of India's leading pharmaceutical company, Ranbaxy Laboratories, began with one hospital three years ago. Now it hopes to operate 100 more in three to five years.

Enticing Workers With Incentives

Such ambitions are evident across sectors. Almost every big Indian conglomerate is entering retail, infrastructure, and real estate. At India's leading engineering and construction company Larsen & Toubro, the wage bill is up 50%, from $202 million in 2006 to $304 million in fiscal 2008. With an order book of $12.6 billion, L&T needs engineers and project managers. India needs over 150,000 engineers in infrastructure alone, and L&T hires 2,500 engineers and diploma-holders every year. It wants to double that.