India’s labor market is going through major changes, with companies dealing with multiple global and domestic economic issues. In terms of the third edition of Deloitte India Talent Outlook, India’s average salary hike in 2025 is estimated to drop to 8.8%, which is the lowest for a decade with the exception of the period of 2020-2021 when there was global disruption because of the pandemic. This is significant down from the 9% rise in 2024. The report illuminates the manner in which companies are traversing the complicated landscape of subdued revenue growth and how this affects their compensation strategies.

The deceleration in salary hikes is due to a number of reasons, mainly the economic climate, which is squeezing companies to make the most out of their expenditures. Even though compensation budgets are under pressure, the report shows that 75% of the organizations surveyed intend to cut or keep their pay hikes at the same proportions as the last year. These firms are being prudent, acknowledging the necessity to respond to global and local economic headwinds.

The report also points out considerable differences in increments across job roles. Best performers will be anticipated to receive increments 1.7 times the increments that average performers are likely to get. However, the difference between increments of individual contributors and junior management and top management will be lesser, with individual contributor-level employees getting 1.3 times higher increments than their top management peers. This indicates that while companies are being conservative with salary increases, they continue to reward high-performing employees for their contributions.

In spite of the restraint in raising salaries, the report offers a more positive scenario for employment. Nearly 80% of organizations that were questioned indicated they would be raising their head count during the next financial year. This indicates that although firms are pulling their compensation purse strings tighter, they are still willing to grow their workforce perhaps out of the necessity to hire specialized talent or to satisfy the requirements of growth in particular industries.

Deloitte India partner Prakhar Tripathi said of the pressure on compensation budgets, “In a scenario where businesses are experiencing subdued revenue growth, compensation budgets are bound to come under pressure. Managed attrition and moderate inflation are assisting businesses in balancing pay hikes without impacting talent outcomes negatively.” This indicates that businesses are using tactics such as employee turnover management and managing inflationary pressures to offset their financial limitations while maintaining talent.

Promotions are also an area where businesses are being cautious. The report suggests that promotions will stay at a level of approximately 12%, but a third of organizations intend to make fewer promotions than they did last year. This is a sign of a more guarded strategy in terms of career progression within businesses as they respond to the economic climate and try to bring their pay strategies in line with the overall financial environment.

From the perspective of talent development, organizations are increasingly taking a formal and data-based approach to reskilling and upskilling employees. Most companies are using common skills frameworks to determine talent capability gaps. Yet the report points out that one in two organizations lacks a formal competency framework, or in some organizations, they do not use it frequently. This allows for scope for improvement in the way firms evaluate and close skill gaps, potentially hampering their attempts to have a competitive workforce.

Firms are also struggling to balance business demands with training and development requirements. The report highlights that organizations are having trouble with evaluating skill gaps well, tracking the impact of learning programs, and coping with accelerating technology shifts. To address some of these issues, some organizations are speeding up the implementation of artificial intelligence (AI) in learning and development activities. AI is being applied for activities like analysis of skill gaps, content filtering, and the development of AI-driven development journeys to enhance employees’ learning experience.

One of the more radical changes in the corporate world is the growing implementation of technology within human resources (HR). HR solutions supported by technology have dramatically improved data-driven decision making, with firms using analytics to manage compensation, workforce productivity, learning and development, and diversity. In spite of the obvious advantages, firms have raised concerns regarding the consolidation of numerous HR systems and the huge capital outlays required in buying and sustaining human resource management systems (HRMS). Moreover, adoption by employees of these new systems has been more sluggish than projected, which is constraining potential gains in productivity.

The report highlights that although organizations are adopting a more conservative strategy towards compensation hikes and promotions, they are still emphasizing improving their workforce capabilities through technology, AI adoption, and formal learning and development programs. Yet, the issues of HR system integration, identification of skill gaps, and training of employees are still major challenges that companies will have to overcome if they want to maximize their human capital management.

In summary, although the forecast for salary hikes in India is not as favorable for 2025, with a significant deceleration projected in average compensation growth, the intent to hire more people and invest in human capital development persists. As firms respond to the challenges of the global and domestic economy, they are discovering fresh means of juggling their compensation plans, talent management strategies, and learning efforts to stay ahead in a dynamic marketplace.