Till 2007, wages of government employees in the upper echelons of the government were on par with the mid level (4 yrs experience) software developers. The increased asset prices due to the boom were hurting the government employees and then came the 6th pay commission which almost doubled the wages of the government employees, many state governments followed. This increase has attracted many aspirants to gun for public sector jobs. But, the novice aspirants have overlooked how the relation between public sector vs private sector salaries behave.
Typically, private sector needs to attract better talent than the government to be competitive and succeed. To attract better talent they have to offer salaries better than public sector to attract the best talent. So, private sector salaries start increasing to beat the benchmarks set by govt salaries. Increase in government salaries also brings in inflation across the board. Related currency depreciation and increased revenue recognition help private sector to pay more and over time, the salaries of pvt sector over take the govt salaries. Obviously, the affect is not visible because of the poor economy, but the increases are visible and hikes in private sector have been consistent around 10% in spite of the poor economy. The seven pay commission in 2016 will kick start a similar vicious cycle. An increase in minimum wage in Western Countries is the benchmark for annual raises. Thankfully, they get adjusted every year, but by doing a 10 year exercise of pay commission (though there is a DA which is a regular increase), India suddenly spikes the market leading to many shocks.
In conclusion, this cycle will keep the inflation high for very long time and result in sudden currency depreciation and adjustments. Indians need to be planning with inflation as the main target for the next 6 years rather than growth. We are in for a long and painful recovery. Also, it is an exciting time where many fortunes will be made and many broken.
Typically, private sector needs to attract better talent than the government to be competitive and succeed. To attract better talent they have to offer salaries better than public sector to attract the best talent. So, private sector salaries start increasing to beat the benchmarks set by govt salaries. Increase in government salaries also brings in inflation across the board. Related currency depreciation and increased revenue recognition help private sector to pay more and over time, the salaries of pvt sector over take the govt salaries. Obviously, the affect is not visible because of the poor economy, but the increases are visible and hikes in private sector have been consistent around 10% in spite of the poor economy. The seven pay commission in 2016 will kick start a similar vicious cycle. An increase in minimum wage in Western Countries is the benchmark for annual raises. Thankfully, they get adjusted every year, but by doing a 10 year exercise of pay commission (though there is a DA which is a regular increase), India suddenly spikes the market leading to many shocks.
In conclusion, this cycle will keep the inflation high for very long time and result in sudden currency depreciation and adjustments. Indians need to be planning with inflation as the main target for the next 6 years rather than growth. We are in for a long and painful recovery. Also, it is an exciting time where many fortunes will be made and many broken.
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