Happy days are back again......Salaries to rise strongly this year!

For all the cynical, educated, middle class folks (like us!) who crib and complain of inflation and governance standards and so many other things.....its time to celebrate! Hiring consultancies are predicting that 2011 will be the year of returning to the good times that existed before the economic crisis of 2009. By their estimates, average salary hikes should be 15%.....way higher than the 11% of 2010.

For most Indians, this number of 15% may be a bit of a disappointment. They are used to getting a higher increment as a matter of routine! So here’s the trick really. Pay hikes are usually calculated for “continuing” employees. New employees (who usually have taken their hikes when they negotiated their new salaries before joining up) are left out of the salary increase calculation.....but are included in the base total salary calculation. Since salary increase (%) is salary increase of continuing employees (Rs) divided by base total salary (in Rs and including salaries of new employees)....you can see why the % goes down! If we assume that the impact of new employees is about 25% (the average level of “new” employees in an average year), then the real increment continuing employees will get will be more like 15/0.75 = 20% or so!

Further, all merit-focused companies differentiate between the higher performers and the average ones. They have different ways of identifying these people....some companies call them “Listers”.....others “Must Retain”. Either which way, this bunch of high performers are about 25% of the total work-force. These 25% people will surely get a much higher increment (something in the region of 25% or so)!

As further evidence of the good times coming up, the IIMs that have finished recruitments (IIMA and IIML) have reported strong growths of 20% in the average salary levels. Other top notch schools have also reported a similar rise in average salaries. There is also an increase in the number of overall job offers, the number of pre-placement offers and the number of international job offers.....all signs of booming times!

So can we now spend a little time on the crib we have of inflation? Most Indians who complain about inflation forget that they are themselves always taken good care of by their companies. So a 20% average salary increment.....even when set off by 9% inflation......gives a “real” increase of 11% in disposable income. That’s huge. Ask any westerner.....who’s used to getting 2-5% increments.....and he/she will be happy to come to India for a job!

Equally interesting to note is that middle and senior management salaries are now touching the levels reached in the Western world. The number of middle managers getting salaries upwards of Rs 25 lacs a year is ballooning. Lets convert this to $ and see what we get. Rs 25 lacs comes to about $ 55,000 and that may look small. Now bring in the PPP (Purchasing Power Parity) factor. In PPP terms, the salary in $ is about 3.6 times higher and becomes about $200,000, a very handsome salary in America! In other words, middle managers in India now live the lifestyle of their peers in America! We know this is true. Today the number of professionals routinely traveling abroad on holidays; buying big cars and the latest consumer durables; buying premium real estate properties.....is all an indication of this truth. Also, gone are the days when people wanted to migrate to the US for work.....Its much better in India!

What does this mean for the Indian economy? Everyone knows that the secret juice of India’s economic growth is domestic consumption (It’s exports for China. Their domestic consumption is only 35% of GDP. For us its 65%!). The 20% average increment is going to fuel further domestic consumption. So car sales are likely to double to 5 million in the next 2-3 years. The Sony global CEO recently stated that India should become the 5^th largest market for them in the next few years. With more money and more business all around, MNCs are making more profits in India. Standard Chartered Bank this year made its maximum profit worldwide in India....even more than what it made in Hongkong!

One last point. While its boom time for the lucky ones like us.....we must spare a thought for the urban poor. The folks who are forced to live in dirty shanties. Those who work in our homes in various capacities (household help, drivers, cooks....). We must make sure we give them a 20% average increment too. Let’s share our wealth. After all, the satisfaction of giving is much much higher than the satisfaction of spending on oneself.

The real truth? Simply that the next 20 years should be good fun to live and work in India. Have no worries. Spend the money and enjoy life to the fullest. Go and buy that big car and don’t worry about the installments. As the slogan of a popular cigarette brand of the past said: Live Life King size!