Salary-hikes and Engagement

'Employees in India are expected to see a salary hike of 12.9 per cent this year, among the highest in the world, as industries are benefiting from the country's robust economic growth, according to Aon Hewitt.'

Sounds fantastic...Happy time for Indian Employees? Before you jump to conclusions, consider some more facts.
Compensation has long been used by the employers all-over the world to engage and retain people. Ofcourse there has been always a debate as well about the viability of such strategies. For a moment we shall leave all such debate aside. All said and done, money may not be the only or the best engagement tool but that it plays an important role in the same cannot be written-off as well.
But are these hikes really paying-off? Plotting salary-hike data, inflation and GDP growth rate data together over a 10 years period throws-out some interesting perspectives:

a) Above normal salary hikes in Indian Industry Inc. are explained by the high GDP growth rate (green line) that India has witnessed for the couple of years.

b) During the recession period when rate of salary-hikes have fallen sharply, inflation was still rising.

c) In the recovery-phase i.e. post 2009, the inflation line has closely followed the rate at which salary hikes have occurred.

So What?
a) Clearly the benefit of salary-hikes have not been realized in real-terms by the Indian employees because of the high rate of inflation.
b) Companies should keep this in mind while planning hikes and some inflationary adjustments may be required to keep the hikes more relevant.
c) Since there is a serious limitation to the extent that companies can go to adjust rate of hikes, they must seriously start looking at engagement as a holistic strategy rather than  a only compensation-driven strategy.