Salary Increment Likely to be Moderate Next Year, Says TeamLease Staffing CEO Kartik Narayan

The banking and finance sector experienced an uptrend until November 2023, but a slowdown followed due to the Reserve Bank of India's (RBI) stricter regulations on unsecured loans. These measures significantly impacted employment, particularly in sales roles. The sector also faced challenges from rising gold prices, which led to an increase in top-up loans, adding risk for banks. Additionally, the RBI’s stringent policies made loan disbursement harder for non-banking financial companies (NBFCs), causing a decline in hiring within this space.

In retail, employment has grown significantly, driven by changing consumer behavior and the emergence of new formats like quick commerce (Q-commerce). However, in Q-commerce, formal employment is limited to roles in dark stores, while driver partners are classified as part of the gig workforce.

From a trend perspective, we are seeing greater formalisation of jobs, the adoption of more flexible workforce models, and the rise of quick commerce as a key driver of employment.

Manufacturing jobs have also seen notable growth over the past year, particularly in electric vehicles (EVs), EV infrastructure, and mobile manufacturing. Government initiatives such as the Production-Linked Incentive (PLI) scheme have been instrumental in boosting the sector and creating new job opportunities

Yes, flexible workforce models have been growing, especially in industries like Q-commerce, where delivery drivers are employed as gig workers rather than full-time employees. This type of workforce doesn’t have the same statutory benefits as permanent employees, but it is a growing segment. In the IT sector, the rise of Global Capability Centers (GCCs) in India has created more job opportunities. Companies are increasingly setting up GCCs in smaller cities outside traditional tech hubs, driving job creation in regions like Madhya Pradesh, which is also encouraging this shift.

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Karnataka remains the largest hub for GCCs, with cities like Hubli and Mysore being promoted as potential locations for setting up such centers. Other states are also getting involved, with Madhya Pradesh actively trying to create infrastructure for GCCs. The number of GCCs in India is expected to grow significantly, from 1,700 to around 2,400. This shift is creating job opportunities in smaller cities, diversifying employment outside traditional tech hubs like Bengaluru and Hyderabad.

There was a lot of enthusiasm during the COVID era and the post-COVID period, with increased digitization and digital transformation. This resulted in a massive hiring boom, particularly in the IT sector. Most startups are tech-based, except for some in areas like D2C and beauty brands, which are entirely different spaces. However, in the last 24 months, the focus has shifted towards profitability.

Previously, it was all about spending, with profitability to follow, but now that enthusiasm has been curbed. The only exceptions to this are sectors like quick commerce. Even in this space, companies like Zomato and Swiggy have been listed, and other companies are aiming for public listing. On the D2C side, many brands are facing a slowdown, especially due to inflation in the last six months. Sales roles are still in demand, but it is no longer at the same scale as before.

The focus from investors, particularly Western ones, is now on growth with profitability in mind. So while there are still businesses attracting investment, they are fewer in number. EVs, drones, and semiconductors are a few spaces with some traction, with companies like Tata partnering to set up large-scale operations. These are high-capex startups, unlike traditional ones.

From a macroeconomic perspective, when profits grow but revenues do not, it is understandable that companies focus on cutting costs. If we look at the Q2 GDP data then we will notice that the signal that is coming in from the government and everywhere else is that there is no structural problem but government spending has come down. This is not unusual in an election year because there are stringent rules on what the government can do and what cannot.

I think the worrying aspect for me is that private investment is not taking place. This is a vicious cycle: stagnating income levels, driven by persistent inflation, reduce consumer spending, prompting businesses to scale back production and further stifling economic momentum. That’s why we’ve seen measures like the RBI cutting the cash reserve ratio, and trying to inject liquidity into the market. But these measures take time to filter through. We’ll need to see how things evolve in Q3 and Q4, but for now, the slowdown seems to be a result of high inflation affecting consumer spending.

India is a high-inflation economy. If inflation is at 6-7 per cent, then in real terms, wages decrease if they remain static. Corporations will likely pay the minimum wages at least to match inflation, and many will adjust according to the DA (Dearness Allowance) index. However, beyond that, wage hikes are likely to be moderate, especially if the market remains subdued and opportunities are limited. I expect moderate hikes in the next year.

