Mid to late single digits. That’s the consensus estimate of salary increments in 2025 among HR and staffing firms. The reasons: Global economic uncertainties and fears of a possible recession in the US.
“As Indian companies navigate global and local headwinds, there is a clear focus on optimising compensation budgets, with pay increases for 2025 being forecast at 8.8% (9% in 2024). The survey shows that 75% companies will either reduce or keep their pay increases the same as last year,” says the third edition of the Deloitte India Talent Outlook 2025, noting that the average increment is expected to be the lowest in a decade, barring 2020-21.
Aon’s Annual Salary Increase and Turnover Survey 2024-25 India says salaries in India are set to rise by 9.2% in 2025, a slight decline from 9.3% in 2024, amid global uncertainty and softening growth. With artificial intelligence (AI) taking over some jobs, experts caution that increments may remain muted for several sectors even in 2026. This comes at a time when the government is looking to spark a virtuous cycle of increased consumer spending with cuts in income tax rates in Union Budget 2025-26.
Neeti Sharma, CEO of staffing solutions firm Teamlease Digital, says projections of salary increments for this year are not very promising but vary from sector to sector. “Everyone’s talking about a 7-9% growth rate,” she tells BT. Since IT services firms have faced some headwinds, increments in the industry will not be very large. However, for certain skill sets such as AI, they could be 12-16%. The BFSI (banking, financial services and insurance) sector may see single-digit increments.
On the other hand, as global capability centres (GCCs) pay more, hikes for their workers may range from 10-14%. The manufacturing sector is expected to hike salaries by 8.8-10.2%, driven by growth in key industries such as automotive, engineering, and electronics, says Sharma.
The wage growth conundrum
What could be a source of worry for formal sector workers is the Aon survey’s indication that 2025 may not be just a blip. This is backed by several sets of macro data and company filings.
Of course, not everybody is convinced that earnings have been hit in recent years. Union Finance Minister Nirmala Sitharaman recently said that compensation of employees at current prices grew at a compound average growth rate (CAGR) of 11.1% from 2014-15 to 2022-23 and that wages have increased post-Covid as well. But she also noted that the factors of production are being reset. “Industry is also looking at using robotics and Web3-driven production. Therefore, there is a lot of churn,” she said during a discussion in the Rajya Sabha in March.
Muted wage growth and high inflation have squeezed spending by salaried employees, an issue that has been flagged time and again by Chief Economic Advisor V. Anantha Nageswaran, including in the Economic Survey, which noted that corporate profitability hit a 15-year high even as wage growth moderated.
“Among Nifty 500 companies, the profit-to-GDP ratio surged from 2.1% in FY03 to 4.8% in FY24, the highest since FY08. However, while profits surged, wages lagged,” the survey pointed out. A striking disparity has emerged in India Inc: profits climbed 22.3% in FY24, but employment grew a mere 1.5%, it noted.
An analysis by State Bank of India reveals that 4,000 listed firms recorded a modest 6% revenue growth in FY24. At the same time, employee expenses rose 13%—down from 17% in FY23—highlighting a focus on cost-cutting over workforce expansion, the survey said.
These findings are backed by other data sets as well. Data from the Centre for Monitoring Indian Economy on listed and unlisted firms shows that in FY24, their profit after tax rose 29.5%, while compensation to employees grew 12.3%.
A recent report by the think-tank, ICRIER, says that nominal wage growth has barely kept pace with inflation, implying that real wages have been flat over the past six years. Analysing the findings of the Periodic Labour Force Survey, the report, India Jobs and Occupation Tracker, says that since 2019, nominal and real wages have grown at a CAGR of 6% and 0.5%, respectively.
Previously, a report by manpower supply agency Quess Corp based on its internal data had showed that 84% of formal jobs pay less than Rs 20,000 per month, aligning with minimum wage standards across different states. “This suggests that while jobs are being created, wage growth has not kept pace with economic growth,” it said. The report had also pointed out that wage stagnation is a major issue, even as India’s GDP has grown from Rs 113 lakh crore in FY14 to Rs 296 lakh crore in FY24(E). “The lack of substantial wage increases suggests a disconnect between profitability and employee compensation,” it said. The report also pointed out that minimum wage revisions have been slow and do not match rising costs of living, particularly in major cities where wages have remained stagnant for years.
Most of Quess Corp’s more than 500,000 staff are employed at minimum wages or for a maximum of Rs 28,000 a month. Only 10% of its staff are in ITES or engineering segments and earns over Rs 30,000 to Rs 45,000 per month and less than 3% are in pure IT. “Using only Quess data to say no Indian salaries have been increased will be unfair. A lot of the data is around entry level wages across segments,” it had noted.
Devendra Kumar Pant, Chief Economist and Head (Public Finance) at India Ratings and Research, explains that among the non-BFSI firms in the formal sector, real wage growth has remained positive but has declined. “Rural real wage growth has now turned positive, which is reflecting in stable rural demand. But urban demand remains a cause for concern, which has been evident in commentaries of FMCG firms,” he says.
Lohit Bhatia, President, Workforce Management at Quess Corp, says it would be incorrect to say that there has been no growth. “Data shows that there has been average wage growth of 2.5-5% in the last five years, but it is not commensurate with inflation of 4-6%,” he says.
