With 30 per cent of companies still intending to increase assignment volumes this year, India is one country likely to be in their sights. Ruth Holmes finds out how this booming BRIC economy is bucking the trends.

India has had a ‘good’ global downturn. Insulated from falling demand in countries like the US and UK by its rapidly-growing domestic consumer demand and relatively little reliance on its export markets, India has maintained its solid growth rates in the past 18 months. While there is no denying that the growth rate has been dented somewhat (halving from around 12 per cent to seven per cent per annum), recent indicators suggest that growth is set to accelerate again.

Returns-hungry foreign investors, like London-based 3i capital and British institution Marks & Spencer, have recently announced significant investments on the sub-continent, adding to the $500 billion being pumped into massive Indian government infrastructure projects by 2012, which are pushing the demand for skills still higher.

The number of expat workers in India has increased greatly in the past 10 years. Major and ongoing investments are changing the face of India, with inspiring urban architecture making a clear statement about India’s new world standing. Yet modern high-rises and glass, granite and steel constructions sit uncomfortably alongside slums, like Mumbai's Chhatrapati Shivaji International Airport and its five-star hotels. And people not yet lifted above the abject poverty line subsist alongside a new class of super-rich. Such contrasts are indicative of many quality-of-life and wider environmental issues, and reflect why India is still regarded by most companies as a hardship destination – although this status is changing.

Hardship payments – but for how long?

Most expat packages still contain a large element of hardship allowances. Recent data from Mercer suggests that this constitutes, on average, around 40 per cent of an expat’s pay deal at senior management and professional levels. In around 90 per cent of cases, this includes an allowance for travel (mostly the provision of a car/car and driver allowance); not surprising, given the well-documented difficulties of navigating an overcrowded public transport system and extremely congested roads, which mean that it can take up to three hours to commute across town.

Accommodation, too, is still of variable quality, with the country scoring the lowest on this measure in a recent HSBC survey of 2,000 mobile workers. Yet new enclaves for foreign workers are springing up, especially in the technology-sector-heavy cities, like Bangalore and Pune, close to out-of-town science and IT parks. Accommodation costs are still relatively low compared to the UK, but they are expensive by Indian standards and have risen by 300 per cent in recent years.

India's status as a hardship destination is reinforced by what can be difficult environmental conditions. Extremes of heat and cold are features of India's climate, as well as its monsoon season, when flooding and air pollution become commonplace.

For many, these 'hardships' are of course balanced by the career development opportunities, the chance to be part of a fast-moving emerging economy and good financial rewards. Assignments in India are compensated, on average, with one of the highest average salaries among key expat destinations. These higher salaries, coupled with a relatively low cost of living, mean that expatriates in India experience one of the highest propensities to save. While a mobile worker may like to consider their options as to their investment plans, for most an Indian bank account is a necessity, because at least 25 per cent of their salary is required to be paid in rupees into an Indian bank account.

Despite the downturn, salary increases have continued to track at around 15 per cent growth year on year, according to Mercer, although this increase is being pegged back by inflation peaking at around 12 per cent and that is running annually at around 7 per cent, as well as companies looking to limit costs and a wider pool of talent.

With companies looking to cut costs and the wider underlying trend for local-plus packages in EMEA and for an increasingly expat-friendly India, hardship allowances – at least at the levels seen recently – may well have their days numbered. “Several companies have put their expat compensation under the scanner,” Manpower India director (operations) Cherian Kuruvillla commented recently. “Expats figure among the highest-paid employees, and hence companies are keen to cut their salaries to keep their employee costs under control. As part of this, hardship allowances are undergoing a sea change, since India is now seen as a land of opportunities.”

One area employers have cut back on is R&R leave. In 2001, two trips a year was common practice, according to ORC Worldwide, with a 60/40 split in favour of companies providing this. More recently, one trip a year has become the norm among the 30 per cent or so of employers who include this in a package.

Nevertheless, India remains one of the harder destinations for families to settle in. Poor air quality might be a factor in the recent HSBC survey, which shows that children of expat families in India spend significantly less time outside than in their home country – which might account for the significantly increased time spend studying (especially for children aged over ten).

Taxing issues

Big changes are also afoot in taxation and visas. For taxation, the key changes are a widening of the tax bands and an overall package of measures designed to simplify the system and bring the tax regime into line with a more globally accepted [MISSING WORD?]. While the taxation changes are currently on the timetable for the Indian parliament’s winter session, many foreign workers on assignment in India, and their employers, have been experiencing the visa changes first hand.

In September, thousands of foreign workers found themselves in receipt of a letter that required them to leave the country by 31 October, or by the end of the contract, whichever arrived soonest. The action was part of a radical change to immigration rules. This is likely to make obtaining a business visa difficult, especially for semi-skilled foreign workers and workers in the oil and gas, telecommunications and power generation industries.

Explaining the changes, Asma Bashir, expert at immigration specialists Newland Chase, says, “Generally speaking, in order to qualify for employment visas, individuals should be skilled in their profession or employed by an Indian company on a contractual or full-time basis at a senior level. The MHA [Ministry of Home Affairs] is reluctant to issue employment visas for jobs which can be filled by skilled Indian labour.”

Given the extent of the changes, some industry experts, like Kuldeep Kumar, an executive director of PricewaterhouseCoopers, have pointed out that “companies will have to review and restructure their assignment programs in order to comply with visa requirements.” Law firm Magrath LLP is also advising employers with assignees already in India to “carry out an immediate review of each individual’s visa status to ensure they are not in breach of the new legislation.”

Two-way traffic

Underlining the strong investment flows between the UK and India (with TATA now owning Corus Steel, Tetley and Jaguar Land Rover, and Marks & Spencer and other UK companies making large investments in India), visas are also a hot topic for the 29,400 workers from India currently in the UK on work permits. The rules will be tightened in 2010 with the introduction of a 12-month qualifying period with the sponsoring company.

Many of these skilled Indian workers are employed in the UK on intra-company transfers for training and development purposes. Current reward practice for workers on these assignments generally is for home pay adjusted for cost of living, plus accommodation costs. Keeping the pay at home levels and setting clear time limits to the assignment (often short-term project-based assignments lasting six months to a year so) makes repatriation easier, because home salary is likely to be comparable to colleagues’. While pay is not, perhaps, too enticing, it is counterbalanced by career benefits.

However, while an assignment in the UK is a crucial career-development tool for middle managers, more senior personnel are yet to see it as such a favourable move. They are proving more difficult to attract, because of salary issues and reluctance to get off the career ladder in India, especially when quality of life and salary are unlikely to be matched. In India, it is common for people who earn over the equivalent of around £6,000 to employ domestic staff – something that the cost-of-living allowance is unlikely to cover. This might be a contributing factor to an accompanying spouse or family finding it difficult to adjust to life in the UK, just as many mobile workers’ trailing spouses in India report difficulty in adjusting to having help in the home.

Racing out of global recession

Asia’s third-largest economy is steaming ahead in terms of growth. The global downturn, while having some impact on salaries, hasn’t limited the opportunities for mobile workers. Yet it remains to be seen what impact the planned tax and visa changes will have on pay, especially if companies will need to reassess their assignment projects in the light of more stringent rules. For the time being at least, India remains the land of opportunity.

© 2009. This article first appeared in the winter 2009/10 edition of Re:locate magazine, published by Profile Locations, Spray Hill, Hastings Road, Lamberhurst, Kent TN3 8JB. All rights reserved. This publication (or any part thereof) may not be reproduced in any form without the prior written permission of Profile Locations. Profile Locations accepts no liability for the accuracy of the contents or any opinions expressed herein.

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