The Age of Salary Cuts

For years, the Indian Middle Class thrived on the fact that salaries seemed to be going up and up. This resulted in huge -- and growing -- share of disposable incomes that could be used for higher consumption. Slowly, many segments of the Indian society were gliding on the path to become "Western-style Consumers". Although the number of households that benefitted from past salary increases were limited -- to cities, sectors and organizational hierarchies -- they became the sympols of a large section of "aspirers". The New-age consumers become the new status symbols. They also created a hype about India's future spending and buying powers.

Unfortunately, the global crisis has hit the consumerist Middle Class homes at the wrong time. Suddenly, this segment is worried about salary cuts, no bonuses and increments, even job losses. All this is in addition to the fact that their investments -- in stocks, mutual funds and property -- have tanked. It's a double-whammy that will make it hard for anyone to recover from. The impact is being witnessed in the slagging demand in key sectors like automobiles, consumer goods, consumer electronics and FMCG.

No longer is the Neo Consumer excited about changing his/her car in six months, or upgrading to a bigger house within a few years. He/she is not vying to buy that latest gadget or gizmo. He/she is more worried about savings and reducing expenditure. More importantly, employers have realized the hard way that salaries were way over-the-top and need to be curbed. So, salary cuts has become the new buzzword in corporate circles.

I feel that the situation is likely to remain tense for the next few years. Even India escapes unhurt from the global crisis, the management mindset about compensation will continue to impact future salaries and increments over the next few years. In most cases, they will be linked more and more to performance and merit. This implies that even in situations where salaries are hiked, they will be restricted to fewer employees within most organizations.

All this will stymie India's consumerism growth. The so-called "aspirers" or fence-sitters will take a break for some time. Even the yuppie consumers will question everything that they buy. I just want to know what one of my friends would do now -- she has once gone to buy a band-aid and came back with 10 other things.