April is around the corner and with the positive sentiment in India everyone is expecting a bumper increase. Salary increase discussions are carried out once the more fundamental questions are answered.

How is the economy and sector shaping up? How did your company perform compared to the last few years? Was the revenue and profit growth in line with the expectations of the share-holder? Was your performance considerably better than your peers? Is your company in growth or consolidation mode?

From a statistical stand point though, the overall salary increase projected for India in 2015 is at a stable 10.8%, so companies should be budgeting for salary increases much the same as last year. That said, very few countries in APAC or around the world are looking at double digit salary increases and with the recent decrease in inflation and oil prices, although the average salary increase for 2015 is projected at 10.8%, the real salary increases (net of inflation) is likely to be much higher than last year. At the end of the day, it depends on the affordability of the company. If the company is growing at a fast rate and revenue exceeds the cost by a huge margin, it is easier to be aggressive on salary budgets than low growth companies.

Though the average salary increase in India is projected at 10.8%, it does not mean that everyone will get the same increase. It implies that the wage bill for companies on an average will go up by 10.8% but in case of critical skill talent or high potentials the salary increase can be as high as 15 -18% and for low performers it might just match the inflation rate of close to 6% (as predicted by Economist Intelligence Unit). An average performer can expect a 10.8% increase. Performance based rewards will play a much more crucial role and companies will start to differentiate a lot more to retain their critical skill staff, hot skills staff and hi-potential staff with the limited budget. We will also see that the difference in distribution of merit and variable pay increases between high-performers and average performers could be as high as 2-3 times. Employee benefits are also emerging as an important driver of attraction and retention.

The pharmaceutical sector in India, will have amongst the highest salary increases at 11.5%. Patent expiries, increasing demand and encouragement for genetics have continued to put pressure on companies to attract and retain talent, particularly for jobs such as in regulatory affairs, clinical strategy, project management and qualified researchers.

The Hi-Tech industry will see higher increments at 10.7% in 2015, up from 10.5% the previous year because of the increasing demand for IT and IT related services from the other economies. The growth of IT parks in India and the specialisation of skills are only going to fuel the employment generation within this sector. Furthermore, the tax breaks and lower operating costs would also result in higher salary projections for this sector. Skills that will be in demand in 2015 for this sector would be big data / SMAC (Social Mobile Analytical and Cloud), key software skills such as Python / Share point.

Other sector that would witness salary increase is Professional services sector rising from 8 per cent to 10.9 per cent. All the other sectors including Energy, FMCG, Financial Services, Media, and Retail will remain stable on the 2014 salary increase trend with an exception of few critical skill levels getting a hike more than the average.

The upcoming budget is expected to rake up the hiring scenario in the country. The sectors that likely to immensely benefit are the ones that come under the 'Make in India' programme.

Automobile, automobile components, aviation, construction, food processing, mining, oil and gas, IT and BPO, biotechnology, defence manufacturing, chemical and pharmaceutical among other sectors are also expected to benefit. The government has a sharp focus on developing these sectors under the campaign and hence is expected to announce reforms and new policies to boost investments in these sectors, which in turn will boost existing and new projects, hence pushing up the hiring activity.

Apart from infrastructure, the government's budget announcements for sectors such as education, finance, real-estate as well as insurance will likely create more job opportunities in these sectors.

The challenge for companies is to keep employees engaged and turnover down. Towers Watson research reveals that, whatever people say, salary is the number one driver for attracting and retaining highly skilled staff so a fine balance is needed. Having structures in place to help companies win the battle for talented staff is critical, for countries like India, where the scale of operations can be vast and proximity to market is so important. Going forward in 2016 and beyond, if inflation rates continue to moderate, Indians need to start preparing themselves for a possible mid-to high single digit salary increase.

Article by Sambhav Rakyan as appeared in the March 2015 issue of the People Matters magazine. Source:People Matters, India