There’s no single solution to this issue. One of the main problems is a lack of skilled workers. For instance, an EV manufacturing company might require someone with specific skills, like soldering, from day one. But the reality is that we’re not training people adequately. On the other hand, India has a large youthful population, but they may not have the required skills. The government’s ELI scheme is aimed at pushing formal employment and getting people into the formal economy. By offering financial incentives for hiring, the government is encouraging employers to formalize their workforce. This also provides employees access to social security benefits like healthcare, which would not be available in informal work arrangements.

MSMEs depend on larger enterprises for contracts, and their survival is tied to these larger companies. The government is trying to make MSMEs' lives easier but they still face significant challenges, especially in terms of payment cycles and access to capital. I believe the larger issue is for big companies to make capital investments, which is currently uncertain. MSMEs are vital, but I think the bigger challenge for employment and employability lies in large companies making substantial investments to drive growth. The government’s focus on MSMEs is important, but we need to see larger investments to create long-term, sustainable job opportunities.

The shift towards AI and advanced technologies is inevitable. These technologies offer significant efficiency improvements and cost savings. However, this trend can widen the skill gap if workers are not trained to adapt. The key challenge for India will be to bridge this gap by investing in skill development and creating pathways for workers to transition into new roles that AI and automation cannot easily replace. This will require a coordinated effort between the government, educational institutions, and businesses to ensure that the workforce is prepared for the future.

When it comes to AI, specifically generative AI and large language models, the technology is still developing. We are seeing new applications, but it's still a work in progress. One immediate impact has been in software development. For instance, if you write 100 lines of code and input it into a tool like ChatGPT, it can detect and correct errors. Tasks like software testing, which previously required dedicated testers, could be automated. I believe generative AI will continue to change certain sectors, but it’s too early to tell how widespread the impact will be.

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Now, looking at India, there is a challenge regarding the pace of technology adoption. Even if the same task is given to two individuals with equal literacy levels, the quality of responses they receive from an AI engine, like ChatGPT, will depend on how well they prompt the AI. This highlights a new kind of literacy: the ability to phrase questions effectively. Therefore, there will be a distinction in productivity depending on one's proficiency in this skill.

The concern is valid. In a country where basic education levels are still a challenge, if technologies like ChatGPT are introduced widely, we may face difficulties in upskilling the population fast enough to adapt to these changes. This could lead to a situation where a large portion of the workforce is left behind. If we rush into automation or AI, we need to ensure that people are educated and skilled to handle these changes. Otherwise, we risk losing out on opportunities created by these advancements.

It’s difficult to predict trends for five years given the rapid pace of change. But in our survey for the H2 of around 1,300 enterprises, 59 per cent said they would increase their workforce, 22 per cent would maintain it, and 19 per cent would reduce it. Net employment was expected to increase by 7 per cent. Specific sectors expected to grow including quick commerce and e-commerce, where around 70 per cent of companies are hiring. Retail is also seeing growth, and automotive, particularly EV companies, is another area of focus.

On a broader scale, logistics, EV infrastructure, and agriculture-related sectors like agrochemicals are also expected to see employment growth. These are areas where we are seeing a net increase of around 14 per cent. Though the absolute numbers are smaller, the growth rates are significant. We’ll need to track these trends over the next few months to understand how they evolve.

The demographic dividend is real, but it's a bit misunderstood. For example, the southern states of India are aging, with a Total Fertility Rate (TFR) of 1.8, below the replacement rate of 2.1. This means the population is not growing as fast as in the states like Uttar Pradesh, Bihar, Jharkhand, Odisha and northeast where the TFR is higher. However, the challenge is that education levels are not as high in most of these areas. So, while the young population is present in these states, they may not have the skills needed for the types of jobs we are seeing in the growing sectors.

To truly capitalise on the demographic dividend, the government needs to focus on improving education at the basic level and increasing the number of vocational and apprenticeship programs. The demographic advantage is there, but it is about how quickly we can upskill people and integrate them into the workforce.