Bhatia says industry is in compliance with the minimum wage across states and even higher than that in most states. “Whether it is a living wage or not is another question,” he says. That begs the question, is there a need to relook at minimum wages that range anywhere from Rs 10,000 per month to over Rs 20,000 per month depending on the state and the skill level.
Industry chamber Confederation of Indian Industry is, in fact, planning a study on why wage hikes have been low in several sectors.
Balancing costs
One crucial question that industry stakeholders and experts ask is whether India Inc should give more jobs at lower wages at the entry level or increase wages and have fewer jobs.
“We must also realise that at the entry level, there is a demand and supply mismatch. Just about 20% of the workforce is in formal jobs. For a company, increasing the wage at this level would mean fewer jobs. We must take a calculated stand on whether we want higher wages or more formal sector jobs. In that sense, we have a Catch 22 situation,” says Bhatia.
Experts also note that corporate profitability has increased due to several factors, including deleveraging, improving productivity and reduced corporate tax rates. Besides, companies have to strike a fine balance on operational expenses, which is why the wages may not move in sync with profits.
Prakhar Tripathi, Partner at Deloitte India, says it would be incorrect to assume that firms have been sitting on cash and have not given increments in line with their profitability in recent years. “The muted numbers this year are not a trend. In fact, it is against the trend of what we have seen in the last seven cycles,” he says.
Citing the example of consumer facing companies, Tripathi explains that their quarter-on-quarter growth numbers are poor, and they are facing margin pressures, which is why increments in the sector have been low. “We would have been surprised in a scenario where they are doing quarter on quarter numbers over the targets, and still the increment numbers are muted, which is not the case,” he says. According to the Deloitte India Talent Outlook Survey, the consumer products sector expects significantly lower budgets for increments in 2025.
Sharma of TeamLease Digital says that after the Covid-19 pandemic, several companies invested heavily in digitisation and automation, which improved productivity and led to an increase in revenue and profit.
“I think increasingly we will see a trend where a company’s revenue and profit growth will not be just due to what the employees are doing,” Sharma says, adding that people cost is not increasing in a linear fashion with profits.
The repercussion
The Economic Survey had warned that higher profits and stagnant wage growth may slow the economy by curbing demand. “Sustained economic growth hinges on bolstering employment incomes, which directly fuel consumer spending, spurring investment in production capacity,” it cautioned.
Pant of India Ratings also says that muted urban demand is leading to unstable consumption growth as households dip into savings or take loans to fuel consumption. Some of this has been playing out, though the pain started when Covid hit, and households faced job losses and salary cuts. In the following years, high inflation added to their woes with retail inflation averaging 5.4% in FY24. Private final consumption expenditure (PFCE) growth remained muted for successive quarters.
As per NSO data, gross savings of households grew 9% to Rs 54.61 lakh crore in FY24, sharper than the 5.7% growth in FY23. However, the share of household savings in gross savings declined marginally to 59% in FY24 from 60.8% in FY23.
A report by India Ratings and Research says while households remain the largest stakeholders in the savings profile of the Indian economy, their savings rate has been declining after reaching a peak of 22.7% in FY21 and fell to a seven-year low of 18.1% in FY24.
“Household savings are dependent on real income/wage growth, which has been stagnant for a majority of the population due to lower job prospects and high persistent inflation (above 4%). Another dampening factor for household savings is the rising financial liabilities. The household financial liabilities climbed to a 17-year high of 6.2% of GDP in FY24,” it says.
Respite for now?
Acknowledging this growing burden on the middle, salaried classes and its impact on the economy, the Union Budget tried to provide a booster through a review of income tax slabs as well as making annual income up to Rs12 lakh tax exempt. The tax giveaways, amounting to Rs 1 lakh crore, are expected to spur urban consumers into spending more and reviving the growth engines of India Inc.
A recent Crisil report says the leg-up to private consumption—which accounts for more than 55% of the country’s GDP—from a reduction in taxes in the Budget can offer some support to capex by improving domestic demand and creating conditions for fresh investments.
“For one, urban demand is expected to look up, especially in categories related to middle-income households. For instance, in automobiles, the expected volume growth for two-wheelers is much higher compared with passenger cars, where the target buyers are largely from the high-income category,” says the report.
A good monsoon is projected to have lifted rural incomes and demand. PFCE is seen to have grown 7.6% in FY25 as against 5.6% in FY24. Retail inflation is expected at 4.8% in FY25 with food prices cooling and may decline to 4.2% in FY26, as per RBI. Interest rate cuts are also expected to lift consumer spending and demand. Tripathi of Deloitte says we tend to confuse between salary increment and real wage growth. “Real wage growth is going to be roughly on the lines of what have we seen previously because inflation has been coming down,” he says.
Salary awards to government employees with the Eighth Pay Commission next year is expected to push consumption. A UBS report expects a $50 billion boost from the awards during 2026-28. “About 40% of formal employment is in the public sector and pay revisions for government employees could indirectly influence wages in the private sector,” it says, noting that private sector salaries seem to have grown at a slower pace in recent years. “Our analysis reveals the total pay of the lowest-ranked government employees is typically more than twice that of comparable private sector jobs,” says the report, authored by Tanvee Gupta Jain, Economist at UBS. Experience of past pay commissions suggests a boost to household savings more than consumption, it says.
For now, at least, there seems to be a silver lining. The salary crunch may be real, but hopes are pinned on a variety of factors to lift households’ spending power. Perhaps, 2026 will be a new story.
@surabhi_prasad
