Wage inflation in India for engineering and IT talent has been going up consistently because the demand exceeded supply, particularly for experienced talent. But Everest Group is making a bold prediction that we we will see a lowering of the inflation rate in India, Europe and, to some degree, in the Philippines over the next few years.
Why? Because demand and supply have come into balance, thanks to the impressive work that the Indian government, Indian providers and GICs have done in building the recruitment and education mechanisms that feed the services industry. We can now clearly see those feeding mechanisms are more than adequate to satisfy demand.
We now have enough experienced resources in the country, so there is no longer a shortage. Supply is coming into balance with demand for both new and experienced talent, which inevitably will act to significantly moderate the past wage inflations.
The implications are fairly significant. First, with moderating wage inflation, we think both providers and enterprises can adjust their COLA requirements.
In addition, the moderating wage inflation also could aggravate enterprises to ask for a bigger piece of the rupee depreciation windfall to providers’ profits. To date, the full effects have not been passed along because the wage inflation somewhat modified the depreciation windfall. We believe that the lowering of the wage inflation rate — which is likely to stay moderate in the foreseeable future — may change people’s negotiating positions over the rupee.