IT sector may see cautious salary hikes in FY25 amidst economic headwinds and AI adoption

Industry experts predict an average wage increase of 4-8.5 per cent, a notable step down from previous years, signalling a shift towards more pragmatic compensation strategies.

"The outlook for salary hikes this year is quite cautious," noted Krishna Vij, VP, TeamLease Digital. "Industry players are looking at increments in the 4 per cent to 8.5 per cent range, which is lower than what we've seen in previous years. This slowdown is largely due to global economic challenges, reduced discretionary spending and shifting business priorities." Companies are being more conservative with their salary budgets, and many have even pushed their appraisal cycles beyond the usual April-June period, she said, which has made salary revisions less predictable in the current scenario.

"Organisations are shifting to skill-based pay, leveraging Tier II hiring for cost efficiency. Instead of salary hikes, retention bonuses, ESOPs and project-based incentives are being implemented as compensation strategies," Vij said.Reed & Willow CEO Janoo Motiani also gave a similar expected hike range, pegging it between 5-8.5 per cent. "The days of double-digit hikes seem behind us--at least for now. The industry is settling into a more pragmatic rhythm, with average hikes expected to hover between 5 per cent and 8.5 per cent. This aligns with the cautious optimism seen across the sector. TCS has taken the lead, announcing hikes ranging from 4-8 per cent effective April 2025, setting the tone for the rest of the industry.  However, Infosys, HCLTech, Wipro and Tech Mahindra are holding off on final announcements, likely waiting to gauge market movements in Q2 before locking in their plans," she shared. While this might seem like a conservative approach, she said, it reflects the market reality--tempered growth, the rise of AI-led efficiencies and shifting client demands are influencing how companies allocate compensation budgets.

Cooling attrition rates have reduced the urgency for aggressive counteroffers and retention bonuses, providing companies with more financial flexibility. Industry-wide attrition averaged 17.7 per cent in 2024, down from 18.3 per cent the previous year, Motiani observed...Non-monetary benefits like flexible work, healthcare and wellness programs are also becoming crucial retention tools, especially for companies unable to offer top-tier salary hikes.

According to the India Brand Equity Foundation, the IT industry accounted for 7 per cent of India's GDP, as of FY24.