Special Report: Shrinking Salaries in India

By M H Ahssan & Deepti Naval

More and more young Indians are trying out their own ways to cope with shrinking salaries.

The confetti has been cleared away, the streamers have been packed, the hats crushed and thrown away, and the festive spirit has caught the last bus home. The music might not have died but what we are hearing now are definitely the last strains. Welcome to the Grimm Brothers' 21st century fairy tale, the one in which the fair princess of good times has been thwarted by the wicked witch of the west, complete with ruby red heels. And boy! do those pointed tips hurt.

When Lehman Brothers went under in September, there was no time for the alarm bells to ring or for the storm clouds to gather on the horizon. It was a thunderstorm, which broke unannounced and continues to drench all. And caught bang in the middle of it is the post-reform generation of India, who could not put one foot wrong as they hopped from one job to another, from one bloated pay cheque to another, from one globe-trotting assignment to the other. Worries that were characteristic of their parents' life, right from job security to bank deposits to uncertainty about the future, have surfaced and this time there is no escaping them.

As the world continues to reel under an economic crisis unparalleled in recent years, India is looking desperately for a silver lining. So while there might be fear of the recession, we are just suffering from a meltdown in the west. While businesses might have shut down in the west, over here there is a slowdown in momentum.

But the repercussions, of losing your job, of being forced to take a pay cut, of salaries being frozen, are as real here as in any other part of the world. "I live from one day to the next. I don't know if I will have a job when I walk into the office tomorrow," says Rohit Manchanda, a corporate banker at ICICI, over dinner. With an engineering degree and an MBA from the best institute in the country, he had the world at his feet till last year. He quit his last job, as his annual increment was not to his liking, but come March, and all he is hoping for is to hold on to his job. And does he have a back-up plan just in case his worst nightmare comes true? "What kind of a back-up plan can one have in an environment like this? There are no jobs in the market, if the axe falls I just hope to take it on the chin and deal with it reasonably."

Rohit's story can be heard from every corner and every sector in the country today, only the names are different. From BPO employees to engineers to bankers to lawyers, everyone is scrambling for cover as the dark times unfold.

"Everyone agrees that the economic situation is bad but to what extent? While one school of thought feels that it will only get worse before it gets better, and that can take two to three years, the other feels that the storm should blow over in the next six months since the fundamentals of world economy are very strong," says Arunav Bannerjee, executive director, Rubicon Learning Systems. But whatever the situation, the times are bad and it is the young who are bearing the brunt. "Earlier there was a lot of movement in terms of people opting for one high-paying job after another; suddenly everyone is staying put and sitting scared." From a young HR manager who went to her boss for a "frank chat" about whether she was in the firing line to an engineer who cut down on all his socialising and partying and started focusing on long-term investments, everyone is grappling for ways to deal with the crisis.

"My worth has fallen three times since last year and while I have my job security for the time being, the future remains uncertain," says 28-year-old Siddharth Arora, who works for an electronics company. As far as salary hike goes, one cannot even think of it. In fact, as Adnan Sura, a 29-year-old Mumbaikar who works for an investment bank and handles corporate finance activities, says, "A couple of years back a salary hike was a given thing, no matter where you worked. But with the downturn, companies have been forced to cut the increments." It is all about accommodating the company budget and the bottom line is if you don't fit in the scheme of things then it is the pink slip for you.

The pruning of the work staff might start with under-performers being fired across the board. "We started out by weeding out those who had been given too many second chances. Then we zeroed in on projects and departments with little potential or did not promise profits in the next two years. Even if you were a good worker in that department, you got the axe. It is just bad luck," says Ranjeeta Chatterjee, an HR employee in a BPO company. She saw the situation headed towards today's crisis months ago and encouraged those under her to look out for a job. "But everyone came back with the same story, no one was hiring. 'Sorry there is a freeze', is what they got to hear from every company."

And to get a measure of just how bad the situation is, take a look at what Santosh Krishnan, a 24-year-old former corporate lawyer, has to say. "From FDIs to joint ventures to private equity, our firm was involved in multi-billion-dollar transactions in 2007 and the first half of 2008. However, from the second half of the year, all the work dried up and when I left my company, we were actually looking at default cases, people looking at suing each other for not fulfilling payment terms. It is not just bad, it is very bad." Krishnan made an informed decision to shift from corporate law to litigation and took what he himself describes as a "massive cut" in his pay cheque. For other corporate lawyers, he jokes, the problem always was what to do with all the money they were making. "Not anymore."

