Indian state-controlled coal company Coal India Limited has been caught in the middle of India’s wage inflation debacle. Coal India’s unions have demanded a 100% salary hike. Annual wages already cost the company approximately $4.3 billion a year, or 42% of their overall expenses, according to The Economic Times. A 100% increase in wages would crush the company’s earnings.
JP Morgan analysts believe this would eventually lead to a 15% – 20% rise in wages.
Coal India is just an extreme example of a rising problem in the emerging nation. Wage pressures have been building in India for many reasons. There is a lack of skilled workers, the rural-urban migration of laborers has declined. Meanwhile as inflation remains stubbornly high, shaving off people’s disposable income, pressure has mounted on companies to raise salaries.
In the three months to June, wage costs of the Bombay Stock Exchange (BSE) 500 firms grew 19% compared with a 4.6% rise in profits. While in the quarter ending March salaries had gained 22.42%, compared with a 13.5% increase in profits, according to LiveMint.
Inflation adjusted figures show that wages for the urban population were up 20.8% for casual workers and 8.1% for salaried employees. Meanwhile in rural India, inflation adjusted wages were up 13.7% a year for casual workers and 8.8% a year for salaried workers, according to The Financial Times.
With India’s central bank raising interest rates 11 times since March 2010, and wage inflation picking up companies operating in the subcontinent can expect to have a hard time in the near-term.