Salaries and labor costs in India

Many sources quote a single “average salary in India”. While technically accurate, these figures combine:

• informal and formal employment;

• rural and urban wages;

• junior and senior roles.

For international companies hiring professional talent, these averages are rarely relevant. In practice, salaries in India vary widely by role, experience, and location, similar to Western labor markets.

Salary differences by experience and location

Experience level

• Entry-level professionals are still highly cost-effective;

• Mid-level talent commands steadily rising salaries;

• Senior and specialised roles require competitive compensation.

Location

When discussing salaries and labor costs in India, cities are commonly grouped into tiers. This is not a legal classification, but a widely used market convention based on factors such as cost of living, talent density, infrastructure, and concentration of multinational employers.

For international companies, understanding this tier system is essential because it directly affects salary expectations, hiring speed, attrition rates, and long-term scalability.

• Tier 1 cities (such as Bangalore, Mumbai, and Delhi NCR) are India’s most established commercial hubs. They offer the deepest and most specialised talent pools, but also the highest salaries, strongest competition for talent, and higher employee turnover. These cities are often preferred for highly specialised, leadership, or innovation-focused roles.

• Tier 2 cities (including Pune, Hyderabad, Coimbatore, Jaipur, and similar locations) have rapidly matured over the past decade. They combine strong educational pipelines, growing professional talent, and lower cost of living, resulting in salaries typically 15–30% lower than tier 1 cities. For many European employers, tier 2 cities provide the best balance between cost efficiency, talent quality, and retention.

• Tier 3 cities generally offer the lowest salary levels, but talent availability is more limited. These locations are better suited for high-volume, process-driven roles rather than specialised or international-facing positions.

Choosing the right city tier is therefore a strategic decision, not just a cost consideration. Many companies successfully adopt a mixed approach: placing senior or specialist roles in tier 1 cities while scaling larger teams in tier 2 locations.

Salary trends in India (2025-2026)

Salaries in India have increased consistently over the past two years, particularly in skilled and semi-skilled roles. Growth has been driven by:

• global demand for Indian talent;

• expansion of multinational employers;

• rising living costs in major cities;

• shortages in technical and professional skills.

While India remains cost-competitive compared to Western countries, salary expectations are rising, especially for experienced professionals.

Would you like to gain more insight into the possible wage costs for your Indian entity? Then contact our experts, they can share realistic salary proposals based on your sector, your location and specific wishes.

Total employment cost in India: more than base salary

When hiring in India, international companies must account for more than just gross salary. Total labor costs typically include:

• statutory social security contributions;

• gratuity obligations;

• paid leave and public holidays;

• mandatory bonuses (where applicable);

• payroll administration and HR compliance.

In most cases, total employment cost is 20–30% higher than base salary, depending on compensation structure and salary level.

Labor laws and compliance in India

India has introduced consolidated labor codes designed to modernize employment regulation. While implementation varies by state, these reforms place greater emphasis on:

• wage definitions;

• employee benefits;

• statutory compliance and reporting.

For foreign employers, this makes local HR expertise essential when hiring and managing teams in India.

Is India still a cost-effective hiring destination?

Yes — but the value proposition has evolved. India’s advantage is no longer just low labor costs. It offers:

• access to a large, educated workforce;

• strong English language skills;

• experience working with foreign businesses;

• competitive employment costs compared to Western countries.

With the right hiring strategy, foreign companies can scale efficiently in India without sacrificing quality or compliance.

Key takeaways for international employers hiring in India

• Avoid relying on national average salary figures

• Benchmark salaries by role, experience, and city

• Budget for full employment costs, not just wages

• Expect ongoing salary growth in skilled roles

• Work with partners who understand the Indian labor market

Prevent turnover with a competitive salary offer

Many companies in India struggle with high staff turnover. In order to attract and retain talented employees, it is essential that your salary is equal to or higher than the average salary for that position in India.

You must comply with the rules of the Indian employment arena. Legal assistance in drawing up employment contracts and employment conditions is therefore not a luxury.

It is smart to seek practical advice on best practices and methods, so that the policy is not only legally compliant, but also HR-friendly.

IndiaConnected is happy to support you in this process with, among other things, the recruitment and selection process and contract negotiations. Get in touch with us here.