And while this generation might be different from their parents-then it never had to save for years to buy a second-hand car, or labour towards building a house only in their retirement years-they are now taking lessons in being cautious about their spending habits from them. Savita Jha, a Supreme Court lawyer, has put her vacation to London on the back-burner. She was planning for it for a year and had parked the money in a fixed deposit account, while Debashree Chowdhary, a television producer, has decided that her home theatre system can wait. Evening activities like going out for a meal and drinks, musical evenings and impromptu weekend vacations are all but a feature of the past now. "I would earlier eat out almost every day during lunch hour, but now I get food from home," says 24-year-old Pooja Narang, who works as a sales planner for Thomas Cook. For Siddharth Arora, evenings and night-outs are completely out as he looks at retirement plans, even postponing his plans to buy a flat. Rajiv Mitra, head, corporate communication, Hyundai Motors India, says while enquiries about cars are still coming in, the conversion rate to actual transactions has come down drastically. "About 85 per cent of cars are brought on finance. But since there is no money, terms have become tougher and people very careful."

Among the first luxuries to take a hit are international vacations. Youngsters like Sura, who would try and fit in an international trip annually in their busy schedules, are now re-thinking. "My family had planned a two-week vacation in Greece but that is out of the question now," says Nandita Madhvani, a software engineer married to a corporate banker. Ashwini Kakkar, head of Mercury Travels, says that youngsters today have very clear patterns when it comes to vacations: "If their parents took one vacation annually, they believe in multiple vacations and weekend jaunts (because of the stress of modern living). It is not unusual for a young couple or even a single man or woman to just take off for one particular city in Europe or Asia to 'de-stress' or just explore another culture. But all that is expected to take a hit now. Most people are exploring options within India only." Some like Sunanda Khatri are going ahead with their trip to south-east Asia in March but that is "only because we have a family in every country we plan to visit, so living and eating expenses are not a problem."

It was not a surprise to see advertisements for New Year parties this time at rates far more affordable than the preceding years and while the reluctance of people to go out was attributed to the terror attacks, the current economic situation also had a big role to play. And the situation is not set to improve any time soon. Rajneesh Malik of Saffron Hospitality, who runs restaurants like Hookah and Side Wok in Delhi, says that the attendance of young people has come down and so has the average billing. "For instance, in Hookah, we had the BPO crowd come in almost every day but now it is every alternate day. With a group of four or more, the bill amount has dropped by almost Rs 1,000." And the young entrepreneur is doing all that he can to cut costs. "We are trying to cut down on expenses everywhere, right from lights where they are not required, to scrutinising every bill that the eateries run up, to checking daily expenses and comparing it with last year's. It is not easy, but one has to do it," he says. Ramola Bachchan, who owns the incredibly popular and expensive Manre in Delhi, does not think that the recession has hit youngsters and their partying ways. "Our weekend brunch is very popular and every night we have groups of young people coming in, intent on having a good time."

Agrees Rajeev Mehta, managing director, PUMA: "There has been a drop of almost 10-15 per cent when it comes to shopping by youngsters. But it increases during sale." And this prudence, he says, "is seen only when it comes to apparel because their spending on mobile phones remains constant. All this depends on what they consider essential." A notion which fits in well with Sanjay Srivastava's explanation of the young. A professor of sociology at the Institute of Economic Growth, Delhi University, Srivastava feels this is a generation which defines itself through consumption, and in the wake of the current crisis they are not cutting back on immediate consumption but rather things they would have planned earlier, like buying a house. "They are also very familiar with the notion of cyclical changes and short-term gains. The notion of risk is now a routine aspect of their life."

But whether they factor risk in their scheme of things or not, the fact remains that many young people today are stressed out over the current developments and are seeking remedies in whatever ways possible. Says Anshul Saxena, a sports marketing executive, who has taken to running for two hours every morning: "I tire myself so much that I have no time to think." While tarot card reader Poonam Sethi reveals that in the past four months the number of people coming to her for readings related to career and jobs has gone up by more than 100 per cent. "Earlier I would get about 12 people a day but now it is close to 27."

Another change observed is that more men than women are coming to her for these readings. "Job anxiety, salary worries, stock market, finances... these are the main concerns that I find myself addressing," says Poonam. She also has worried students coming to her. "Most of them are planning to go abroad for their higher education and they want to know whether it will be feasible or not. Should they take a loan? Will it help them to have a degree from a foreign university?"

And for those whom even crystal ball gazing does not bring any succour, there is always the psychiatrist. Dr Jitendra Nagpal of VIMHANS reveals that in the past four months he has seen a spurt in executives, engineers and even high-ranking MNC officials seeking counsel. "Job anxiety, coupled with a disturbed family environment, is making things very difficult for people," he says.

