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Indian companies struggle as wages rise

By Nandini Lakshman,
February 07, 2008 13:17 IST
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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 labour shortage in many industries.

Even as Mumbai stock market investors suffer whiplash from the global subprime meltdown and worries about recession in the United States, 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 per cent 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, sectors such as manufacturing and pharmaceuticals will boost salaries this year.

Manufacturing salaries are likely to grow 16 per cent, with pharma rising 15.7 per cent, Watson Wyatt reports. In 2007 these two sectors saw increases of 12.5 per cent and 12 per cent respectively. Overall, the firm projects average salaries across sectors this year to increase 14.8 per cent.

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, Infosys Technology, and Wipro hire thousands of workers every year - companies have to accommodate growing demands from impatient employees 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 per cent, 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.

Now employing 500 project managers with annual salaries ranging from $64,000 to $177,000, L&T needs over 500 managers in the next two years.

How will the company manage? M.S. Krishnamurthy, senior vice-president for human resources, says the plan is to lure people with employee stock options and pay a 20% salary premium to poach workers from rivals. "With senior management, the volume of value goes up," he says.

The airline industry also has to pay out more to attract workers. India is one of the world's fastest growing aviation markets. The country's airlines have only 400 planes in operation, but they are likely to double that number by the end of the decade.

With almost every Indian airline in serious expansion mode, India must increase the number of people employed as cabin-crew members by more than 300 per cent - from 6,000 to 20,000 - in the next two years. Even though a lot of cabin-crew training schools are sprouting in India, people still need to be trained, claims Ajay Singh, a director at low-cost airline SpiceJet. With salaries up around 20%, "recruitment is still an area of concern."

Rapid expansion in retail

SpiceJet has 19 Boeing (BA) planes and hopes to add 100 more aircraft in the next couple of years. To fly all those new planes, Gurgaon-based SpiceJet must go on a hiring spree and add 1,000 more pilots.

However, there's a dearth of airline pilots in India already. So local airlines have been hiring retired foreign pilots - and that just pushes the wage bill higher. At SpiceJet, pilots now account for 50 per cent of total wages, according to Singh.

Even the most powerful name in corporate India is feeling the pinch. Reliance Retail, the Mumbai retail arm of mighty Reliance Industries, with 500 stores sprawled over 2 million square feet of retail space in India, has ambitious plans to increase its 17,000 head count to 70,000 in the near future.

Such rapid expansion "does put pressure on resources," says Raghu Pillai, president and chief executive officer for operations and strategy at Reliance Retail. With attrition rates in the sector at nearly 40 per cent, Pillai says salaries at Reliance Retail are up 20 per cent to 50 per cent.

With Bruce Einhorn in Hong Kong
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