Students and teens are equally affected by the global meltdown, in spite of being passive players, as they find themselves dealing with less pocket money. "Since 1991, the parameters of success have been redefined for our society with inflated pay packets," says Nagpal. But while we train our children to top board exams, IITs and IIMs, we also need to train them in being industrial, train them to withstand economic hardships. This is not happening."

A sentiment that Radha Deo, a 52-year-old hotel executive, echoes. Her daughter, a software engineer, is planning to take her elder child out of an international school because of the steep fee. Says Deo: "For us it was always about giving the best to our children even though we could hardly afford it. Today, when I hear my daughter talking about removing Aditi [her grandchild] from a good school, it makes me wonder how this generation has been planning for their future." Even if they are planning for a future, it is always the immediate one rather than planning long-term like Nishank Patel, an investment banker with Lehman Brothers. His bonus for the year 2007 was more than a crore and in 2006 he pocketed Rs 80 lakh. When he got laid off last year, along with a severance package and his booty from the past few years, Patel found himself sitting pretty. "The situation will not improve for some time, so I decided to make the best of what I have," he says. Giving him company is Devesh Mangeshkar, who after being laid off from Merrill Lynch last year, is going to visit his brother in the US for two months.

For an ambitious generation which has charted its goals, milestones and successes before spying the road they walk on, the current situation no doubt comes as a body blow but, at the risk of repeating a cliché, we say that tough times never last, tough people do. It is now time for India's Gen X to step up and show that they can cut down and lead a frugal life with the same panache that they took to a high-flying lifestyle. ? (Some names have been changed.)

The crunch and the cuts
When the economy was on a roll, every sector was sunshine sector and every industry booming. Employers showered staff with perks and incentives, and the annual salary hikes matched the best in the world. But everything changed in four months. "I was planning to have a big bash this New Year, but settled for a quiet party with my wife and child. My year-end bonus has been scrapped by my company and I am expecting a salary cut," said Sandeep Naik, 33, a software professional at a multinational company in Gurgaon.

A salary cut would put him in a pickle, as he has to pay back the home loan for his flat in Gurgaon. "How much cost cutting can I do? I cannot cut down the quantity of food my family eats or remove my son from his school," he said.

If last year's average salary hike was 15-20 per cent, experts expect only 8-10 per cent this year. Lower and mid level employees will be hit hard. "Employees in real estate and financial services should prepare themselves for salary cuts up to 15 per cent," said Kris Lakshmikanth, CEO of the recruiting firm Headhunters India.

According to Sandeep Chaudhary of Hewitt Associates, the recession will affect salary hikes across different verticals at different levels. "Banking and aviation industries will be severely affected, while IT outsourcing and services will be moderately affected. Telecom and pharma are expected to look bright in 2009," he said. The hikes in the banking and financial sector will be in the range of 6-8 per cent. There would be some lay-off propositions in the aviation sector, which is expected to see a salary deduction in the range of 5-15 per cent. The pharmaceutical sector will show a 12 per cent hike on an average. "The bonuses will be significantly affected. The attrition rates have also seen a sharp decline in the last few months and have come down to single digits," said Chaudhary.

Nasscom, the apex body of software companies in the country, expects only minimal salary hikes across the IT industry. "Since the future market trends are very uncertain for the IT services companies in India, there would be wage moderation across the companies. It is expected that many of the companies will give only single-digit percentage rise," said Sangeeta Gupta, vice-president, Nasscom. While Tata Consultancy Services, India's largest IT company, is planning to bring down the annual salary hike to 10 per cent (from 15-20 per cent last year), MphasiS, another company, is looking at a 20-40 per cent salary cut across the board.

According to Dharmesh Mistry, vice-president, Ugam Solutions, Mumbai, the salaries are going to see more of a rationalisation in terms of percentage hikes. "Even the high retention and joining bonuses are going to be curtailed," he said. Also, since growth is going to be slower, there will be less demand for newcomers.

Many companies have increased the variable pay component of the salary and the use of long-term incentives over the past few years. Oracle, which has 20,000 employees in India, has begun linking salary with the productive hours. This has resulted in salary cuts ranging from 10 to 50 per cent. "This year is likely to see a sharper differentiation in performance among employees, impacting the payouts of variable compensation. Differentiation in pay on account of performance will take a greater emphasis," said Gangapriya Chakraverti, Mercer Consulting. Computer manufacturer Dell has asked its employees in India to work only 20 days in a month. They will be paid only for those days.

But it is a different scenario for some companies. Bangalore-based Eka Software Solutions is yet to be hit by the crisis. "We are continuing with our hiring momentum," said Vani Sathvik, vice-president. Phoenix Group Global, a hospitality player, also found no slowdown in its business. Said Priti Chand, director of communications: "We will continue to embark upon our policy of salary hike."